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IMF Previews The Market's Final Days: Central Banks "May Have To Become Market Makers"
Over the course of the last year or so, bond market liqudity has become the talk of the financial universe.
We, of course, have been pounding the table for years when it comes to illiquid phantom markets, but it took a flash crash in what everyone still assumed was the deepest most liquid market in the financial world (that of USTs) and a rather unsettling Bund VaR shock six months later to wake regulators, pundits, PhD economists, and the entire Keynesian cabal up to the fact that liqudity has all but vanished from virtually every tradable market on the planet.
Who's to blame? Lots of folks, but we can simplify things by saying that when it comes to government bond markets, central bank asset purchases (which have served to suck every last bit of high quality collateral out of the market, leading to aberrations like every PSPP-eligible Bund trading special and the 10-year UST trading 220bps negative in repo ) and stop-hunting, market manipulating algos are the primary suspects while an ill-conceived post-crisis regulatory regime and a spiteful sellside have conspired to ensure that when all of those yield-starved investors who snapped up record corporate issuance go to sell in the secondary market no one will be home to inventory the bonds.
So, the question becomes: what happens when the crowded theatre analogy plays out in illiquid credit markets?To let the IMF tell it, central banks will be forced to step in and play market maker.
Here’s Reuters:
Central banks may need to become "market makers of last resort" if there is not enough liquidity during volatile sell-offs, a senior International Monetary Fund official said on Thursday.
Regulators worry that when interest rates begin rising from their prolonged low levels there will be a stampede for the exits by bond investors and that markets won't have the liquidity or capacity to deal with it smoothly.
The prospect that the Federal Reserve may start raising rates later this year has already prompted "taper tantrums" or severe volatility in global financial markets.
Jose Vinals, director of the IMF's capital markets department, said market liquidity has shrunk as capital requirements on banks have increased but that there was no simple relationship between the two.
Central banks buying bonds to conduct unprecedented stimulus programmes over the last three years -- most recently the European Central Bank -- have also been blamed for sucking volume out of the market, making it less liquid.
"The time it takes for the global regulatory community and central banking world to find a solution this time may be longer than the time where one episode of big illiquidity happens," Vinals told a meeting of the International Organization of Securities Commission (IOSCO) in London.
"Then the question is what to do. In my view the only thing that can be done at that time is that central banks should become again market makers of last resort."
In other words, DM central banks, which have already ballooned their balance sheets into the trillions by onboarding everything from negative-yielding periphery sovereign debt to Japanese ETFs to billions in Apple shares, will now need to step in and buy whatever everyone is trying to sell (HY for instance) in the event of a panic, in what will simply amount to yet another attempt to stave off creative destruction by printing fiat currency.
Ironically (given what's been going on at the Hang Seng over the last several months) it's Ashley Alder, chief executive officer of Hong Kong's Securities and Futures Commission, who has perhaps the best assessment of why the above is ludicrous:
"If you react to that by piling more intervention on intervention, you encourage more untoward risk taking and you end up with even greater amount of mispriced risk. You end up with a never-ending cycle that is harder and harder to get out of."
We couldn't have said it better ourselves.
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May have to become? Uhmmmm hello, McFly, the central banks are the markets. All of this is going as planned btw. Create a crisis in an effort detroy the old system and roll out a new one. Enjoy your steak dinner now Merika, soon you'll be eating worm burgers.
They can't openly admit that or it would be to obvious for all the peasants to how incompetent and evil they are. They gotta blame this one on something other than themselves so they can just openly keep playing their game. Bunch of evil psychopathic fucktards.
I was wondering why the Dow was up 2 beans and the NASDAQ was hitting new all-time-highs today.
Now I know. Central banks taking the mantle of market makers (officially this time)? What's not to like about that? Anything they do that moves my position in the line closer to the magic money spigot, I'm all for.
Party on, Wayne. Party on, Garth. Time to buy more NFLX.
I'll take moral hazard for $200.
I'll take it for a lot more than that.
"The point is, ladies and gentlemen, that moral hazard, for lack of a better word, is good. Moral hazard is right. Moral hazard works."
