His wiki entry: http://en.wikipedia.org/wiki/Mark_Carney

Global liquidity is an amorphous concept. The Usual Suspect for any event or dynamic too complicated to explain, global liquidity is the Keyser Söze of international finance. It has no agreed definition and, as a consequence, there has been no coherent policy approach to tame its more violent tendencies.

However here we have a quote which clearly emphasizes why smart money should continue to focus on liquidity’s impact on portfolio construction:

With increasing financial integration, the impact of global liquidity on domestic financial and economic conditions is growing.3 The recent Irish experience demonstrates how it can amplify the cyclical dynamics of domestic credit and asset prices.

The link to the full talk is: http://www.bankofcanada.ca/2011/11/speeches/global-liquidity/

There are many ways to evaluate. Lets run through some we are considering just for ‘sanity checks’.

1) risk index positive / negative: For example, taking a look at average 1-month, 3-, 6-, 12- and 24- performance of the market index, then bifurcating the returns to when the risk index was in ‘high’ risk or ‘low’ risk territory.

2) risk index at an extreme: If the risk index hit a local high (say within the past 2-3 years), what was the market index’s subsequent returns. This was the main emphasis of Covert Analytics, as a ‘risk management software’ that would help align risk index peaks / extremes with market tops and bottoms.

3) regression and correlation of risk index level with subsequent market return: A little too academic, but worth a look

4) performance of risk index as a rebalancing indicator: here we can add a binary analysis, ie if market is in high risk territory, be in cash, or if in low risk territory be in the market. The major issue here is surely the risk index will cause the portfolio to be out of the market too long, thus missing out on many many months of compounding returns.

Oh the challenges. But this will be an invigorating part of the site, that will help quantify the usefulness of our approach and software for our users.

Then Berlusconi steps down, in comes Mr Monti. He is often called a technocrat. What is a technocrat? According to dictionary.com, it is defined as one who is a technical expert, especially one in a managerial or administrative position. Many ‘smart money’ managers we have spoken to recently have felt very passionately that Monti is without the support of the populace and that this will be another failed attempt by European policymakers.

Interestingly, today Mr Antonio Borges of the IMF (director of Europe) stepped down. Markets have sold off aggressively in the past week. Markets sold off pretty aggressively after the announcement.

Since October however, markets are largely unchanged with the S&P hovering between 1220 and 1280. This goes to show that markets are largely discounting very little from the day to day noise and widely fluctuating markets with no clear trend are very possible. It is for this reason that we adhere to our approach of sticking to the fundamentals, keeping an eye on sentiment and technicals, and letting the data speak for itself.

This is not a time for trading in and out of positions, but it is definitely a time when a tactical asset allocation is key.

Republican presidential nominee Herman Cain gave his thoughts on the movement last week:

Ronald Reagan used to tell the story about the British worked who stood by the road with his son as a Rolls Royce went by and said someday we’re going to get that guy out of that car. And the American stood by the road as a Cadillac went by and he said some day you’re going to buy that car.

This is a central thesis about American society, that there is clear progress via rapid economic growth, geographic mobility, the resilience of American capitalism, the innovation inherent in American culture, etc. So, as we always try to do at Covert Analytics, let us let the facts speak for themselves:

- Income inequality is sadly high in the US: As measured by the GINI coefficient the distribution of income in the US is below Nigeria, Iran, and Nicaragua!  Note the GINI coefficient is a measure developed nearly 100 years ago by the Italian statistician Corrado Gini and goes from zero (total equality) to 1 (total inequality). View the 2011 rankings:

http://en.wikipedia.org/wiki/List_of_countries_by_income_equality

- Wage growth in the US has stagnated for nearly a decade and education and healthcare costs have soared: total wages as a percent of GDP were as high as 49% in 2000 and are now down to 44%, and using a base of 100 from 1994, CPI has increased to about 150, whereas medical care is reaching 200 and education is reaching nearly 260.

- Migration has been on a downtrend since the 1980s: when one region of America is in a bust you can always pick up and move to a region that is booming, no? A paper by the Federal Reserve Board says migration rates have been in a relatively steady decline since the 1980s.

- CEO and other top executives making ridiculous multiples of  ’average workers’: The Economic Policy Institute recently did a study which noted that in 1985 the average CEO and top executive made approximately 24x the average worker. Now?  262x the average worker. The last study we could find is available here:

http://www.epi.org/publication/webfeatures_snapshots_20060621/

So clearly the underlying US economic fundamentals show that the rising tide has not lifted all boats equally over the past decade, probably longer. What is scary is that similar events transpired in the middle of the Great Depression, with the “bonus army” protests.  History is certainly rhyming …

http://en.wikipedia.org/wiki/Bonus_Army

Japan consumer confidence: the measure for overall nationwide consumer confidence in September climbed to 38.5, a 6 month high since bottoming in March.

Australia capacity utilization: the September figure came in at 81.3% (note in the financial crisis it bottomed around 79%, and peaked in late 2007 at 84.5%).

Auto sales in Russia and India: Car sales in Russia and India saw strong upticks in September, and on a year over year basis. Russian car sales (0.236 million), compares very favorably with the same period last year (approximately 0.175 million). India car sales for September (1.83 million) are seeing a huge uptick compared with a year ago (1.5 million).

Comments from Economist are available here: http://www.economist.com/node/21531506

Just wanted to update our users on a new feature. We removed the “historical returns table” from the Markets & Economics section. Now you can click on the market’s “Analytics” function, and it will jump straight to the returns analysis section, with the market you clicked on pre-loaded. There is now an option titled “Historical Returns Table”.

We hope you like the feature update. We think this is a more intuitive way to navigate the site. See a descriptive video below:

Our approach has always espoused a ‘lets look at what the data is telling us’ approach. Our models are seeing a spike in fear, but plenty of value in risk assets. Most likely the future will be brighter  than fearful investors anticipate. The arbitrage between fear and fundamentals is a rare opportunity for far sighted investors.

Some bullet points:

* rising threat of recession implies a fair distribution across a range of outcomes (sub par recovery, economic mush, and finally out right recession). We like the value that is present in the markets, but until the dust settles, many will want to edge towards caution.  Focus on the data.

* government bonds will continue to have a tailwind from investor risk aversion and ZIRPs across the world. Value is poor (look at what our models are saying comparing global bond yields with global earnings yield). Yields could rebound quickly if there is any improvement in the economic data.

* further unwinding in commodity prices is likely in the near run, but favorable structural supply and demand dynamics point to higher prices in 12 months.