In A World Of Artificial Liquidity – Cash Is King

And you'd better have some stashed out of the system
Friday, July 3, 2015, 11:19 AM

It's more crucial now than ever for people to consider extracting a portion of cash from their bank accounts. » Read more


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The Global Credit Market Is Now A Lit Powderkeg

And markets are totally unprepared
Friday, June 26, 2015, 11:53 AM

Although the Street seems to agonize over equity valuations and recent price volatility, as I see it the real issue is the global bond market. Why?

Globally, the value of outstanding credit instruments is three times the total value of publicly traded equities. Just which do you imagine is more important to institutional investors? » Read more



What Awaits Us In The Future Of Higher Interest Rates

Having an action plan will be the key to preserving wealth
Friday, June 26, 2015, 11:53 AM

Executive Summary

  • Expect a bond market bloodbath as rates rise
  • Municipal, corporate and sovereign defaults will soon follow
  • Liquidity suffers as necessary goods prices rise, but securities prices fall
  • The new, nuclear risk of a derivatives market collapse

If you have not yet read Part 1: The Global Credit Market Is Now A Lit Powderkeg available free to all readers, please click here to read it first.

You may remember that what caused then Fed Chairman Paul Volcker to drive interest rates up in the late 1970’s was embedded inflationary expectations on the part of investors and the public at large. Volcker needed to break that inflationary mindset. Once inflationary expectations take hold in any system, they are very hard to reverse.

A huge advantage for Central Bankers being able to “print money” in very large magnitude in the current cycle has been that inflationary expectations have remained subdued. In fact, consumer prices as measured by government statistics (CPI) have been very low in recent years.

When Central Bankers started to print money, many were worried this currency debasement would lead to rampant inflation. Again, that has not happened for a very specific reason. For the heightened levels of inflation to sustainably take hold, wage inflation must be present. I've studied historical inflationary cycles and have not been surprised at outcomes in the current cycle in the least, as in the current cycle, continued labor market pressures have resulted in the lowest wage growth of any cycle in recent memory. But is this about to change at the margin?

The chart below shows us... » Read more



Credit Market Warning

Long-awaited signs of danger are materializing
Friday, June 19, 2015, 11:50 AM

There are large signs of stress now present in the credit markets. You might not know it from today's multi-generationally low interest rates, but other key measures such as liquidity and volatility are flashing worrying signs. » Read more


The Warning Indicators To Watch For Trouble In The Bond Market

The signals that will tell when the rout is on
Friday, June 19, 2015, 11:50 AM

Executive Summary

  • Liquidity is drying up
  • Volatility is returning
  • HFT has dramatically increased crash risk
  • The key takeaways for investors

If you have not yet read Part 1: Credit Market Warning available free to all readers, please click here to read it first.

Financial assets are worth what someone will pay for them.  A corollary of this is that you’d much rather be trying to buy or sell in markets that are deep and liquid.  Thin markets provide bad prices at best, and no bids or offers at worst.

Low trading volumes are worrisome because they are usually accompanied by higher volatility. And those two can easily become dance partners that whirl each other ever faster. 

There are numerous warning signs coming from all asset markets, but especially from the bond markets.

Low Liquidity

The issue of low liquidity really jumped out at me roughly a year ago with the news that the utterly broken Japanese government bond (JGB) market had gone an entire 36 hours without a single trade(!!).

Japan bond market liquidity dries up as BoJ holding crosses ¥200tn

Arp 15, 2015

The Bank of Japan’s massive purchases of government debt hit a milestone this week, sucking liquidity out of the market to such an extent that the benchmark 10-year bond went untraded for more than a day, the first time in 13 years.

The current 10-year cash bonds saw its first trade of the week yesterday afternoon, having gone untraded for more than a day and a half.

Trade volume in the benchmark cash bonds so far this month dropped to less than one trillion yen, down about 70% from the same period last year.


Thus comes the law of unintended consequences.  The main reason for buying JGB’s by the Bank of Japan (BoJ) was to inject a lot of liquidity into ‘the system’ in hopes that the Japanese economy would take off.

