Nov 23. Liquidity issues…

–The IMF announced a new liquidity program which very briefly rallied the stock market, but the close was on the lows. (Reuters) “The IMF said the new liquidity line would be available for six months to countries with relatively good policies that are facing short-term balance of payments needs due to events not of their own making.” I.e. the desperate need not apply.
–I have a friend who, in the dark days of 2008/09 said, ‘the Fed will ease and it will boost the market.  It always does.’ And of course, he was right (I was wrong).  And in thinking about the current state of affairs, it’s all about liquidity: both the Fed and the BOE considered additional easing.  The IMF announced the measure noted above.  The CME announced it was upping its contribution to the MF Global fund to $550m (“Poof – gone”).  All leaning toward liquidity injections.  But lining up on the other side (and threatening to overwhelm half-measures) are items like the revision downward in Q3 GDP from 2.5 to 2.0, China PMI which fell from 51 to 48, and Fed plans for new rigorous stress tests to be conducted on the largest US financial institutions.  The latter is likely to mean that more capital will be required.  And for stocks like BAC and JEF, the market is providing the stress test right NOW.  We’re near the point where additional liquidity finds its way to the mattress, not the broader economy.  Like the scene in the Godfather where Clemenza says ‘we’re going to the mattresses’…strap in for a long fight.  The question is, could the ECB go all in, in conjunction with the Fed, and backstop all impaired debt?  And I think it’s unlikely.  New measures to help alleviate the problem will continue to dribble out… So treasuries continue to find a safe haven bid (tens down a couple of bps to 1.94 yesterday), and near euro$ contracts reflect demand for shorter term dollar funding (though they bounced yesterday).
–News today includes Pesonal Income and Spending both expected +0.3. Durables expected -1.0. Jobless Claims 390k. 7 year auction.

Posted on November 23, 2011 at 7:07 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply