#140: There is Nothing Quite Like QT

S2N Spotlight

We are currently experiencing the slow draining of excess liquidity in the system, or quantitative tightening if you want to sound like a pro.

The Fed’s balance sheet continues to shrink now “only” $7.1 trillion. We are back to the level we were at prior to the pandemic.

We can peek a little deeper into the liquidity picture by calculating the Fed’s Balance sheet and then subtracting the sum of the Reverse Repo + the Treasuries General Account. If this sounds like boring macro accounting, it is, but the part you should focus on in this close relationship that net liquidity has with the S&P 500.

I wanted to add 2 more charts showing how proactive the Fed’s FOMC has been holding the Fed Fund Rate above the 2yr and 10yr Treasury yield at close to record gaps in order to contract liquidity.

S2N Observations

Yesterday I came across a real feel-good story of how a young Australian immigrant, Robin Khuda, came to this country at age 18 to study accounting and has become a billionaire with the sale of his 9-year-old startup, AirTrunk for a mouth-watering A$ 24 billion ($16 bn). I am embarrassed; I have never heard of AirTrunk or Khuda before. They run data centres across Asia Pacific. Good on you, mate—well done.

I wanted to show this un-inversion chart again today as my data runs a day late, and here you can see it at 0.01%.

I wanted to share another relationship that has been very close. I am talking about corporate bond spreads (I inverted the axis) and the SP500. I had anticipated that spreads would have climbed already

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