Macro Monday: Global Liquidity - 01/29/24

Chart of the Day: (01/29/24)

Global Liquidity and Asset Prices

• Over the last few years, shifts in global liquidity — the pool of cash and credit shifting around financial markets — have been a solid guide to future investment performance. Our source for global liquidity information is Michael Howell at Crossborder Capital, author of Capital Wars: The Rise of Global Liquidity ( 2020). 

• It is not only interest rates that matter in a world where egregious piles of existing debt have to be regularly renewed. 

• Case in point: Currently, US banks hold over $2.9 trillion of Commercial Real Estate (CRE) debt, much of which will need refinancing over the next 12 months at higher rates than when they were originated. 

• CRE as a whole is down over 20% and 14% of all CRE loans and 44% of office building loans are now in "negative equity." In other words, the debt is now greater than the property value on all of these properties. CRE is a special case but a good example of needed liquidity.

• Note: In 2008, even in the CRE decline, there were various Tiers of quality and the best commercial buildings were hardly  affected by the Great Financial Crisis.

• So, obviously the balance sheets of the world’s credit providers are critical. Apparently now liquidity conditions appear to be becoming easier, with international funding markets finally thawing. Rising share prices in financial stock prices over the past two months provide some evidence of that.

• My expectation remains that recession fears will rise again in 2024 potentially causing volatility in financial markets. But Howell’s view also fits with my expectation that the US Federal Reserve is likely to pump the system with new money as they work to refinance $10 Trillion of US government debt this year, into a presidential election, thereby likely supporting stock markets and other financial and hard assets.

• Our Chart of the Day is intended to be a standalone technical chart. 

• We use them to highlight open positions, stocks on our watch list, or indicators that we believe are important, or just interesting at the time. 

• It is not a directional market call.