More On The Liquidity Trade

The liquidity trade is buying all assets on the theory that liquidity will buoy everything. The same people who are getting hurt in their long gold trade are the ones who own equities. Something to think about.


Anonymous said...

Unemployment could most economist be so wrong? If you listened to everyone yesterday, including Obama, they sounded very defensive about todays numbers. Where the just totally guessing wrong? Doesn't seem right.

Applesaucer said...

One nitpick. IMHO, "liquidity" properly refers to how deep a market is -- i.e., MSFT is a more liquid stock than COSWF.

The way I think of it, what you are referring to when you say "liquidity" is "easy money." And it's probably the case that's how most people think of it.

I mention this because when it comes to gold, the best secular situation is for tightening liquidity in most markets, but above-trend money supply growth.

For instance: in the '70s, even as the Fed ramped up money supply, the major indices fell out of favor and were ignored; still, gold soared.

But I agree with your point: the jobs report is a net negative as far as far as future easy money goes -- bad for gold and bonds. But a net positive for the major indices. At least that's the way it seems, for today.

I tend to think that gold's selloff was "due." I also think that the Fed will continue to be easy for as long as they can -- let's remeber that Wall St. is their master.


nicasurfer said...

This is better than the dubai day

Tsachy Mishal said...

I agree in theory about this being good for stocks. But the fact is that these assets are correlated because of the "liquidity trade".