While that may have happened to some (slight) extent what also happened was that ... » Read more



Off The Cuff: More On The War On Cash

Plus the growing threat of Greece & the bond markets
Thursday, June 18, 2015, 1:48 PM

In this week's Off the Cuff podcast, Chris and Charles Hugh Smith discuss:

  • The War On Cash
    • Why governments are so interested in a cashless society
  • Grexit
    • Why the EU power structure fears it
  • The Bond Bomb
    • This one will be for all the marbles
  • Too Many Risks
    • There's little gain to remaining long in this market

Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio and other premium content today. » Read more



As Goes The Credit Market, So Goes The World

When confidence cracks, we'll see it there first
Friday, June 5, 2015, 10:46 AM

During the prior economic cycle of 2003-2007, one question I asked again and again was: Is the US running on a business cycle or a credit cycle?

That question was prompted by a series of data I have tracked for decades; data that tells a very important story about the character of the US economy. Specifically, that data series is the relationship of total US Credit Market Debt relative to US GDP. » Read more


Everett Collection/Shutterstock

The Central Banks Are Losing Control Of The System

Evidence is multiplying
Friday, June 5, 2015, 10:46 AM

Executive Summary

  • What the NACM Index and the Atlanta GDPNow are telling us about the odds of returning to recession
  • Bond market volatility is picking up
  • Are central banks are losing their control?
  • Why monitoring credit markets will be our best indicator of the next downturn

If you have not yet read Part 1: As Goes The Credit Market, So Goes The World available free to all readers, please click here to read it first.

That indicator is the current level of the National Association of Credit Managers Index.  Although not wildly well known, the National Association of Credit Managers Index is an indicator deserving of attention and monitoring immediately ahead.

As per the National Association of Credit Management (NACM), the Credit Managers Index is a monthly survey of responses from US credit and collections professionals rating factors such as sales, credit availability, new credit applications, accounts placed on collection, etc.  The NACM tells us that numeric response levels above 50 represent an economy in expansionary mode, which means readings below 50 connote economic contraction.  For now, the index rests in territory connoting economic expansion, but the index is also sitting quite near a 6 year low.  We’ve been here before in the current cycle as the economy has moved in fits and starts in terms of the character of growth:

In a prior discussion, I mentioned the slowing in the US economy in the first quarter of 2015.  I highlighted the Atlanta Fed GDPNow model that turned out to be very correct in its assessment of Q1 US GDP.  While the Atlanta Fed was predicting a 0.1% Q1 GDP growth rate number, the Blue Chip Economists were expecting 1.4% growth.  When the 0.2% number was reported, it turns out the Atlanta Fed GDPNow model was virtually right on the mark.  As of now, the Atlanta Fed GDPNow model is predicting a... » Read more


Konstantin Sutyagin/Shutterstock

4 Factors Signaling Volatility Will Return With A Vengeance

Buckle up. It's going to get bumpy.
Wednesday, May 20, 2015, 8:43 AM

No one could have predicted the sheer scope of global monetary policy bolstering the private banking and trading system. Yet, here we were - ensconced in the seventh year of capital markets being buoyed by coordinated government and central bank strategies. It’s Keynesianism for Wall Street.

The unprecedented nature of this international effort has provided an illusion of stability, albeit reliant on artificial stimulus to the private sector in the form of cheap money, tempered currency rates (except the dollar - so far) and multi-trillion dollar bond buying programs. It is the most expensive, blatant aid for major financial players ever conceived and executed. But the facade is fading. Even those sustaining this madness, like the IMF, are issuing warnings about increasing volatility. » Read more



Off The Cuff: The Deathtrap of Over-Financialization

How its metastasis has killed the global economy
Thursday, May 14, 2015, 4:00 PM

In this week's Off the Cuff podcast, Chris and Brian Pretti discuss:

  • The Over-Financialization Of The World
    • It's the cancer that's killing the global economy
  • The Fed's Failure Is Becoming More Apparent
    • Deteriorating data and bubble-prices
  • Chicago Blue
    • What it pension woes mean for the city, and the rest of America
  • Trouble Brewing In The Bond Market
    • This is where the real carnage will happen