liquidity

Insider

Off The Cuff: Buy The @%&^ Dip!

This phrase will be a widow-maker in the next downturn
Thursday, May 25, 2017, 5:20 PM

In this week's Off The Cuff podcast, Chris and Mike "Mish" Shedlock discuss:

  • Fake, Fictitious Markets
    • None of today's prices is justified by the underlying data
  • Death By Drowning
    • Too much liquidity is killing our markets
  • Housing Bubble Trouble?
    • Prices now declining in the San Francisco Bay Area
  • Buy The @%&^ Dip!
    • What will happen when this universal strategy no longer works?

After last week's brief re-emergence of volatility in the financial markets, the world's various sovereign plunge protection teams have been hard at work flooding liquidity into the system to push prices back up. Losses will not be tolerated!

And so the "Buy the dip!" crowd is victorious once again. This strategy, mindless as it is, has worked extremely well over the past 6 years -- due to an ever-present influx of 'thin air' $billions supplied by the central banks. But for many reasons, that mindless approach can't -- and won't -- continue forever. And likely not for much longer.

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

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How Long Can The Great Global Reflation Continue?

And what will happen when it ends?
Friday, May 19, 2017, 8:01 PM

Given the extraordinary failure of both Keynesian stimulus and private-sector credit growth to create a self-sustaining cycle of expansion whose benefits flow to the entire workforce rather than to the top few percent, what can we expect going forward? Can we just keep doubling and tripling the economy’s debt load every few years? What if household incomes continue declining? Are these trends sustainable?

In the near-term, is this Great Reflation running out of steam, or is it poised for yet another leg higher? Which is more likely? » Read more

Podcast

Grant Williams: The Rising Danger Of A Bidless Market

We risk a future of flash crashes as liquidity dries up
Sunday, July 17, 2016, 12:18 PM

Grant Williams, veteran portfolio and strategy advisor, as well as proprietor of the economic blog Things That Make You Go Hmmm returns to the podcast this week to discuss his great concern about the liquidity risk underlying financial markets long-addicted to central bank rescue stimulus. » Read more

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In A World Of Artificial Liquidity – Cash Is King

And you'd better have some stashed out of the system
Friday, July 3, 2015, 12:19 PM

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

Insider

They're Coming For Your Cash

Liquidity-starved banks will take your savings via bail-ins
Friday, July 3, 2015, 12:19 PM

Executive Summary

  • The banking system runs on liquidity
  • Banks will do anything to keep it flowing -- including raiding their depositors
  • The risks of a global liquidity crunch are dangerously high today
  • Why extracting physical cash from the system is highly advised

If you have not yet read Part 1: In A World Of Artificial Liquidity – Cash Is King available free to all readers, please click here to read it first.

It's All About Liquidity For The Banks

Liquidity is the buzz-word that central banks used to justify their policies of keeping short term rates at zero (give or take) percent and buying bonds from banks in return for giving them more of it. Central banks say their primary responsibility is to balance full employment with low inflation, but that’s just code for being able to keep the largest banks solvent in times of emergency by all means possible. This current emergency has lasted nearly seven years and counting.  

Here are my laws of liquidity behavior:

The first law of liquidity – when it is most needed, it will be least available.

The second law of liquidity – the easier it is to get, the less value it holds for the recipient.

The third law of liquidity – the harder it is to find, the greater its systemic cost.

Banks gain on multiple fronts from “accommodative” monetary policy with respect to their liquidity needs. First, they can borrow money at next to nothing. Second, they can hoard that extra cash under the guise of complying with capital reserve requirements and get brownie points for passing stress tests because they are holding the cash or high quality assets bought with the cash, that central banks provided them to begin with. Third, they can sell bonds they don’t want or need at full value to central banks, and afterwards mark similar bonds at higher levels than the market would otherwise value them.

This is all shell-game finance. It is why people should be diligent about... » Read more

Insider

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, 12:50 PM

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.

(Source)

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

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The Trouble with Numbers

Our 'good' data worsens the closer we look
Tuesday, June 10, 2014, 12:06 PM

According to the ever-strident popular press, the world is in recovery. The stock market says so, the bond market says so, and the politicians and monetary bureaucrats all say so.

The only trouble is the central banks continue to flood the world with liquidity, something they shouldn't need to be doing if a true recovery were really upon us. » Read more

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Off the Cuff: Liquidity Crisis 2.0

Ready for another one?
Thursday, March 13, 2014, 11:02 AM

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

  • Liquidity Crisis 2.0
    • Russia & China may just be the first symptoms
  • Algos Gone Wild
    • Our broken markets are becoming even more so
  • Gold Bottom
    • It's in
  • Too Much Corporate Debt
    • It's going to be a killer in this next downturn
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Why 2014 Is Beginning to Look A Lot Like 2008

The similarities are stacking up
Wednesday, March 12, 2014, 12:06 PM

Does anything about 2014 remind you of 2008? 

The long lists of visible stress in the global financial system and the almost laughably hollow assurances that there are no bubbles, everything is under control, etc. etc. etc.  certainly remind me of the late-2007-early 2008 period when the subprime mortgage meltdown was already visible and officialdom from Federal Reserve chairman Alan Greenspan on down were mounting the bully pulpit at every opportunity to declare that there was no bubble in housing and the system was easily able to handle little things like default » Read more

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The Unraveling Continues

Time to buckle up
Monday, February 3, 2014, 8:03 PM

The U.S. stock markets had a bad day, as did Japan's and Europe's. Of course, the whole world is linked now, so that's no surprise.

As goes one, so go the others. » Read more