Friday, May 19, 2023

Liquidity, Liquidity, Liquidity

Fed liquidity has driven the markets since 2020.  This thread explains the Fed's Balance Sheet, TGA and RRP well.  The current 8-month bear market rally is caused by the Fed releasing money into the economy, counteracting rate rises.

Here is the Fed's Net Liquidity vs SPY:

Although Net Liquidity looks like a leading indicator, its not tradable.  Theres no correlation (r < 0.1) between the weekly percentage movements in Net Liquidity and SPY.  Interestingly theres a weak correlation (r = 0.22) between weekly percentage movements in Net Liquidity three weeks ago and SPY.  But its not enough to trade.  And after eyeballing the chart, I also can't trade divergences.

And broken into components (Net Liquidity is the red bars):

The Fed has been drawing down the TGA (green bars) due to lack of funds from reaching the debt ceiling.  Once the debt ceiling is resolved (earliest is 1st June, maybe she can hold out till August), it should refill the TGA, which should reverse the 8-month bear market rally.

Monday, May 1, 2023

My Positions

 Small changes:

  • Covered South Koreas shorts last week as it became bullish
  • Added more Gold last month.  Added TLT.
Still expect a recession sometime, don't know when the market realises it.

Edit: 20-May: TLT is not working, will cut it.