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Central Planning + HFT = Global Bond Crash
Six years ago we first warned that unbridled central planning around the globe in the form of runaway debt monetization (which adds to stock market "liquidity" while soaking up trillions in high quality collateral i.e., government bonds) together with the uncontrolled proliferation of HFT which in turn soaks up all liquidity, can only mean one thing: crash across all assets classes. Years later, everyone is starting to finally get it.
Here is today's epiphany by Deutsche Bank's Jim Reid.
Everyone seems to have different theories with heavy corporate supply expectations a new one of late. What most traders have said though is that liquidity is awful. Big moves are possible on relatively low or average volumes. What has become increasingly clear over the last couple of years is that the combination of high money liquidity (ZIRP and QE) and low trading liquidity (regulation and bank capital constraints) creates air pockets. The former encourages investors to move in a similar (positive) direction until overheating occurs with the latter then creating problems when they want to collectively lighten up. Those of us in the credit market saw this close up with HY in H2 last year. However that this is increasingly spreading up the top of the capital structure is a worry. It’s also a worry that these events are occurring in relatively upbeat markets. I can't help thinking that when the next downturn hits the lack of liquidity in various markets is going to be chaotic. These increasingly regular liquidity issues we're seeing might be a mild dress rehearsal.
... a dress rehearsal for a main event that will be one for the ages.
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being politically correct may cost you money
It’s also a worry that these events are occurring in relatively upbeat markets.
LOL
"upbeat markets".................you mean the ones that all the CB's are buying in! LOL
Bank of Japan owns how much in EFTs. ..how much in US Efts
SNB owns how much AAPL?
The problem with accounting is selecting your period of analysis. Nobody in this market wants to look out more than a few weeks at a time....at most. So they can calculate profitability over short periods very easily. Longer term math sucks big time....but as they say, on a long enough time line the survival rate for everyone drops to zero. Nobody is getting out alive.
and that main event is closer every day.
It's almost like there are negative consequences to printing up trillions of dollars. I refuse to believe that of course, only a commie doesn't support the Fed.
So no real trading happening in a market is a bad thing? No shit, huh?
Old world trading was a bad thing. All those random people just buying and selling at whim - chaos! Now we have a much better system where trades go in a predictable and orderly direction towards the central banks. It's much better.
When it comes to money, reality almost always sucks.
"..Some people think the Fed prints money, but when you ask Ben B. about it, he says, "The Fed does not print money. We lend money." Printing money is easy to visualize and understand. Lending money is also easy to understand; it's what banks do. But what the Fed does is somewhat more difficult to understand. To put it into one phrase, "they print debt-money." They print money, but each dollar they print has the chains of debt attached to it. Each dollar they print represents a debt that somebody owes.
A Federal Reserve note is an IOU from the Fed that says "we owe you one dollar." There does exist in the world paper money that is not debt-money, but the Fed does not traffic in that. As the Fed prints more debt-money, they tighten the chains of debt enslaving the government and the people.
A national debt of $1 trillion is manageable. It might be paid off in a few years. But a debt of $17 trillion is permanently enslaving (unless it is defaulted upon). Ben's printing press, then, is also an enslaving press. If Americans were to try to default on $17 trillion of debt, The Powers That Be would unleash their full wrath on the American people.
Summary: Ben B. runs a printing press that is also a debt-enslaving press. We are wrong to focus just on the inflationary effects of his money printing. We should also be alarmed by the enslaving effects." ...chs
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What Every Student in America Needs To Know About The Federal Reserve
Tyler Durden's pictureSubmitted by Tyler Durden on 07/11/2013
http://www.zerohedge.com/news/2013-07-11/what-every-student-america-need...
"........There does exist in the world paper money that is not debt-money, but the Fed does not traffic in that........."
Indeed.
the bond mkt is the only one TPTB really care about. stocks are to keep the plebes quiet. to imagine the CBs will sit and let rates get out of control (without putting up a fight that is) is a pipedream. when hyperinflation comes to town then you can talk about 50% govt bond losses. but first we will see US 10yr sub 1%, when the FEAR comes round.
As someone once said on this board -
Somebody also says they're aren't x numbers of Central Banks around the world now, they all act as one.
The worrisome thing is not the HFTs, who skim a few cents here and there, but the algorithm trading that can look at order books, headlines, and especially at co-related markets -- then launch large moves by attacking several markets at the same time while exploiting gaps and holes in prices. This an algorithm may grab a big block of cheap stock options, then drive a market like currency or foreign markets to support a move, followed by a drive in that underlying stock. The hope is then to ignite other algorithms and stop loss orders to drive momentum. Human traders cannot monitor all of this fast enough to get in and out as quickly.
the monetary pump and its HFT doppelganger casino plays.
haha, we go to Capitalism's masked ball like to the Vampire's ball.
All the way to zero and back up again, only this time the exchanges will not cancel the transactions.
Let Me Speak to Liquidity for All to Understand:
There is indeed MASSIVE LIQUIDITY and it will Be Readily Available....
Just Not at these Prices.
"These" being ASSets of ALL Stripes......