Looking for signs that the country's largest asset management firms believe a market meltdown may be on the horizon? Look no further than Vanguard and several other large ETF providers who have set up billions in credit lines with banks to guard against the possibility that a wave of redemptions could wreak havoc on illiquid credit markets.
“The biggest worry of the buy side around the world is that there has been a dramatic decline in liquidity from the sell side for many fixed income products,” Prudential's David Hunt tells Bloomberg, echoing Jamie Dimon and confirming what we've been shouting about for years.
"A slow start to the week has become customary, as Monday appears to have become the new Friday," Barclays says, noting that the humans simply aren't trading in a credit market where opportunities are scarce. Meanwhile, the robots do not rest, and on the Monday they simultaneously decide that some random data point or unduly hawkish/dovish soundbite out of an FOMC voter is cause for all the algos to chase down the same rabbit hole sending ripples through a fixed income market devoid of any real liquidity, the humans will be in for a rude awakening when they get to work on Tuesday morning.
When even Jamie Dimon warns that "another crisis is coming", and points to the utter lack of market liquidity and the likelihood of another flash crash, it probably means that not only has he been reading this website, but that JPM's chief prop trading group, the Chief Investment Office, infamously long three years ago is already short and just waiting for the bottom to fall out of the market. One group, however, that is not be too worried about the next global financial crash - at least superficially - are the BRICs, because according to the Russian Prime Minister Dmitry Medvedev, "the creation of the BRICS reserve currencies pool worth $100 billion will allow member states to depend less on negative processes in the world economy and bypass market volatility."
Revolving Debt Crashes Most In Four Years, As Student, Car Loans Go Exponential; Bank Lending FreezesSubmitted by Tyler Durden on 04/07/2015 15:20 -0400
There was only bad news in the just released Fed consumer credit report for the month of February. First, the "good credit", the one that consumer should load up on when they feel comfortable about the future, i.e., credit card, or revolving debt, continued its recent plunge, and in February crashed by $3.7 billion, following January's $1 billion plunge. This was the worst month for revolving credit since December 2010 and explains perfectly why the consumer has literally gone into hibernation - it has nothing to do with the weather, and everything to do with the unwillingness to "charge" purchases, which in turn is a clear glimpse into how the US consumer sees their financial and economic future.
"...I don’t think we know enough about how the private financial system works under these conditions... If you are an institution that is doing well within the parameters under which you’re used to functioning, you will fight any change without any notion as to whether that change is good or bad. That’s because there’s a very large uncertainty premium associated with the change... "
We're just a little over two weeks into PSPP and signs are already beginning to show that the ECB is effectively breaking the market. "The soaring cost of borrowing government bonds in secured lending markets highlights the distortions caused by the ECB's asset-purchase scheme, which analysts say could clog up Europe's financial system," Reuters notes.
The hunt for yield is driving investors into riskier debt at just the wrong time. With liquidity in the corporate bond market drying up thanks to new regulations, the rush to the exit is likely to be "very unpleasant," one analyst says.
Herbalife stock is up over 5% after hours after WSJ reports Bill Ackman (among others) made false statement about Herbalife's business models to regulators - in order to spur investigations into the company and lower its stock price. This comes just months after Ackman kinda-sorta-didn't-really insider-trade in the Allergan 'scam' that we detailed here. We suspect Whitney Tilson (and his Lumber Liquidators positions) is getting a little nervous now... and Carl Icahn is quietly laughing to himself.
"The BOJ’s purchases have had a 'huge' impact on the market’s liquidity. Buying bonds at a faster pace would make it more difficult for the BOJ to exit from its easing policy when the time comes to reduce stimulus."
"On October 15, the deepest and most liquid market in the world demonstrated a six standard deviation move in less than two hours, a move that happens once in 506,797,346 days and a recent report by BlackRock highlights how “the secondary trading environment for corporate bonds today is broken. These examples signal that the probability of an accident is high and the stage is set for an adverse event meeting with an outsized impact on markets and possibly economies."
"Fuck the CHF and the SNB!" "Those bastards lied to us - I'll never trust them again!"
To all those wondering if everything is rigged, we have a very simple answer: Yes.
Is this weakened system able to absorb a spike in one-directional volume? Will it step up and keep order? Or will it back off and allow volatility to roar?
We have shown this chart before. We will show it again because, to nobody's surprise, nothing has changed.