Apr 17, 2023

Understanding Global Monetary Liquidity Tightening

Understand global monetary liquidity tightening, which ended in mid 2022. This chart doesn't even include China which has been in expansion mode. Learn about the net effect of more liquidity and how it will accelerate again during the next recession.

ECONOMICS FINANCE MONEY

Sven Henrich

Founder: NorthmanTrader. Financial Market Strategist. Macro & Technical Analysis. Keeping it real. Subscribe: https://t.co/rmRFFvMRaH…

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Germany's $DAX & UK's $FTSE at near all time highs as well. https://t.co/g474ZH2x6q pic.twitter.com/5fr8eOMdHc
— Sven Henrich (@NorthmanTrader) April 17, 2023
If you're wondering why: Global monetary liquidity tightening actually ended in mid 2022. This chart doesn't even include China which has been in expansion mode. The net effect has been more liquidity & it will accelerate again during the next recession. pic.twitter.com/m4J5n6V2hU
— Sven Henrich (@NorthmanTrader) April 17, 2023
And if you view it all through the lend of liquidity it all makes perfect sense. In the US alone reverse balance are back to April/May levels of 2022 and guess what? So is the S&P 500.. Point is: Global liquidity flows have been favorable for equities. pic.twitter.com/47SLxxDSYU
— Sven Henrich (@NorthmanTrader) April 17, 2023
In this context the great monetary tightening narrative has been a fantasy narrative sold to the public.
In terms of liquidity it ended in mid 2022.
It was transitory. As are rate hikes. The next chapter will be rate cuts again.
— Sven Henrich (@NorthmanTrader) April 17, 2023
As the US has just so openly demonstrated with the recent banking stress & banking reserve build up: As soon as there is real trouble they go full bazooka again.
The Fed put never died.
So when a recession hits they'll go right back to what they always do: Cut & print like mad.
— Sven Henrich (@NorthmanTrader) April 17, 2023
Why? Because they have zero choice. The entire financial debt construct has gotten so perversely larger they are slaves to it or it busts..
Yellen put out a plan for $51 trillion in debt in 10 years. She's talking about net interest servicing the debt being what matters only.
— Sven Henrich (@NorthmanTrader) April 17, 2023
Well, how are you going to service $51 trillion in debt in 10 years? There is only one way. Rates have to come back down massively. She knows it. Higher for longer is BS. They'll cut hard into 2024 because they have to & a recession will be the excuse to do it.
— Sven Henrich (@NorthmanTrader) April 17, 2023
So ironically: They will want a recession. They actually need it. For that's the only way to get inflation back down to 2% & it's the only way to justify rate cuts to levels that will allow to service the debt.
In this sense all the interests are aligned. The rest is a PR show.
— Sven Henrich (@NorthmanTrader) April 17, 2023
The message: if you get a recession related correction of size in equity markets still it'll end up being a massive buy.
But as of now markets have not yet priced in a recession as liquidity has kept things afloat and bid.
Calm is the illusion.
— Sven Henrich (@NorthmanTrader) April 17, 2023