SHIBOR: We Have A Liquidity Problem

Tyler Durden's picture

In our now globally accepted bizarro world, where problems are priced in before they even appear, disclosing swans of assorted colors becomes a moot point. After all, all the bad news in the universe couldn't possibly matter as long as the irrational exuberance persists. That the higher stocks go, the farther they will crash eventually (and for those with their finger on the sell buttong, good luck selling into a bidless market) is a given, but maybe, just maybe the laws of gravity are different this time. On the other hand, maybe they are not. For those who are convinced that no matter the amount of data fudging, accounting fraud, and dollar debasement that the Fed endorses, nature will eventually take its course, may want to take a look at the below chart of 1 week, 1 and 3 month SHIBOR. In a nutshell: there is no marginal liquidity left in the world's fastest growing economy. Eventually this will dawn on the world. Until then, BTFD.

And since it is not visible on the chart above, all three lines are way above the levels hit when Lehman filed for bankruptcy, when there was another liquidity collapse but for different reasons. The latest catalyst, the PBOC's Christmas Day interet rate hike has certainly not helped.

Here is Morgan Stanley's explanation of what is happening in China:

SHIBOR surged: As multiple RRR hikes have started to take effect, market liquidity has become very tight. Compounded with the year-end liquidity shortage and heightened expectation of further rate hikes, large banks have almost stopped lending into the interbank market. In this context, the SHIBOR has surged in the past two weeks, with the 7-day, 1-month and 3-month rates jumping 269bps, 187bps, and 74bps, respectively (Exhibit 2).

As for what is forthcoming, here is Morgan Stanley's expectation:

What’s next: Given the surging interbank rates and heightened expectation of further rate hikes, the liquidity management function of open market operations will likely remain paralyzed unless the reference yields are lifted aggressively to restore the attractiveness of bill issuances. Since the amount of matured bills should rebound significantly in January (Exhibit 5), the risk of an RRR hike (or differential RRR hike) is rising.

And the 64k question: if China, whose economy is far more than even that of America reliant on excess liquidity is shutting down the interbank market, what does that leave for Bernanke's centrally planned fiefdom?

And incidentally, when we discussed this very issue back in June, when we noted that the "China 1 Month Interbank Rate At Multi Year Highs, More Than Doubles In One Month" we summarized the issue perfectly: "Should China go ahead and reval the renminbi, must we expect a complete
lock up of the Chinese lending market? Perhaps with the Shanghai
Composite hitting a fresh 52 week low today, at least someone is paying
attention." Curiously, since then neither has there been much if any progress in the CNY reval, nor has the SHCOMP actually done anything material. So all those who are claiming liquidity conditions in China are irrelevant, would be very much urged to actually read a book or two on monetary policy and momo theory.

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RobotTrader's picture

I think that if there were a funding problem in China, the FXI would be charging towards new 52-week lows right now.

But that doesn't seem to be happening at the moment.

I'll keep my eyes on alert for some weakness, the market will always tell us when there is a problem.

101 years and counting's picture

unless, of course, the bots pull all bids when W&R enter a sell order of 5+ ES contracts.

i can see it now.  harry will be on the shitter....pull out his iPhone and see S&P is down 20...down 25...down 40...and by the time he hits "sell", S&P will be down 120.




bob_dabolina's picture

Like ZH has said Harry if the economy is so strong why does the FED not turn off the liquidity spigot?

Because Harry if the FED stops printing money to support this illusory economy we are all fucking dead. Do you understand that Harry?

SheepDog-One's picture

I think Harry actually does get it...he just likes being the negative attention whore around Zerohedge.

Cognitive Dissonance's picture

Harry is a psyops program penned by several different "voices".

StychoKiller's picture

With machine-like emphasis on the "program" part! :>D

centerline's picture

Seems to me that Robo and Harry and just trading, and having fun doing it (swatting the bees nest from time to time for sport).  They are "hanging 10" on the wave that I admit I do not have the gahones to surf.  They are gambling that they can get to the exits right before the casino in evitably locked-down and fire-bombed.  I do wish them the best in all of this.  Godspeed to the exits at the right moment gentlemen.

Logans_Run's picture

I wonder if they are both "Great White" fans?

dark pools of soros's picture

just sounds like they are playing around with money they can lose..  or atleast lose a substantial amount of


who knows.. they might have been the early adopters of guns, gold, canned food and now have to do something to piss away the time

SheepDog-One's picture

'Always someone buying' dream on as everyone is trampling each other for the door as the theater burns.
You wont be able to sell Harry, youre like Barney Fife up against Liberty Valance, youre dreaming and theres no gunslinger off to your right to save you with a miracle shot either. Keep dreaming that you can out sell the HFT bots when Bernanke flips the 'remove liquidity' switch.

