Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Financial System Liquidity Alarm

Stock-Markets / Financial Crisis 2021 Aug 15, 2021 - 05:24 PM GMT

By: Gary_Tanashian

Stock-Markets

Market liquidity is draining from different vantage points

On Wednesday I made a post that showed the “metallic credit spread” (as coined by Bob Hoye) known as the Gold/Silver ratio (GSR) flipped on its head (to Silver/Gold) to indicate a dangerous situation for the S&P 500, if past is prologue. Here is that post and here is the Tweet that followed…


Silver, with more cyclical inflation-sensitive characteristics than gold (which is more counter-cyclical with utility during liquidity crises) has broken down of late vs. its monetary daddy. The chart speaks for itself as to why caution and risk management are now warranted.

Let’s add a couple other indicators to the case for a coming negative liquidity event and as a knock-on effect, eventual failure of the current inflation trades that have casino patrons far and wide lathered up about the big time inflation the Fed created in 2020.

First, let’s address a situation noted by an NFTRH subscriber where the Gold/Copper ratio (GCR) is not confirming the Gold/Silver ratio’s rise.

The reason I use the Gold/Silver ratio to look forward beneath the market’s surface is its relative sensitivity to inflation/deflation, liquidity/illiquidity. As you can see, amid the COVID crisis of 2020 both the GSR and the GCR ramped upward, as would be logically expected during a negative liquidity event. But our early indicator to the coming whopper of an inflation (as manufactured by the Fed) was the blow out and top in the GSR. GCR did not top for another month. So today’s negative divergence to the bullish breakout in the GSR is logical from that perspective.

Casino patrons are happily still playing in the House of the Fed’s Rising Sun as a warning whirs along beneath them.

Moving on to a couple of other indicators, note Steve Saville’s view of the YoY crash in the TMS (monetary inflation) rate. This and the other global views he presents in this post are still positive, although the inflation rates are tanking. There is still liquidity in the markets (and economy), but the trend is going the wrong way for bullish, inflationist casino patrons.

He concludes…

“We’ve written previously that the H1-2021 global monetary inflation reversal probably won’t be a major driver of prices over the balance of this year. This is due to the time it takes for a change in the money-supply growth trend to ‘ripple through’ the financial markets and the economy. However, unless the Fed and the ECB generate a new monetary tsunami over the next several months, the G2 monetary inflation rate could become low enough by early next year to set off a boom-to-bust transition.”

Of course, the Fed and other CBs could “generate a new monetary tsunami” at any time and indeed, my Continuum chart (at the end of the article) has allowed for that and still does allow for that. So the question is whether or not the Fed will see and and take active measures to forestall the coming liquidity crunch. Don’t underestimate their ability to screw up a perfectly good liquidity crisis.

But back on the main theme of this post, an indicator I’ve never heard of, a “liquidity alarm” known as Marshallian K, as presented at Bloomberg by way of an NFTRH subscriber is going off.

Liquidity Is Evaporating Even Before Fed Taper Hits Markets (as reprinted at Yahoo)

The signal is obscure, but has sent meaningful signs in the past. Roughly speaking, it’s the gap between the rates of growth in money supply and gross domestic product, an indicator known to eco-geeks as Marshallian K. It just turned negative for the first time since 2018, meaning GDP is rising faster than the government’s M2 account.

The shortfall comes from an expanding economy that’s quickly depleting the nation’s available money. The deficit could become a problem for markets at a time when excess liquidity is seen as underpinning rallies in everything from Bitcoin to meme stocks.

However…

The Leuthold study is the latest attempt to handicap the market’s outlook from the perspective of liquidity. But not everyone is worried. Ed Yardeni, the president and founder of Yardeni Research Inc., says he prefers to plot not the growth rates but the absolute level of M2 against GDP to measure liquidity. Based on that, liquidity stood near a record high.

“Some people start to freak out about the M2 growth rate,” he said in an interview on Bloomberg TV and Radio. “What they don’t really appreciate is M2 today is $5 trillion higher than it was before the pandemic. There is just a tremendous liquidity sitting there.”

For its part, the global counter-party to the 2020-2021 inflation trades, the US dollar, is in bottom-making mode. This chart was used in NFTRH back in June to explore the possibility of an important low. Daily USD then broke above the inverted H&S neckline, failed, successfully tested the SMA 50 and now here it is again, with only the late March high standing in the way of significantly higher levels.

Finally, the chart that gives me pause if I am an active bear against the markets, including the inflation/reflation markets (like commodities, materials, banks, energy, etc.). The (monthly chart of the 30yr yield) Continuum tells us that theoretically at least, the Fed still has room to inflate before a red alert goes off and halts this desperate inflationary operation.

If not for the beautiful right side inverted shoulder that is near perfectly in line with our original thesis of summer cool down and then renewed inflation, I’d be getting whole hog bearish the markets followed by a readiness to greedily buy gold miners on the ensuing crash. That is what the market wants right now and as such, absent more of the Fed’s MMT (TMM, total market manipulation) that’s what I want to see, because it would be logical and natural. A post-boom bust. But the status of the Continuum, which as it currently stands is exactly as we’d planned for (an interruption but not termination of the inflation trades) tempers the liquidity crisis view.

Bottom Line

It is as I’ve been personally struggling with lately; the market following its current signals toward a liquidity problem and potential crisis per GSR and USD, or another kick save by the Fed and other central banks as licensed by the nowhere near extreme 30yr yield Continuum above.

In the here and now, the market has enough current liquidity to lurch onward without a big bearish event. But at some point it’s going to need more juice. The Gold/Silver ratio is an early indicator to that.

One thing seems inevitable; absent monetary intervention (i.e. more manipulation), this thing is going to pancake in the coming months. In the short-term we’ll continue to manage what we see and hope to gauge the odds one way or the other based on new information. The Fed also sees – and probably obsesses upon – liquidity indicators like these. What’s more, per the Continuum above it has license to try to combat them. #toughmarket

Subscribe to NFTRH Premium (monthly at USD $33.50 or a 14% discounted yearly at USD $345.00) for an in-depth weekly market report, interim market updates and NFTRH+ chart and trade setup ideas, all archived/posted at the site and delivered to your inbox.

You can also keep up to date with plenty of actionable public content at NFTRH.com by using the email form on the right sidebar and get even more by joining our free eLetter. Or follow via Twitter ;@BiiwiiNFTRH, StockTwits or RSS. Also check out the quality market writers at Biiwii.com.

By Gary Tanashian

http://biiwii.com

© 2021 Copyright  Gary Tanashian - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Gary Tanashian Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in