There’s something interesting happening in global money markets right now.
Money markets are giant funding pools that institutions and banks use to circulate dollars around the financial system… like blood moving around the cardiovascular system.
I’m talking about markets for things like repos and reverse repos, interest rate swaps, Eurodollar futures, LIBOR, fed funds, and Treasury securities.
I used to work in this area at Citigroup, on a team called “the finance desk.” We were responsible for “financing” Citigroup’s balance sheet, making sure it had the right amount of cash it needed minute to minute to run its trillion-dollar book of business.
The interesting thing is, yield curves and spreads across these markets have all gone “inverted” this year.
Curves invert like this when traders sense there could be a shortage of dollars and/or funding in the global financial system. They’re anticipating a strain on liquidity, in other words.
Basically, it’s an indication something is broken. I have no idea what that “something” is. It doesn’t happen often. Maybe once a decade. But it’s a bad omen.
Also, the press won’t understand this, but it’s the real reason the Fed will be cutting interest rates soon, despite a record-high stock market and low unemployment. It’ll be eager to unclog these markets, get credit flowing, steepen yield curves, and restore order.
In the meantime, the travels continue.
We’re in a town called Coimbatore. Here’s us traveling by bus.
Tom’s family traveling by bus
Our daughter Penny got sick at the self-sustainable farm on the mountain. So we came back to civilization, got her medicine, and checked ourselves into a comfy hotel ($35 per night).
We love the room service in this hotel. The food is delicious… among the best food we’ve eaten in India… and it’s very cheap. We ordered the Manchurian veg balls four times yesterday! We’ve also placed multiple orders for stir-fried noodles, grilled cheese sandwiches, French fries, crispy chilli cauliflower, and tandoori kebabs.
Each time they present us with a bill to sign, I look at Kate in amazement. It’s like the dollar menu at McDonald’s. We can’t seem to spend more than $4. (The Indian rupee is near the weakest it’s ever been against the dollar.)
Penny’s feeling much better now.
– Tom Dyson