Dr. No's picture

I remember on flash crash day, I couldnt log into my broker.  I did not have stop in place but wonder if they would have been executed if they were.  After a couple of days my broker hinted the issue was with the clearing house and therefore everyone was locked ot who used that MM.  If that was the case, stops would not have executed even if in place (i think).  Was the flash crash a once in a lifetime event and you cant plan according to that?  not so sure.

tahoebumsmith's picture


"manufacturing is surging, employment is picking up, corporate earnings are strong, etc., etc".

Read between the lines before you use the word surging. Last I checked we had the highest unemployment since the great depression, Corporate earnings are robust due to downsizing, outsourcing, lower wages and free money from the FED, and manufacturing is about back to where it was in the 1930's. You are such a figgy fool you need to move on to Yahoo, Bloomberg or some other MSM site where you can contribute to the discussions instead of being junked all the time. The shill train has hit your station so pack your window decor and jump aboard. This way when the truth plays out you won't have to be a coward and disappear into the night like the rest of them will.

traderjoe's picture

Harry, can you post your company's product catalog link? I'm moving and I need to furnish a new place with a variety of items...


SheepDog-One's picture

Ive been asking Harry for his catalog for months, he wont even send it in an email. Apparently his company is so great they dont even need to advertise.

traderjoe's picture

Of course, he had a "record 4Q" - even though all of my friends in home construction, home furnishings, etc. are struggling financially. 

Any good - real - salesperson would be happy to post a catalog for his company, especially since it wouldn't be necessary to reveal any personal information. 

homersimpson's picture

"Believe me, I'm never a moment away from the sell button."


Funny funny stuff. I'm sure you had your sell button ready on flash crash day last May.

Like you can overcome a "server is too busy" message on flash crash day..

Your connection was so slow to your brokerage account that infamous day you probably just logged in as HarryWang to save a millisecond.

A moment away from the sell button my arse. Whatever, Blankfein.

HarryWanqer's picture

I didn't have to sell.  I sold everything the previous trading day.  It was obvious then, that something was wrong.

equity_momo's picture

...and with this post you just proved youre full of hot air and horseshyte , Mr Harry Hindsight would be a better handle.  Id wager all your trading talk is paper based and you havent a real world position so to speak of.

Attention whore indeed.

Geithner_the_Perverted's picture

You're not that smart, are you ?

Seems like you didn't even see it's wasn't Harry Wanger but some impostor with a slightly different username.

Thank God there are people like you otherwise I'd have to work to earn a living.

dark pools of soros's picture

i have an ingrained habit of helping these easily fooled people.... is there still time for me to break that habit and get on the easy rich path?

TheGreatPonzi's picture

It has hardly something to do with intelligence, more like attention.

SheepDog-One's picture

OH right, you sold the previous day, but of course! Well let us know when the next 'previous day' is sensed by the great Harry!

CrashisOptimistic's picture

Oil is everything, of course, but for this particular matter of selling when "told to", it's useful to remember that futures drive the open and circuit breakers trigger at -10% with a closed for the day event.  Which can repeat the next day.  And the next.

You can be down 40% before you can trade.

malikai's picture

I have come to the opinion that the futures market is everything. I've also noticed that shorting the dow, s&p, or ndix are bad for your health these days. But it should be a fun ride if we get some double dip to play with.

tmosley's picture

Do you even know what the word "guarantee" means?  You can't guarantee yourself.

Exchanges shut down.  They cancel and reverse orders.  Banks have "holidays".  When the final straw hits, and you are still caught playing around in the burning building that is the US equities market, you are going to be caught under a hundred feet of burning rubble.

For things to actually get better, there have to be fundamental changes.  The ZH crowd will turn bullish again once those changes have been made.  Until then, we are bearish.  YOU are the only one that is perma-anything around here, well, you and a few other moronic trolls.

Lincolns Mullet's picture

Harry are you that cheeseball broker in all those Scottrade commercials?

