Is global liquidity reduction to address global imbalance?

[zmas28]

An interesting article by Stephen Roach:
http://www.morganstanley.com/GEFdata...st-digest.html
on how the "stewards of globalization" have come up with a fix for the "global imbalance" of the current accounts deficit.
Besides forming a cooperative & consultative framework, he feels that they have come to an agreement to steer dollar depreciation in an orderly manner. He says the global liquidity reduction is part of the fix.
Didn't quite understand the connection between global liquidity reduction and the deficit. I can see where reducing liquidity in the US would slow down the US consumer, but not sure why this should require concerted action by Central Banls all over the world? Is this to prevent the dollar from strengthening? I thought the ECB, etc were fighting their own inflation battles, or is this a smoke screen?

[blazespinnaker]

global tightening means increasing worldwide currency values, which means cheaper US exports / expensive US imports. Basically, china is doing a rate hike which will make their currency more dear.

I agree with absolutely everything Roach is saying there .. especially the bit about putting an end to the greenspan era.

The question is .. too little too late? Will the consumer capitulate?

I keep a very close eye on the future fed funds rate. As soon as I see an end to tightening I'm going to leave cash.

[Jim Nickerson]

I keep a very close eye on the future fed funds rate. As soon as I see an end to tightening I'm going to leave cash.

So where will you go from your 90% cash position? Long or short US equities or somewhere else?

[blazespinnaker]

Depends where the markets are at that point .. probably real estate or equities if they've taken their tumble.

If nothing has fallen, then I may just have to do it the old fashion way, lots of securities analysis and picking stocks.

[Jim Nickerson]

End of Fed Tightening>

global tightening means increasing worldwide currency values, which means cheaper US exports / expensive US imports. Basically, china is doing a rate hike which will make their currency more dear.

I agree with absolutely everything Roach is saying there .. especially the bit about putting an end to the greenspan era.

The question is .. too little too late? Will the consumer capitulate?

I keep a very close eye on the future fed funds rate. As soon as I see an end to tightening I'm going to leave cash.

Another thing blaze, more often than not when the Fed has stopped raising rates there is some months lag after the whatever turns out to have been the last tightening for the cycle before the full impact of the increases affects the markets, loans-- everything that reacts. I think this is the "rule," but there have been exceptions.

Were you literal in stating you'll get out of cash with such immediacy?

[blazespinnaker]

I suppose I should stress it's more of a weighting thing. Depending on the language of the fed, the climate of the markets, etc.

Right now I've read that the S&P has decade low price/earnings ratios. That's a buy signal for me, but I believe it's still over valued if the fed puts a stop to all this liquidity sloshing around.

[jk]

p/e on the s&p

Right now I've read that the S&P has decade low price/earnings ratios. That's a buy signal for me, but I believe it's still over valued if the fed puts a stop to all this liquidity sloshing around.

blaze, the s&p is at an historic HIGH p/e for a period of record earnings. historically when earnings are at record highs the p/e is low because earnings are mean reverting. similarly, at the bottom of recessions p/e's are very high because everyone knows that earnings will increase in a recovery. i strongly recommend you go over to hussmanfunds.com and read some of hussman's pieces on this specific issue. don't drink the kool-aid!