7 replies to this topic

[arbman]

As the liquidity gets less and less...

The speculation gets more and more (OCC equity call and put costs)...

5/04/07 $7,312,452,361 $5,842,241,981
5/11/07 $9,750,232,135 $4,421,367,211
5/19/07 $9,509,191,059 $5,163,665,315
5/25/07 $7,015,120,833$5,043,140,262

I provided historical charts about the above data and this is only a billion away from the highs again, I am pretty confident that by the time the top comes, it will be hit, either this week or the following few weeks...

- kisa

[arbman]

I elaborated a bit more on the chart...

March 2005 and April 2005 lows were slightly off there, but the overall timing about the liquidity out there is fairly well reflected on this chart. The commercial credit was the largest component of the M3 index.

The FCBs will not increase the money supply as the retail investors pour money into the markets and they are now draining for the intermediate term basis by not adding aggressively since the economy is still growing...



There is a bounce around late July into Aug and then the next potentially good low is coming up around Oct!

- kisa


PS: as I said before, I am not a believer of this pull back for a downside initiation since it came with the dealers borrowing aggressively, these guys usually borrow ahead of the short squeezes.

A chart about the Fed's secondary market operations with the primary dealers by SOMA loans...

Edited by kisacik, 30 May 2007 - 10:34 AM.

[Cirrus]

Thanks for sharing....great stuff kisacik.

[esther231]

Ditto. Much thanks.

[tommyt]

kisacik, does RUA stand for repo's? I haven't followed all your monetary posts...it looks like liquidity is about to drop off, correct? Thanks!

[arbman]

You are welcome everyone...

Tommyt, RUA = Russell 3000

I am looking at the growth rate of the commercial bank credit. It has been going through some wild 2-6% swings since the middle of 90s and among a number of banking parameters, this seems to be one of the directly correlating and leading indicator about the liquidity out there.

There is a response lag in between the creation of the money and complete diffusion into the economy. In the proper context of the intermediate term yields (3-5 yrs), the lower the rates, the more the compounding effect should be. The purpose of this exercise is to find any correlation in between the credit growth rate, bond yields and its compounding effect in the stock market.

OTOH, the market can continue to rally during a disinflation if the savings and/or foreign investing keeps pouring into the markets though temporarily...

- kisa

[peregrine]

kisa Please add my appreciation of your work. I spot check the monetary base and M2, but your work seems to articulate the connections in a much more complete way. Could you kindly define BKCR_SA and BKCR_SU and/or provide any publicly available source ? Thanks in advance. P

[arbman]

All of the theory started in this topic, BKCR is the bank credit release (H.8), SU = seasonally unadjusted vs SA = adjusted. I tried a lot of different methods to find the lead/lag time, there are a bunch of ARIMA methods, but I am not using them all, just a MA scan of some sort. I put together a final Excel spreadsheet just to track them later here. I am not a good Excel user, I did the research by using another software...

- kisa

Edited by kisacik, 31 May 2007 - 12:52 PM.