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E-Mini Liquidity Has Crashed 40% In The Past Quarter, JPMorgan Finds
Confused why one second the market is down 1%, and then moments later, upon returning from the bathroom, one finds it up by the same amount on negligible volume? Simple: there continues to be zero liquidity. Although, not just in equities, but in bonds as well, something this website - and the TBAC and Citi's Matt King - has warned for over year. It is the lack of bond liquidity that led to last week's dramatic surge in bond prices as Bloomberg noticed overnight.
So for those curious just how bad bond liquidity is now, here is JPM's Nikolaos Panigirtzoglou with the explanation:
For the safest bond markets, bid-ask spreads typically remain very narrow in good times and bad, and shifts in liquidity conditions are best captured by changes in market depth. Our fixed income research measures market depth by averaging the size of the three best bids and offers each day for key markets. Figure 3 shows two such measures, for 10-year cash Treasuries (market depth measured in $mn) and German Bund futures (market depth measured in number of contracts). Again, these measures appear consistent with deterioration in market depth i.e. the ability to transact in size without impacting market prices too much. The recent deterioration in market depth has been more acute for USTs than Bunds, also evidenced by the large daily moves in UST yields in recent days.
Yeah, ok. Nothing new: wondering who the culprit is, look no further than the Fed which now owns 35% of all 10 Year equivalents across the curve, a liquidity shortfall for everyone else that will only get worse if and when the Fed embarks on QE4 (just a matter of time), as we explained last May in "Desperately Seeking $11.2 Trillion In Collateral, Or How "Modern Money" Really Works."
But what about equities: turns out here things are worse. Much worse. About 40% worse according to JPM's take of CME data:
An alternative liquidity measure comes from the CME, which reports a quarterly measure of “market depth”, that is, the transaction cost of trading in reasonable size across a selection of futures markets (e.g. for Mini S&P500 futures, 500 contracts lot). This measure shows how deep the market is in terms of the quantity of orders resting on the best bid and best offer, i.e. number of contracts at best bid-ask spread in the limit order book. The quarterly change in this measure between June and September as % of its average over the past three years is shown in Figure 4. Over the past quarter there has been significant deterioration in the market depth for S&P500 and Crude Oil futures but an improvement for agricultural commodity futures. There has been no material change in the market depth for FX, i.e. euro and yen futures contracts, over the past quarter. The market depth metric for these contracts continues to be at the very top of the past three years’ range.
JPM's sugarcoated conclusion: "Market depth metrics appear to have deteriorated across all asset classes." Which is perfectly ok when the market is rising: it means that tiny buying volume can lead to outsized returns. Where it becomes a huge problem, as last week showed, is when the central planners lose control, for whatever reason, and the market finally sells off. That's when one's faith in St. Janet and the CTRL-Priory of Eccles is truly tested.
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nice obvious slam on the phony paper price of Silver again goin into the close in London...
what is it with the $17.50 mark that these banker pieces of shit fear so fucking much????
http://www.kitco.com/charts/livesilver.html
http://www.silverseek.com/
was that the now famous ...
666 contracts?
They are probably more pissed off than scared. Whatever they do to try and shake people out, it doesn't work. They just amp up the physical buying. They probably want people to believe they will just default and send paper to zero to get out of their derivatives. But then they will take down the CME as a pricie rigging mechanism and lose their power in every contract. I don't see them doing that. I see them covering and printing money to cover the losses, like they always do. they will announce their next QE just cover their losses, like they did QE3 to cover JPM's whale trade losses.
my neighbor's half-sister makes $63 /hour on the internet . She has been out of work for 10 months but last month her pay was $16551 just working on the internet for a few hours. More Info... www.job-reports.com
HFT: "Liquidity, I am thy servant"
(Epic machine battle occuring at the Russell 2000's 20-day MA. It surged near that level in the first 15-min candle, taller than the Washington Monument, but has been rebuffed thus far, of course still early. Interesting to see what king of "liquidity" we see if it reverses hard down from there pre-noon. Thus far, it reminds me of that Daffy Duck Thanksgiving cartoon, where the backwoods couple tries to cook him after he helps Tom Turkey slim down: "I keep a-lightin' the matches, and he keeps a-blowin' 'em out")
Peter Schiff just on CNBC with Rick Santelli - saying that he thinks the FED has QE4 primed and ready to launch, and that they will not be stopping their intervention but continuing to prop those at the top, income inequality, and the bubble economy.
And oil keeps going down. You don't need gas to drive to work if you don't have a job.
"And oil keeps going down. You don't need gas to drive to work if you don't have a job." --
Correct, but you still need to eat. Long black markets and sharecropping, welcome to the Soviet Union 2.0...
What the fuck does "liquidity" really mean on a planet with central banks gone wild?
stupid fucks.
