Regular readers will know that I have mentioned my London partners, Absolute Return Partners, in the past. They have a monthly letter called The Absolute Return Letter. This week we will look at some recent comments by my very good friend Niels Jensen, the president of ARP. I was just in London last week for a few days, and the topic of this week's OTB was discussed at length over dinner. Niels seems to have a gift for great restaurants and even better wines, as well as strong and thought-provoking opinions.
Niels comments on global liquidity, the dollar and liquidity. Niels sees the U.S. current account deficit as a good thing because it has helped add liquidity and stimulus to the global economy. Past downturns in global liquidity have been accompanied by a financial crisis somewhere in the world and strength in the Dollar. I strongly suggest you look at the charts included in this letter. They are quite instructive.
This is clearly a contrarian call. As you know, most observers predict that the dollar will weaken due to the large current account deficit. Thus, it is perfect for this week's Outside the Box.
John Mauldin, Editor
Outside the Box
Deteriorating Global Liquidity
Below we will take a closer look at one of our favourite leading indicators, namely the global liquidity indicator. Global liquidity may be defined in numerous ways. We tend to like the way Merrill Lynch defines it, mostly because it has proven an excellent predictive measure over the years. According to Merrill Lynch, global USD liquidity equals the sum of the U.S.…