“A picture is worth one thousand words.” We present 13 pictures to describe the title subject, on our website, www.cumber.com.
Scroll to the two chart stacks. In the first, we reflect changes in the balance sheets of the G4 central banks. The G4 central banks are the Bank of England (BOE), the Bank of Japan (BOJ), the Federal Reserve (FED), and the European Central Bank (ECB). Other central banks are important; however, the G4 comprises the four central banks managing the currency blocks of nearly 85% of the capital markets that trade in the world. Other large capital markets are linked to one of them. Therefore, China’s central bank is not shown, because China manages its currency exchange rate via a peg to the others.
If you capture the G4 transactional changes, you get most of the financial impacts of the world. Paging though the G4, one sees the following information leap from the charts. The central bank balance sheets of the BOE, BOJ, and ECB have all recently increased in size. That of the FED has not. In fact, the FED’s balance sheet is actually slightly smaller than it was a few weeks ago.
Why is two weeks so important? Two weeks have elapsed since the central banks announced a coordinated activity on November 30th. Notice how those balance sheets have expanded; note also where they have expanded. We have color-coded the various compositions of both assets and liabilities of each balance sheet. The recent growth in total assets of the four central banks is clear.
The one central bank balance sheet that did not grow is that of the United States’ central bank, the Federal Reserve. Notice what happened in the last few weeks when the others expanded and the FED did not. The US dollar actually started to strengthen against other currencies, particularly the euro. As we have been writing and stating for some time, there is a relationship between the foreign exchange markets and changes in the exchange rates among and between the currencies, and the actions of the central banks involved with those currencies. We see the reaction in the foreign exchange market almost at once. A central bank takes an action, makes a statement, initiates a policy – whatever the case may be – and the foreign exchange markets readjust the ratios among and between the currencies. That is apparent in the past two weeks, and it is apparent in an examination of those four central bank balance sheets.
Cumberland has stacked the four central bank balance sheets so they can be flipped easily by any interested party. We will update them regularly. The other stack of charts shows the “good” countries and the “bad” countries in the Eurozone. And it shows the spreads of interest rates between the good countries and the benchmark German 10-year sovereign debt instrument, known as the “bund”, and the spreads between the bad countries and the bund. Notice how the spreads peaked in almost every case a few days prior to the November 30th announcement of the change in central bank policies. We speculate that someone somewhere got wind the policy change was coming and may have made themselves a lot of money on that trade..."
at http://www.ritholtz.com/blog/2011/12/g4-central-balance-sheets-european-contagion/
Scroll to the two chart stacks. In the first, we reflect changes in the balance sheets of the G4 central banks. The G4 central banks are the Bank of England (BOE), the Bank of Japan (BOJ), the Federal Reserve (FED), and the European Central Bank (ECB). Other central banks are important; however, the G4 comprises the four central banks managing the currency blocks of nearly 85% of the capital markets that trade in the world. Other large capital markets are linked to one of them. Therefore, China’s central bank is not shown, because China manages its currency exchange rate via a peg to the others.
If you capture the G4 transactional changes, you get most of the financial impacts of the world. Paging though the G4, one sees the following information leap from the charts. The central bank balance sheets of the BOE, BOJ, and ECB have all recently increased in size. That of the FED has not. In fact, the FED’s balance sheet is actually slightly smaller than it was a few weeks ago.
Why is two weeks so important? Two weeks have elapsed since the central banks announced a coordinated activity on November 30th. Notice how those balance sheets have expanded; note also where they have expanded. We have color-coded the various compositions of both assets and liabilities of each balance sheet. The recent growth in total assets of the four central banks is clear.
The one central bank balance sheet that did not grow is that of the United States’ central bank, the Federal Reserve. Notice what happened in the last few weeks when the others expanded and the FED did not. The US dollar actually started to strengthen against other currencies, particularly the euro. As we have been writing and stating for some time, there is a relationship between the foreign exchange markets and changes in the exchange rates among and between the currencies, and the actions of the central banks involved with those currencies. We see the reaction in the foreign exchange market almost at once. A central bank takes an action, makes a statement, initiates a policy – whatever the case may be – and the foreign exchange markets readjust the ratios among and between the currencies. That is apparent in the past two weeks, and it is apparent in an examination of those four central bank balance sheets.
Cumberland has stacked the four central bank balance sheets so they can be flipped easily by any interested party. We will update them regularly. The other stack of charts shows the “good” countries and the “bad” countries in the Eurozone. And it shows the spreads of interest rates between the good countries and the benchmark German 10-year sovereign debt instrument, known as the “bund”, and the spreads between the bad countries and the bund. Notice how the spreads peaked in almost every case a few days prior to the November 30th announcement of the change in central bank policies. We speculate that someone somewhere got wind the policy change was coming and may have made themselves a lot of money on that trade..."
at http://www.ritholtz.com/blog/2011/12/g4-central-balance-sheets-european-contagion/
