Tuesday, September 8, 2009

Don't fight the FED!

(Isn't it curious that after the G2 meeting, the take-away was that US and China would work in a coordinated fashion and it appeared as if criticism of our approach was turned down a bit. As it turns out both the FED and Big Red have been removing liquidity from the system. Clearly in the US it would be political suicide to launch another bailout ... especially within the context of the recession being over and the market never going back down. Months ago it was reported that the Obama adminstration thought they would get another crack at a stimulus program...looks like they are setting the stage for co-ordinated Stimulus 2.0 ...don't fight the FED! -AM)

Rosie via ZH

It is interesting that the equity market has begun to wobble (fade last Friday’s rally on such low volume) because we have noticed that some key liquidity indicators are not behaving very well, all of a sudden. M1 fell 1.0% in the August 24th week and over the past four weeks is down at a 6.5% annual rate. M2 has contracted in each of the past four weeks too and over that time has slipped at a 12.2% annualized pace, which is a near-record decline. We see the same trend in the broad MZM money measure — off at a 15.8% annual rate over the past month. Bank credit also remains in a fundamental downtrend — contracting at an epic 9% annualized pace over the past four weeks.

So for the first time in the post-WWII era, we have deflation in credit, wages and rents, and from our lens this is a toxic brew that in the end will ensure that the focus on capital preservation and income orientation will be the winning strategy over a strict reliance on capital appreciation.

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