Contractions in Money Flows and Market Liquidity - Part 3

Summary

• A discussion of potential market inflection points and the perfect storm.
• Along with rising risk premia, multiple measures of money flow; market liquidity and economic conditions are in a contractionary trajectory.
• The potential for a dollar spike, commodities "flash crash" in December and further economic downturn exist.

• For a better understanding, I highly recommend reviewing the potential narrative and charts laid out in Part 1 and Part 2 of this missive.

Contractionary Trajectory

Jeffrey P. Snider on the latest revisions to US GDP: "Interpretations about economic performance thereafter should be contained within that paradigm,and so continued instability and weakness, even to the point of outright and sustained contraction, wouldn't be at all "unexpected" it would, in fact, be the logical and inevitable destination. For now, even GDP to belatedly show the 2012 slowdown that was obvious everywhere elseshould end the recovery debate entirely, especially in the wake of all those same economic accounts falling apart once again and to a degree not seen since 2009."

Q1 GDP BEA estimates went from +0.2 to final -0.2. Q2 and Q3 ?? TBD. Even if they are flatliners, given what's going on elsewhere (QE, recession, China implosion), the dollar could hold its position or gravitate higher.

The Fed may raise twice this year to set up IOER/RR levers. Any success may depend upon how they use those levers and how much they convert from ER (excess reserves) to RR (required reserves) to reduce the balance sheet. IMO, after raising, the Fed will begin to shrink the balance sheet. See The Feds Ultimate Balancing Act for further details.

This missive was published as an exclusive to Seeking Alpha.  To access the ENTIRE text for FREE on Seeking Alpha, please click here.  The Nattering One does not receive remuneration if you register, only satisfaction.
There is no cost involved and it has been our experience that if you exert control (by unchecking a box of two) over your communications settings in your Seeking Alpha profile, your email inbox will not be polluted with one bit of Spam (not even the cured pork shoulder variety. Tasty even.)

As we are now a "contributor" at Seeking Alpha, our published articles, instablog and comments can be found here.  Please continue to follow The Nattering Naybob here and at Seeking Alpha. We thank you for your support.