Lesson 2
Basket 1: Macro Regime Metrics
Check Basket 1 weekly. If Fed Net Liquidity (FED_NET_LIQUIDITY) is rising and DXY is falling, the Macro regime supports risk. If Net Liquidity is falling, DXY is rising, and the curve is inverted, the regime is hostile.
📊 Indicators mentioned in this lesson (click for details):
Basket 1 is the foundation. These metrics tell you whether the liquidity tide is rising or falling.
Fed Net Liquidity (FED_NET_LIQUIDITY):
Formula: WALCL - TGA (WTREGEN) - RRP (RRPONTSYD)
- WALCL: Fed balance sheet (WALCL) (what they've created)
- TGA (WTREGEN): Treasury's account (locked up, unavailable)
- RRP (RRPONTSYD): Reverse repo (parked, not circulating)
Net Liquidity is what's actually flowing through the system. Track the 4-week direction.
Global M2 (GLOBAL_M2):
Sum of major economies' M2 in USD terms. Available on TradingView. When global M2 (GLOBAL_M2) is rising, there's fuel for risk assets globally.
DXY (Dollar Index (DXY)):
- Rising DXY = tightening global conditions (dollar wrecking ball)
- Falling DXY = easing global conditions (capital flowing to risk)
Yield Curve (T10Y2Y) (2s10s (T10Y2Y)):
- Normal (upward): Economy healthy, credit flowing
- Flat: Late cycle, credit tightening
- Inverted: Recession warning (6-24 month lead)
- Steepening after inversion: Recession imminent
Additional Important Metrics:
- MOVE Index (MOVE): Bond volatility, leverage throttle
- Real Yield (REAL_YIELD_2Y)s: Nominal minus inflation expectations
- Credit Spreads: HY option-adjusted spread
Check your understanding
Lesson Quiz
Quiz Check
What is Fed Net Liquidity (FED_NET_LIQUIDITY) and how is it calculated?
Quiz Check
The Fed is doing QT (balance sheet shrinking) but RRP (RRPONTSYD) is draining rapidly. What's the net effect on liquidity?