I took a long time but now have a basic understanding of Net Fed Liquidity. But now the conundrum is that "Liquidity" and "Net Fed Liquidity" are not the same thing. I would like you to opine on how the investor should navigate Overall and not just Net Fed Liquidity. Thx.
Great point, Tillman, and you're right to draw that distinction.
Net Fed Liquidity is one specific instrument in a much larger orchestra. It captures the Fed's direct contribution to system reserves, but total liquidity conditions involve far more: the credit impulse from commercial banks, dollar funding conditions, cross-border capital flows, and the fiscal channel through Treasury issuance.
The reason I focus on NFL as a compass is that it is mechanically measurable and has shown a consistent relationship with risk asset cycles. It's not the whole picture, but it's a reliable leading signal that most retail investors completely ignore.
In the monthly liquidity snapshots I try to bring together these different dimensions and give a clearer sense of where overall conditions are heading. Hope that helps as a starting point.
I took a long time but now have a basic understanding of Net Fed Liquidity. But now the conundrum is that "Liquidity" and "Net Fed Liquidity" are not the same thing. I would like you to opine on how the investor should navigate Overall and not just Net Fed Liquidity. Thx.
Great point, Tillman, and you're right to draw that distinction.
Net Fed Liquidity is one specific instrument in a much larger orchestra. It captures the Fed's direct contribution to system reserves, but total liquidity conditions involve far more: the credit impulse from commercial banks, dollar funding conditions, cross-border capital flows, and the fiscal channel through Treasury issuance.
The reason I focus on NFL as a compass is that it is mechanically measurable and has shown a consistent relationship with risk asset cycles. It's not the whole picture, but it's a reliable leading signal that most retail investors completely ignore.
In the monthly liquidity snapshots I try to bring together these different dimensions and give a clearer sense of where overall conditions are heading. Hope that helps as a starting point.
I read more of your articles and they all fit together. Thanks so much, Tihomir.