From Credit Agricole
For those of you who have seen my presentation on markets in the last couple of months you will have seen the following chart (chart 1). Its shows various popular assets (Bovespa, AUD, Gold) vs. my global liquidity model in green, which is designed to measure changes in the $ pool of global liquidity aka the cash we have to invest in those assets. Essentially, I believe it shows how assets markets have become junkies dependent, on a forever falling $ and an ever increasing pool of liquidity. To illustrate the point you can see that in March 2008 the model rolled, within 2 months the Bovespa followed and a month after that the AUD. On the rebound the model turned at the end of October and gold, which actually peaked earlier on the way down followed tick for tick. The Bovespa once again was a laggard turning the following month and the AUD finally followed 4 months after the initial turn.
So now if you look at the second chart, which is a daily version of the bigger chart you can see that since the central banks stepped in to provide liquidity in November 2008 the correlations between the liquidity model and global assets has got absurdly tight. You can also see that since global liquidity topped at the beginning of December it's essentially gone nowhere explaining why assets have lost momentum and people have had a hard time making money.
But with the $ rally starting to broaden i.e. to the AUD and CAD and the Fed discussing asset sales (I've written extensively about how I believe the Feds balance sheet = the $ supply) owners of risk assets need to be EXTREMELY CAREFUL. $ rallies are truly toxic. Don't forget that during the last one 1995-2000 we blew up Asia in 97-00 and stocks in 2000!