Lesson 5
Measuring Global Liquidity
Track global liquidity, not just Fed liquidity. Use Global M2 (GLOBAL_M2) (available on TradingView) as a rough proxy. When global liquidity is expanding (even if Fed is neutral), risk assets get support. When it's contracting globally (2022), there's nowhere to hide.
📊 Indicators mentioned in this lesson (click for details):
You can't trade what you can't measure. Global liquidity is complex, but there are practical ways to track it.
Howell's Framework (Capital Wars):
Michael Howell's CrossBorder Capital tracks global liquidity by aggregating:
- Major central bank balance sheets (Fed, PBoC, ECB, BoJ, BoE)
- Shadow banking credit
- Cross-border flows
- Private sector balance sheets
He estimates a ~65-month liquidity cycle, driven by debt refinancing walls.
DIY Tracking:
For practical purposes, you can track a simplified version:
- Fed Net Liquidity (FED_NET_LIQUIDITY): WALCL - TGA (WTREGEN) - RRP (RRPONTSYD) (US component)
- Global M2 (GLOBAL_M2) Aggregate: Sum of US, China, EU, Japan M2 in USD terms
- DXY: Dollar strength affects the USD translation of foreign liquidity
- Major CB Balance Sheet Changes: Track Fed, PBoC, ECB, BoJ quarterly
Currency Effects:
Global M2 (GLOBAL_M2) in USD terms includes FX effects. When the dollar weakens:
- Foreign M2 'grows' in dollar terms (translation effect)
- This mechanically increases measured global liquidity
- Even without any actual printing abroad
Check your understanding
Lesson Quiz
Quiz Check
How can you track global liquidity without expensive data services?
Quiz Check
If the dollar weakens 10% against major currencies, what happens to measured Global M2 (GLOBAL_M2) in USD terms?