By Brian Maher
This post REVEALED: The Date When the Liquidity Starts Drying Up appeared first on Daily Reckoning.
We heaved up evidence last Wednesday that foreign central banks could be the true source of liquidity floating stocks to record heights.
While the Federal Reserve is goosing rates and preparing to tuck into its $4.5 trillion balance sheet…
Foreign central banks have flooded markets with a record $1.5 trillion of liquidity so far this year.
Bank of America terms it a “supernova of liquidity”… and the “flow that conquers all.”
But if stocks have risen on the cresting waters, atop the “flow that conquers all,” mustn’t they fall when the flooding recedes?
That is, when central banks start draining liquidity out the sluices… it seems stocks should wash away with it.
Ah, but when… when does the liquidity start draining away?
We have the all-important answer, revealed shortly…
A deluge of central bank liquidity post-2008 lifted the Dow from 7,000 in early 2009… to over 21,600 last week.
That is why, as Zero Hedge notes:
It is safe to say that the topic of the liquidity injection by central banks, or rather its removal, has become one of the most discussed topics within the financial community.
Citigroup reminds us that the market’s been at flood tide for nearly a decade — the combined balance sheets of the world’s main central banks haven’t contracted since 2008. Not for a minute.
But maybe not for much longer…
As we noted last Wednesday, the Federal Reserve intends to start draining its oceanic post-crisis balance sheet in September.
This, as word comes that foreign central bank asset purchases (which add liquidity to the financial system) are beginning to slacken.
For example, Bank of America’s top strategist, Michael Hartnett, notes that central bank asset purchases have fallen from $350 billion in April… to $300 billion in May… to less than $100 billion last month.
The Bank of Japan’s (BoJ) asset purchases in particular have fallen substantially in recent months.
Now our well-placed agents forward us unconfirmed rumors… salacious whispers… and snatches of overheard conversation indicating the European Central Bank (ECB) will begin tapering its asset purchases in September.
September, once again, happens to be when the Fed starts draining its own balance sheet.
So the “flow that conquers all” will soon slow to a trickle.
Declining central bank liquidity means the tide will eventually stop rising… level off… and finally recede.
But again, when?
At what point does the tide finally reverse?
The answer, coming by way of Credit Suisse’s Andrew Garthwaite:
The inflection in central bank balance sheets comes in Q3 2018.
Q3 2018… sometime between next July 1 and Sept. 30.
That’s when this Garthwaite fellow says:
The contraction in the Fed’s balance sheet… will start to exceed the purchase of assets by the ECB and BoJ…
“As Credit Suisse pointed out and as Citi confirms,” says Zero Hedge, “In roughly 12 months, the world is about to have its first period of aggregate central bank balance sheet contraction, even as the flow is already shrinking at a rapid pace.”
At that point, …read more
Source:: Daily Reckoning feed
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