Amish Hacker's picture

The metaphor for market processes that frequently gets trotted out here is the "fire in the crowded theater" meme. The idea is that I can trade profitably, and with impunity, because I'm sitting right next to the exit and my finger is never more than "a moment away from the sell button." But remember, it's not enough to be near the exit. You can't leave the burning theater until you have gotten someone else to agree to take your seat. In a bidless market, no one is going to agree to do that at anything close to your hoped-for price.

pslater's picture

I'd be EXTREMLY careful using the word "GUARANTEE" around something you have NO control over.

mberry8870's picture

This is year end liquidity dressing.

holmes's picture

You've got your finger constantly on the trading button AND you're running an incredibly successful company. Mom must be awful proud of you, Harry, but when do you find the time to do your chores?

mirac's picture

Earnings are up because Corporations are not paying their fair share of taxes.  Last week article on ZH...public tax receipts = 1.3 trillion vs corporate paying 160 billion.  When there was a normal middle class, think My Three Sons or The Flinstones, the payouts were about equal.  Welcome to one of the cornerstones of facism.  In the ensuing collapse, good luck getting your money out of the banks should your require it.  Somewhere along the line here the market ,Dow Jones Industrials, are going to drop 2000 points at the openning.

system failure's picture

Believe me, I'm never a moment away from the sell button. If the time comes, I'll sell and I guarantee there will be bids to take my shares. There is always someone "buying the dip" at the wrong time and there will be when the next "wrong time" comes.


Add this to your plan to "always someone""buying the dip"";" what if the FED announces a stop to QE2 adruptly and nobody wants to buy your planned dip selling opportunity, of which you can just push that sell button? Especially, with the weak volume, bot buying, unregulated, and rigged market participants. LOL

Tyler Durden's picture

Actually the only thing it will tell you is when the market's always myopic perception shifts and admits that the problem is there. At that point it will be too late to trade. On the other hand, with nothing but momentum trading operating right now, who knows how long the irrationality can persist. Those trading the inflection point better have some low theta basis as both bears and bulls will eventually be taken out.

SheepDog-One's picture

When those with Kool Aid coursing thru their veins as they gaze at the markets thru rose colored glasses finally see theres a problem and need to sell, they wont be able to. BTFD.

Chappaquiddick's picture

Tyler could you repost the US debt and its roll over dates??  It will be instructive just how much monetization will be required for this year.  Thanks

mule65's picture

Put options.  Make money with WOPR/Cramerica and plenty of time to escape the burning theater.

Tyler Durden's picture

Great plan except for one small glitch. When a stock is halted through an OTM purchased put's expiration, that goes in the money due to the underlying's collapse, you end up with nothing. Experienced most recently by those who bought RINO puts and the stock was halted for 3 weeks.

goldmiddelfinger's picture

the greatest trade is a short you never have to cover (e.g. WAMUQ) removing (most) of the initial investment via margin and tolling the cap gain tax until closed.


TheProphet's picture

Yeah, you want to short stocks that will be weak, but no too weak.

And I am not quite sure how one makes that determination.

SDRII's picture

Where does the Treasury capture to Principal roll of maturing debt? The monthly budget statement has a line item for interest..

bob_dabolina's picture

ROBO, what did IWM tell you yesterday when you posted that the Russell2000 was crashing (your words)

A Man without Qualities's picture

I remember a conference call with the cash desk of JPMorgan in New York back in early 2008.  The question was asked why the spread between Libor and Fed Funds was widening further out the curve.  Got a bunch of bullshit as an answer, but of course the truth was banks were becoming very reluctant to lend to each other, as they knew there were banks out there with serious problems.  

At this time, the equity markets couldn't have cared less, it was up all the way, but the short term interbank lending market is the oxygen on which the whole global economy turns and tends to flash warning signals before anything else.

hardcleareye's picture

"...the market will always tell us when there is a problem."

We have laws in this country about substance abuse, did you know that hallucinogens are banned now in all states except Texas and Arizona?  Why don't you consider doing some quality time in rehab with Lindsay Lohan?  Maybe you'll get lucky for a change......

Cleanclog's picture

BTW, the market does NOT always "know" and tell us when there is a problem.  Free markets, maybe, but ours haven't been "free" of late.  Take the ban on short selling financial equities from '08 situation.

Politicians/governments can hogtie markets as a force.  Could make CDS trading illegal, or invalidate contracts created under their jurisdiction.  

Could impose K controls and limit the movement of funds.  If China started to sell US Treasuries . . . remember Iranian assets frozen by the US?

The markets are currently so medicated and manipulated that you can trade them, but invest?

TheProphet's picture

You mean like it did in 2008?

Would you agree that by the time the market started telling us, it was already too late, like telling someone who was already shot that it might be a good idea to duck?