Update 1 - No big pivot but heaps of stealth liquidity in 2024

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Update - Riding the wave of stealth liquidity

Here are some quick thoughts on the state of the macroeconomic seas we seem to be paddling in right now.

So, back on 23 January, I laid out a piece titled "No big pivot but heaps of stealthy liquidity in 2024," where I basically said, "Don't hold your breath for a massive rate cut party."

Why? Well, because the economy wasn't exactly hitting the panic button at that time and there wasn’t anything ugly enough to compel the Fed to stimulate.

Fast forward a bit, and what do we see? Turns out the economy's flexing its muscles even more than the Fed had originally thought and things are feeling stronger for longer.

No ‘code red’ dumpers yet and that means higher rates for longer and a stronger USD.

Being the savvy bunch they are, bond traders have started to shave their rate hike predictions and seem to be adjusting themselves for a longer journey with higher rates.

And after fading/ignoring the Fed's "hawkish squawks" for about 16 months, the market's finally tuning in a little, and nudging bond yields up a tad, to ~4.17% on the 10-year.

Meanwhile, in the land of stocks, we've had quite the rollercoaster ride and it’s not over. Semis are trading like crypto!

Why? Well, instead of tightening the monetary screws, Treasury is turning them the other way, with liquidity now increasing by ~$500 billion since February 2023, and just in the last 2 weeks an extra $100 billion in liquidity was added.

This incremental liquidity is turbocharging the QE Infinity train to nowhere somewhere off the coast of Japan, and with that extra fuel, you guessed it - up go risk assets.

In short, liquidity is still increasing, not decreasing.

So, with the U.S. elections looming on November 5, 2024, Treasurer Yellen's got roughly 9 months to spend about $800 billion from her piggy bank to keep Trump pout of the White House - and all the while the Fed does its best Jedi mind trick with its balance sheet and pretends liquidity is being withdrawn.

But hey, let's not get too complacent because we think we know their plan. All this fun will eventually hit the brakes, so as you surf Janet’s stealth liquidity break, remember to keep your wits about you as eventually those cool and seemingly endless waves of joy, will end.

Until then, surf’s up!

Mike

Next Level Corporate Advisory is a leading Australian corporate development advisor specialising in corporate M&A, investment, finance and exit solutions. With a dealmaking track record spanning three decades, we help family, private and publicly owned entities find, develop and realise value in their businesses and investments.

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