Sitting in my red (and admittedly creaky) IKEA chair I've decided it's time to re-evaluate the liquidity hot potato.
Assessing stock fundamentals and fair valuations is my piece de resistance, however in a sweeping macro environment even pure gold (literally) can get caught up in the tide.
So, in light of this and with my past post reflecting the critical banking, treasuries, bonds and tax settlements and their intricate relationships, today we look at the *active* liquidity scenario and signals that give us insight into the situation as it stands.
*The short: No Bueno.*
*The long:*
Enjoy...
**Macro Liquidity Watchlist: Week Beginning Feb 17**
|Indicator|Current|Watch Trigger|Inference|
|:-|:-|:-|:-|
|**SOFR vs. IORB**|***3.66%*** **(Broken as of Feb 17)**|**> 3.65%**|Private cash deficit monitoring.|
|**20-Yr WI Yield**|***4.846%***|**> 4.64%**|Failed auction tail indicator; primary balance sheets clogged.|
|**H.4.1 Repo Line**|***$18.5b***|**> $5B jump**|Lagging proof of SRF usage.|
|**VIX Index**|\~20.60|**> 22.00**|Signals for liquidity stress leaking into equities.|
|**JPYUSD Basis Swap**|***-118 bps***|**-60 bps (Negative)**|Dollar scarcity.|
|**USDJPY Implied Vol**|13.1%|**> 15.0%**|Automatic institutional deleveraging|
|**US/Japan 10Y Spread**|***190 bps***|**< 200 bps**|Carry profit margin reduces|
|**Japan 2s30s Curve**|221 bps|**< 180 bps**|Bull flattening kills the borrow incentive.|
|**USDJPY**|153.15|**< 152.00**|Breach of 200DMA|
For those who follow me, I'll try post things on my personal feed first :) Hopefully I can help people get an edge, where possible.
These are *some* of the signals I currently use to monitor the macro economic tide with some insight.
I may make a similar checklist for events in March.
Beware Contra-Signal is SCOTUS tariff overrule. May bring about relief rally.
Separately, USD may temporarily strengthen as scarcity increases prior to USDJPY dump.
***Edit:***
*Updated and added signals. A few signals already show stress. Will try to update this as much as I can. Bear with me. Feel free to leave comments and say hi!*
*Update: Live Feb 17 7am ET: Fed Reserve confirms SOFR exceeding IORB. Banks are struggling to get sufficient liquidity.*
*Update 2: JPYUSD currency swap basis widening to >100 showing dollar funding stress.*
*Update 3: Feb 17/18 H4.1 Repo Line Spikes to 18.5Bn overnight!*
*Update 4: Feb 17/18 20YR Yield tailed at 4.846. Bond demand is actively dropping.*
*Update 5: Feb 17/18 USDJPY implied vol rises to 13.1%*.
***5 out of 9 major signals show liquidity and banking stress currently***