Liquidity is the money WE don't have....
QE4 could already be happening. I highly doubt the mainstream media will report on it. It'll be reported on here and all of us that mention it will be called tin foil hat wearers.
K-Hen seems to be taking short-term vol to pound town, mid-term is not being fluffed.
So it's widening spreads that show illiquidity?
i find your lack of faith disturbing. [/darth]
the fed will buy all the equities eventually too.
Fine and well, but to the average person it doesn't ring a bell.
If I go to a store and purchase an item for $10 I will pull out $10 cash for the item. I guess that means I am liquid.
However if I use my credit card and they ding me interest at the end of the month it means I am not liquid but hopefully have the ability to pay.
If I am up to my ears in credit and decide to not pay but keep what little coin I have to live, I suppose that is no liquidity?
I'm assuming the above tells me there is no money left in the bond funds pockets.
When the $700 Trillion derivatives bill can't be paid is when everyone will show their empty pockets.
I just hope the collapse stops somewhere in the iron age cause I really don't want to go back to the bronze age...
Again, these measures appear consistent with deterioration in market depth i.e. the ability to transact in size without impacting market prices too much.
Yes!
why QE MUST end (for now)
despite Bullards BS
One of the greatest assets of the Treasury Bond market was its depth. Quite a few varied funds have over $100 billion in assets. Treasury liquidity (in the old days) allowed players to inject/draw out in large scale - at a moments notice - without moving the needle.
Well, when you print, print, print for as long as these characters have been doing it you have to expect that a dollar no longer has much buying power. Billions have replaced millions and to get the same return each trade needs MASSIVE numbers of paper dollars.
$trillions in excess reserves and "falling off the cliff" drop in velocity of money says otherwise re USD strength
...perhaps, but velocity only matters if people still accept your currency.
Yes, drop in velocity...but these are not "investments": there's nothing being produced, nothing productive, no goods being sold about them...they're BETS, that's all, and ways to park money with "low risk"...and even these bond trades can't soak up all the available paper dollars...
We can't go around pretending that every financial asset is some kind of productve investment. They aren't.
Price inflation MUST be just around the corner, hiding under the surface.
I've been getting filled on 100 ES contracts with little or no slippage, so to state that liquidity has 'crashed' in the E-mini's is wholly incorrect. If you traded them, you would know that in fact, liquidity has been amazing of late.
I have to second this. I don't trade at the 100 contract size, more like 10-25, but I get quick and easy fills still with little price slippage.
Quote from IBM CEO ... sounds bullish ...
"We are disappointed in our performance. We saw a marked slowdown in September in client buying behavior"
They have a plan for that little problem......selling will be outlawed.
Edit: Junk me if you like, but they did it in 2008. What makes you think they won't do it again?
anyone surprised?
from IBM release -
At the end of September 2014, IBM had approximately $1.4 billion remaining from the current share repurchase authorization. The company expects to request an additional share repurchase authorization at the October 2014 board meeting.
Assuming the Central Banks are buying, its not a trade, its a buy and hold/roll I presume, Why wouldnt that be adding more depth to the market, as more money chase the contracts.....
Actually I guess I just raised another question, is this article even relevant without posting E-mini volume over the same time?
Well , if less liquidity means more volatility.... bring it on !! :)
On days like these, ZH reminds me of clever guys is some room, reading Tea Leaves of the old Politburo, and trying to decipher how to play the day's trades.
Reminder to Tyler and fellow ZHers: It is TPTB/Politburo that decide what things will be worth on any given day, and who the winners and losers shall be. IOW: "Your Crystal Ball is no longer under Warranty". Sorry.
The End will come when either they decide to do a Reset (in synchronized unison with their ilk across the globe, i.e. the G7+NATO+Israel+Saudis), or when far bigger forces overwhelm them.
And as with the so-called 'Markets', good luck in predicting much of anything, least of all "The End". As the Germans like to say:"Tee trinken, abwarten". IOW... Stick to your plan and routine, remain calm and patient, and let things unfold.
p.s. Notice that it's Monday, and too early to get worked up with Doomsday Anxiety. Wait till Friday. ;-)
Liquidity is about demand for transactions. It has no direct relationship to market cap or the size of anyone’s holdings in a given security. Volume is not necessarily liquidity either. You only have real liquidity when large numbers of investors are active in the markets for different reasons, meaning some want to buy when others want to sell. That the real key. It’s the most important reason markets exist at all.
Fed monetary policy and action has damaged liquidity by reducing the number of reasons people trade, and forced them all onto the same side of the trade when they do. “QE ON” translates into “Everyone wants to buy at the same time”. “QE Off” translates into “Everyone wants to sell at the same time”. This is the destruction of liquidity in action, and no amount of HFT algo churning volume can replace it.
This ^