TruthArchive.ai - Tweets Saved By @mtmalinen
@mtmalinen - Tuomas Malinen
Past week I promised a (long) thread on global #liquidity and so, here goes! I have been analyzing the current state global liquidity since early November. Then I warned on possibility of an outright collapse of market liquidity. 🧵1/25 https://mtmalinen.substack.com/p/global-liquidity-collapse-approaches
@mtmalinen - Tuomas Malinen
Basically, I re-iterated our original warning from October 2018, when we had discovered that: 1. Global outside-US dollar denominated debt has risen to a record. 2. The role of non-bank institutions on providing funding has increased. 2/
@mtmalinen - Tuomas Malinen
3. The composition of international credit has shifted from bank loans to debt securities. These straight-forwardly implied that: "The increased role of non-bank institutions in providing credit means that an increasing proportion of international finance comes..." 3/
@mtmalinen - Tuomas Malinen
"...from unregulated sources. Effectively, this means that these institutions, including money market funds, investments banks, etc., have unwittingly assumed even bigger risks in their lending practices than commercial banks." 4/
@mtmalinen - Tuomas Malinen
"This also means that when the downturn comes, the share of non-performing and/or defaulted loans will grow higher than before." I continued by analyzing the data from the Bank for International Settlements (BIS) on the composition of global liquidity (data updated to Q3). 5/
@mtmalinen - Tuomas Malinen
It showed a relatively major and historical change in the composition of global liquidity from loans of commercial banks to debt securities as the main source. This implied that: 6/
@mtmalinen - Tuomas Malinen
1) Because a higher share of global credit provision is on the hands of unregulated banks, this means that they have, almost surely, taken bigger risks in their lending activities making them prone to losses and to rapid withdrawing of lending, when the downturn hits. 7/
@mtmalinen - Tuomas Malinen
2. Corporations have been turning more on the capital markets in their search for funding. Rising yields imply that especially the ‘zombified’ corporations may (are likely to) get into serious trouble, when then next downturn hits (basically here already), hitting liquidity. 8/
@mtmalinen - Tuomas Malinen
3. The banking sector took, what looks like a mortal hit, during the Corona lockdowns, as we correctly assumed. Alas, the onset of another global banking crisis in 2020 was covered (hidden) by the authorities, implying that it can re-ignite, basically, at any moment. 9/
@mtmalinen - Tuomas Malinen
Still, the year-end passed by without any serious hiccups in the financial markets. What happened? Was all the 'doom-and-gloom' unfounded? Had the financial system miraculously mended itself? No. 10/
@mtmalinen - Tuomas Malinen
I was forced to dig deeper on murky world of global financial flows to see, whether I had been wrong with my dire predictions. I needed to understand, why the year-end passed and 2023 started with such an ease in the credit markets. This yielded an 'epiphany'. 11/
@mtmalinen - Tuomas Malinen
We discovered in early 2017 that China had driven the global business cycle since 2009. We also discovered that China had been responsible for vast majority of creation of new money (essentially) liquidity for the same period of time. 12/
@mtmalinen - Tuomas Malinen
For reasons unclear to us, we failed to understand the effect of this to global market liquidity. 🤷♂️ Well, every once and a while, everyone misses something. 😁 However, what we did not discover back then was how cyclical or even seasonal Chinese liquidity injections were. 13/
@mtmalinen - Tuomas Malinen
In early February, I published this figure, which shows the global money supply of the five major industrial nations/areas. It shows that the financial market rout of Sept/Oct was no coincidence nor a surprise. 14/
@mtmalinen - Tuomas Malinen
Between September and October, 2022, the world economy suddenly lost over $500 billion worth of liquidity, which is the biggest drop on record (since 2000). November, however, saw a nearly matching increase. What happened? @dlacalle_IA @DiMartinoBooth @BradHuston 15/
@mtmalinen - Tuomas Malinen
Firstly, central banks reacted. The BoE and the BOJ stepped back into the bond markets, but there was, also joint actions of central banks. For example, like from a 'strike of wand', the BoJ, BoE, Fed and the PBoC started to increase their foreign exchange reserves. 16/
@mtmalinen - Tuomas Malinen
The foreign exchange reserves can include foreign currencies (including foreign currency swaps), bonds, treasury bills, gold, and other government securities. Whatever the increase of FX-reserves consisted of, they surely contributed to the increase in global money supply. 17/
@mtmalinen - Tuomas Malinen
But there was more. China (i.e. the PBoC) flooded the global financial system with money (liquidity) in November. Currently, China is dominating the landscape of global money supply. 18/
@mtmalinen - Tuomas Malinen
The PBoC makes gargantuan injections and drains of liquidity to and from the global financial system. The September/October crash occurred because the draining of Chinese liquidity coincided with the liquidity-drain of all other central banks (QT, etc.). 19/
@mtmalinen - Tuomas Malinen
Moreover, QT:s of the Federal Reserve, the ECB and the BoE are likely to continue draining global money supply. This makes markets more vulnerable to the actions of China, unless western central banks constantly increase money through "other means", like swap-agreements. 20/
@mtmalinen - Tuomas Malinen
Other option would be commercial banks matching this drain though increased lending. However, because these "other means" of central banks are de facto temporary and because, e.g., banks in the U.S. are tightening lending standards rapidly and... 21/
@mtmalinen - Tuomas Malinen
...because global bank lending activity has been in decline (see above), this implies that at some point the fate of the global financial system will be almost totally subjected to the ‘whims’ of the PBoC. 22/
@mtmalinen - Tuomas Malinen
And, because the Chinese liquidity-injections seem to be on a declining trend (see above), the financial system may experience a cataclysmic draining of liquidity during the next few months "by accident". This would occur in a situation: 23/
@mtmalinen - Tuomas Malinen
Where the Chinese “draining” would coincidence with a rolling back of the temporary support measures of other central banks, continuing QT and, in the worst-case, a notable decline in bank lending. Such a shock may very well be approaching.👇 24/ https://mtmalinen.substack.com/p/the-sorcery-of-central-bankers
@mtmalinen - Tuomas Malinen
I have and will continue to analyze and forecast the developments in global liquidity in my newsletter. I urge those who want the get the full-view to check it out (paywall), but I will also continue summarizing my findings here, with a lag. /End https://mtmalinen.substack.com/p/an-update-on-global-market-liquidity
