Morgan Stanley Warns Of Deteriorating Liquidity

Liquidity. A word you will hear often repeated today, in fact the more you hear it, the less of there is. Here is Morgan Stanley's Jim Caron discussing why worsening USD funding conditions will force the Fed's FX swap lines to start being used again, now that FX implied USD Libor has passed 1.22%.

The key take-away today is that the FX implied borrowing rate for US dollars for 3-months has risen to 1.28% (see left hand chart below). The significance is that the 1.28% rate exceeds the emergency back-stop rate of 1.22% as provisioned by the ECB and the Fed with the reinstitution of the FX swap lines. We can expect to see more European entities now start to tap this liquidity facility. Again, liquidity is still available, it's just coming at a higher price - a key distinction to make between what is going on today and the crisis in 2008.

1. LIBOR set 2.7bp higher at 0.53625% - roughly double the pace of the steady 1-1½bp increases we’ve seen to date
2. 2y spreads were another 3bp wider after gapping 10.5bp higher yesterday
3. Dollar is approaching its recent high, being up 1.1% on the day
4. Deflationary concerns continue to abound, with crude down 3.3%, S&P down 2.3%, 10y breakevens down another 8bp
5. Sov CDS is up as well, with most yield curves flattening on the day (taking out inflation expectations down the road)    

       

Comments

[Spitzer]

Gold holds, CNBS commodity cunt barely mentions it.

[badameli]

I am eagerly waiting for a brief rally out of this drop that brings gold/silver higher.

[JackTheOffer]

We're trying to be more polite with the language around here.  So please don't call that skanky bitch a cunt.

[mikla]

Liquidity. A word you will hear often repeated today, in fact the more you hear it, the less of there is.

HAHAHAHAHAAAAA!

We've GOT to start giving out awards for some of these quotes.

[Missing_Link]

Yes.  Somebody really ought to start saving the classic quotes from the comment threads and post a "Best Of" page later.  Any volunteers?

[spanish inquisition]

Ben needs to hold a news conference: "Everyone needs to take out a dollar bill and repeat after me, it's worth a dollar, it's worth a Dollar, it's worth a DOLLAR. If we all just BELIEVE that everything is OK, it will be..Should things go badly and the economy collapses or a war or something is started, just remember that Central Bankers have always been your friend and none of that was our fault or plan. OK, back to it, it's worth a dollar, it's ..."

[digalert]

Uh, Bubble Bens busy now. Bernanke, Geithner, Ms Bill Clinton and even CNBS tag team pep rally squad is in China on vacation.

[DisparityFlux]

+10

Peter Pan played by Ben Bernanke.

Tinker Bell played by US $.

“If you believe,” he shouted to them, “clap your hands; don’t let Tink die.”

Peter Pan, or The Boy Who Wouldn't Grow Up

[hedgeless_horseman]

Instead of swapping currency, lets swap First Ladies.  We will send Mrs. Barry O'Potus on a Rainbow Tour of Europe, and they can send us France's First Lady.

http://static.stuff.co.nz/1233108507/504/332504.jpg

[Zam-Man]

I'd trade chewbacca for that in a heartbeat.

[jdrose1985]

LOL!

[ArkansasAngie]

In order for there to be inflation ... you have to believe in inflation.  You have to be willing to buy based on expectations that prices will go up.

I have no such expectations

[SDRII]

explain the 3x plus coverage on the ecb 7 day bills and the ongoing deposit facility excess...liquidity m/a

[wintermute]

LIBOR.

As it climbs steadily, in face of Bernanke's ZIRP, wait until you start hearing the familiar chorus of how flawed it is from the media and pundits.

That noise level is a good metric for the amount of stress in the Federal Reserve.

[Paul Bogdanich]

Faith in gold may turn out to be illusory.  Not because gold is worthless mind you but becasue when the authorities backs are gainst the wall they may restrict your ability to exchange gold for money or alternately they may void your right to receive or hold physical gold and pay you in money.  If you don't think this is possible think about how much money J.P. Morgan would make on that action and then remember that J.P. Morgan owns 41 Senators and a President.   

[SDRII]

paper vs. physical divergence = dollar fail

[tj3]

Here's another likely/unlikely scenario ; the world wide govt./banking/illuminati/etc...,Overlords, set the price of gold.

ahhhh...Nixon's the Man!