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The $3 Trillion Traffic Jam: "It's About Time We Started Worrying About The Next Financial Crisis"
"It’s about time we start getting worried about possibly the next [financial crisis]," warns BlueMountain's James Staley explaining that, "the lack of liquidity that currently exists today, is something that people on the buy side, sell side and regulatory side need to be focused on." In an effort to quantify just how big that 'issue' is, Bloomberg reports that the U.S. corporate-bond market has ballooned by $3.7 trillion during the past decade, yet, as Citi's Stephen Antczak warns, almost all of that growth is concentrated in the hands of three types of buyers, "we used to have 23 types of investors in the market. Now we have three. In my mind, that’s the key driver."
As Bloomberg reports, for all the concern that Wall Street’s shrinking balance sheets will fuel a liquidity crisis when investors flee credit markets, Citigroup Inc. strategist Stephen Antczak says investors may be overlooking an even bigger catalyst.
Almost all of the $3.7 trillion growth is concentrated in the hands of three types of buyers: mutual funds, foreign investors and insurance companies, according to Citigroup. That combination could lead to more selling than the market can absorb when the Federal Reserve raises interest rates for the first time since 2006, Antczak said.
“All the money is going to the same place, and when something adversely impacts one, chances are the same factor adversely impacts everyone else, and there’s nobody there to take the other side,” Antczak said in a telephone interview. “We used to have 23 types of investors in the market. Now we have three. In my mind, that’s the key driver.”
The three investor groups hold almost two-thirds of total corporate debt, Citigroup data show.
Adding to the worries, as we have discussed in detail previously, dealer inventories of corporate bonds plunged more than 76 percent in the years after the financial crisis as tougher banking regulations made it more expensive for them to hold risky assets.
“The low levels of dealer balance sheets suggest that dealers will not be willing to make purchases to offset the selling flows,” Jim Caron, a money manager at Morgan Stanley Investment Management, which oversees $406 billion, said in an e-mail. He called liquidity a “known unknown risk” for bond markets.
The world’s biggest money managers, including Pacific Investment Management Co., BlackRock Inc. and Vanguard Group Inc., have been discussing the issue as part of a Securities Industry & Financial Markets Association group. Last month, they asked the U.S. Securities and Exchange Commission to form an advisory committee to focus on liquidity -- the ability to buy and sell easily without greatly affecting the price of a security.
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“The size of that corporate bond market, with the lack of liquidity that currently exists today, is something that people on the buy side, sell side and regulatory side need to be focused on,” James E. Staley, a managing partner at the $21 billion investment firm BlueMountain Capital Management, said last week at a conference in New York. “If financial crises tend to happen every seven years, it’s about time we start getting worried about possibly the next one.”
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But three is a crowd
Go long on 2.
"we used to have 23 types of investors in the market. Now we have three. In my mind, that’s the key driver."
Yeah, but as three is the cube root of 27, and 27 is more than 23, what the fuck's the problem?
"You make a good point. Numbers don't lie!"
--Liesman
I think it is because "3" attracts the wrong kind of attention. You know, spooky Trinity kind of stuff.
The problem is that 23 is the 9th prime number and 9 is only 3 squared. Duh!
Everything is awesome!!!!!!!!!!!!!!!!!!
Don't worry they'll create another "Solution" to the problems, you know the one where everyone will be forgiven their debt, and we can all just "get along" under the tax burdens?
Looks like we have a typo, should read... "It's About Time We Started Planning How to Profit from The Next Financial Crisis."
There cnnot be anther "crisis" for a while, bailouts and no prison time for bankers/financiers during the last "crisis" would break the dollar faster than it's already breaking...
"focus on liquidity -- the ability to buy and sell easily without greatly affecting the price of a security."
sounds like volatility manipulation to me... which just might mean no real price or risk discovery, and no real ability to determine the real honest value of an asset AT ALL.
just sayin'
I suggest that the BIG 3 just buy and sell amongst themselves.
Problem Solved!
No, no, no a marriage can only have two, not three sez the Gheystapo.
I suggest that US Financial Markets have lost their Reputation due to the 2008 Financial Crisis and Toxic Derivatives.
I suggest Reforms in the Following areas which are know to largely be Self-Regulatory organizations
- Lawyers, BAR, Bankers
- US Exchange Markets
- US Financial ratings Organizations
- Financial Industry Regulatory Authority (FINRA)
- American Arbitration Association
- National Association of Realtors (NAR)
- SEC, FINRA, FTC, GAO, CBO, FED, Treasury, OCC, FSOC, BCFP, CFTC, FDIC, FHFA, SIPC
ICE 9
there is no liquidity...
great book, awesome concept.
"liquidity for me but not for thee". in other words they want to make sure that there is somebody there to buy their bonds when they crash.
Could this be Revenge of the [other] Economic Hit-Men? Who gets the assets when the party ends?
Please nigga, when fraud is the status quo, possession is the law.
"It’s about time we start getting worried about possibly the next [financial crisis],"
It's not a possibly, it is a certainty. The G20 changed the rules for depositors in November, 2014. The following month, congress put the tax payers on the hook for the coming TBTF derivative losses.
Here are some more signs of a coming recession.
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record...
http://michaelekelley.com/2015/02/20/fed-warns-of-two-bubbles/
http://michaelekelley.com/2015/02/24/would-you-pay-39-more-than-asked/
Here is the starting point.
http://michaelekelley.com/2015/04/28/next-recession-will-start-with-this-country/
Here is how to prepare.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Here is how to get your mind off this stuff.
http://michaelekelley.com/category/humor/
Good luck!
Some one help me with this. Isn't the downside limited here, because the bod holders can always hold to maturity? Even if no one wants to buy your bond, as long as the issuer can pay, its value isn't zero (unlike other financial interests).
And what percentage of the insurers and foreign investors are Japanese ponzi patsies?