Thursday Update
The Liquidity Storm
September 8, 2005
by David Yu
$59.2 billion M3 money supply stormed into the system for the week ended on 8/22/2005, one day prior to National Hurricane Center issuing the initial statement about a Tropical Depression Twelve. This Tropical Depression Twelve, you guessed it, was later upgraded to "Tropical Storm" Katrina on 8/24/2005. Katrina was then upgraded to Category 3 hurricane on 8/27/2005. Due to its rapid intensification, Katrina was then quickly upgraded to Category 4 on the very next day, 8/28/2005.
Katrina made its first landfall on 8/29/2005 near Buras-Triumph, Louisiana, and later that day it made its third landfall near Louisiana and Mississippi boarder, where the great city of New Orleans once was. For the week ended 8/29/2005, M3 only, relatively speaking, increased by $10.2 billion.
Either no one in the government saw pictures like the one below prior to Katrina's landfall or, simply, no one cared. It could also be just that our government is no longer in charge of the money supply.
This $59.2 billion M3 increase in one week was the largest I've seen since I started tracking the Fed's money supply. And, the timeline of that M3 pump indicated that wasn't meant for the hurricane victims. Like I said before, someone sensed the danger of the market and the economy going down.
In addition, during the week of 8/22 - 8/26, the Fed's repo totaled $53 billion, which again was the largest amount that I've seen since I started tracking the repo data. The Fed as the inflation fighter?! In any case, what the liquidity didn't do for the human sufferings in the South, it did greatly for the financial market.
Image provided by NASA
The super liquidity that was pumped into the financial system forced the market into reversing its downtrend - as shown on Chart 1 below. And, now that Katrina catastrophe has turned into a political event, more liquidity is going into the system for sure.
| David's Note: Friday, September 9, 2005 |
| And, speaking of political event... As it turned out, Michael Brown, the head of the Federal Emergency Management Agency (FEMA) has no prior experience in any type of emergency management, according to a TIME magazine investigation that reveals discrepancies in the FEMA chief's official biographies. Michael Brown was relieved of his duty earlier today. |
Chart 1
We're only 2 days away from the 4th anniversary of the 9/11 tragedy. After September 11, 2001 (see weekly chart below), the market made a higher high accompanied by a higher low (see blue price channel) before it resumed its downtrend. The market detoured for approx. 6 months back then. We'll see what happen this time with Katrina.
Chart 2
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