16 Comments
Jan 25, 2023Liked by Alfonso Peccatiello (Alf)

Am now a paid up subscriber - Alf delivers the best value financial service...EVER. Used to paying 1% to some Independent? Financial Adviser (IFA) who was too busy driving his Ferrari to ever give me good financial advice. Alf & his team deliver weekly actionable insights in a timely manner. My only worry is that old IFA will try and run Alf down in his Ferrari...if you can't beat them...run them down (as my old boss used to say driving at 100+ mph in his Fiat Uno)

Expand full comment
author

Wow Alan, thanks for these amazing words!

Expand full comment
Jan 25, 2023·edited Jan 25, 2023Liked by Alfonso Peccatiello (Alf)

At the end of the day the growth in bank deposits shows the willingness of the banking sector to "generate liquidity" that is lending money. And this happens only if they see opportunities not high risk. Right now banks deposits are contracting and lending standards are being raised aggressively - at bearish & recessionary levels. Am I right?

George Dagnino

www.peterdag.com

Expand full comment
author

This is a good way to look at banking and money dynamics

Expand full comment
Jan 31, 2023Liked by Alfonso Peccatiello (Alf)

Hi Alf! I am also a paid subscribed on TMC. Are you planning to introduce some forum there or chatroom or something similar? Or what would be the best way to reach out to you just to hear your thoughts on some macro issue that I hear being mentioned, but do not see addressed in your TMC publications?

Expand full comment
author

Hi! Thanks for being a subscriber!

We are working to set up a community chat for all paid TMC subscribers :)

In the meantime, please send us an email at info@themacrocompass.com

Expand full comment
Jan 27, 2023Liked by Alfonso Peccatiello (Alf)

Alf.......Greatly appreciate your insight. THANK YOU. My comment is regarding your audio quality only.

You have a deep voice, consider.....REDUCE ALL BACKGROUND ECHO.....This will greatly improve audio clarity. https://www.youtube.com/watch?v=OEMLc4iclXw https://www.youtube.com/watch?v=_TyRYQu34bg THANK YOU FOR YOUR WORK. THANK YOU AGAIN.

Expand full comment
author

Thanks for the suggestion!

Expand full comment
Jan 26, 2023Liked by Alfonso Peccatiello (Alf)

While the most everyone focuses on interest rates liquidity is little understood or appreciated perhaps because it is part of the plumbing rather than a headline.

Expand full comment
author

That's indeed the case, and I try my best to explain the plumbing side

Expand full comment
Jan 25, 2023Liked by Alfonso Peccatiello (Alf)

Thank you Alf!

Expand full comment
author

You are welcome, Chris!

Expand full comment
Jan 26, 2023·edited Jan 26, 2023

Alf,

I still cannot tell whether you are being ironic and repeating a widespread misconception that you don't agree with, or whether I should take you literally.

"liquidity = bank reserves"

Central and private banks do an asset swap of reserves for Treasuries and what really changes?

Some banks might be short of reserves at times, but before 2008 the banking system used to run on $30-40B of reserves and now it has to survive on less than $2T - is this really a constraint? The Fed Funds market might need to come to life again, or the Fed window open, but the banks have plenty of tools.

"reserves lubricate ... the repo market"

Isn't that Treasuries - top-quality collateral that everyone can deal in and which the banks will soon have more of?

"The Fed will be running QT at a yearly pace of > $1 trillion"

Your main thesis seems to be that a recession is fast approaching.

Will the Fed be able to continue QT in the midst of a recession?

[By buying Treasuries,] "households take away deposits from the (already under pressure) banking system and also lock away spendable money" [and so restrict the] "availability of real-economy money"

Really? Doesn't it depend where that money comes from and goes to? If they sell equities to buy bonds, no. Anyway the deposits are transferred to the sellers of the bonds.

With US personal savings rates at record lows (FRED2: PSAVERT) it doesn't feel like it is bond buying that is starving the real economy of money.

Please keep it simple, so even I can understand what you are saying.

If you can't use the subjunctive, then maybe mark irony with an emoji 😜

Expand full comment
author

Hi Roger,

Yes - they do an asset swap. Something I have explained in many articles. What changes is the composition of the liquid portfolios banks own, and the amount of reserves/collateral in the system. That's very important.

The balance of Treasuries (high quality collateral) and reserves (money for banks, extremely involved in the repo market) is the key to a good functioning of the repo market.

These are relatively complex topics but I'll break them all down in one of my courses on monetary plumbing, starting in Spring

Expand full comment

Please keep it honest. If you don’t know how to use the adverb (“still”), omit it next time you claim to not understand whether a concept is being described ironically or is actually spreading a misconception. After all, it’s hard to believe that you’ve read his previous articles on the topic and are still unsure how he views the mechanics of liquidity in this regard.

Expand full comment
Jan 29, 2023·edited Jan 29, 2023

Can you recommend a previous article or two that explain these mechanics please?

I still do not know what bank reserves have got to do with repo.

Expand full comment