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Time for a low tide

Liquidity is being drained from the system on a global scale. After years of money printing and QE by global central banks, most of them, with the notable exceptions of China’s #pboc and Japan’s #boj, have been reducing their balance sheets to contain inflation. At the peak of full money printing, in 2019, global central banks’ balance sheets accounted for almost a third of world’s gdp (31%). Since then, they have been reduced to 25% today, which is still high, but it seems it will continue its path down. But if liquidity has been behind the market rise with a very high correlation between both, and now it’s time for a low tide, where will the market find its support? High interest rates will reduce the amount of stock buybacks, and valuations are not necessarily cheap, particularly on the stocks that are pulling up on this market. Who will replenish the liquidity hole?

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