Central Banks "May Have To Become CASINO Makers"
There...fixed it for ya.
(psssst....there are no markets anymore) just sayin'...
Markets? We don't need no stinkin' markets!
Have Been The Market Manipulators..... GET A FUCKING ROPE ALREADY!!! :D
So you are willing to sell your soul like them?
I see what you did there. Nice!
I think they could admit it and few people would care at this point. Most of the general public has no comprehension of finance, let alone economics or the principles and benefits of free and open markets.
This is the most bullish thing ever. EVER.
"Give me control of a nation's money and I care not who makes it's laws" — M A B Rosthchild
William Pitt made this statement: "Let the American people go into their debt-funding schemes and banking systems, and from that hour their boasted independence will be a mere phantom."
So here we are.
Whoever would have thought of using WEALTH to spread COMMUNISM ?
No shit, I would love to wheel and deal with the good ol' USA as my money printing backstop.
The floodgates are near bursting.
No kidding. I have been trying to explain things to my fiancee for a while now and she (very educated doctor) most commonly says "but that makes absolutely no sense". At the point now where she see's how ridiculous the financial / political system is, mostly just has a hard to coming to grips with it actually being reality.
Many smart people choose to live with the belief that this level of corruption and deception doesn't exist, and what amount does exist is just par for the course. Also many educated people are conditioned throughout their lives, but especially in school, that you learn by others teaching you only. The liberals and neocons love this, because they control the vast majority of the mainstream media that is read and watched by these people, allowing them to shape the world view of even the most educated and intelligent people by way of editorializing the news and presenting it to the viewers and readers. It takes a very independent mind to think outside the box, but that takes time in order for people to begin to think independently and is not immediate.
If the street people truly understood everything they would drag them out and hang them.
Central banks already are market makers, and movers, and the largest participants.
They should start issuing schmuck membership cards for the privilege of trading at their ponzi scheme hotel and casino.
The street people have time on their side:-
https://www.youtube.com/watch?v=lyalBO-g124
at last a credible plan to absorb the fallout from <insert name of EU country here>exit
The part I find most charmingly amusing is that some believe there was a time when we were not market makers.
Base money on something of value instead of political lies and the problem becomes self correcting.
Corollary to that - tell people what you are going to do, assuming it is always the right thing to do.
WE HAVE NO VOICE, WE ARE TOLD WHAT IS BEST FOR US. FUCK YOU!
It's their software why shouldn't they be the market makers.
You mean they aren't already? First, second and last resort?
http://www.zerohedge.com/news/2014-06-15/cluster-central-banks-have-secretly-invested-29-trillion-market
Dovie'andi se tovya sagain (It's time to toss the dice)
Got Karatbars?
"...you encourage more untoward risk taking..."
So the private owners of the central banks can make even more money on high-risk investments knowing that taxpayers will cover when they crap out? Sweet deal. We ought to start our own central bank here at ZH.
I'm jumping back into the S&P 500. It's going to 3000 by years end. In fact, I'm selling all my Gold/Silver to Double-Down! YIPEE
(Rothschild's Army) vs. (Russia+China+Iran+NK)
Showdown's a coming. Plan accordingly.
And Rothschild's Army is already starting to promote "national service", including military service (think involuntary draft service) to make sure that they have enough cannon fodder to carry all of the new weapons that the MIC is soon going to sell. And yes, Americans will be dumb enough to fall for it again.
You know, as much and all as I detest these banker and MIC scum if normal everyday people are willing to just keep towing the line (such as joining the armed forces) then who cares anymore. Nothing can be done to overcome this. Psychopaths can't necessarily help/stop what they do because they are psychopaths, their brains are hardwired with ruthless intent (from our perspective). Of course from their perspective they are good and upstanding citizens taking advantage of their skills. It's all relative.
When you see armed forces parades with hundreds of soldiers marching in lock step do you see humans with free will or do you see biological robots? I see biological robots.
Free will is a misnomer, an illusion on a macro scale. We have as much free will as an ant. An ant can choose a virtual infinite possible number of paths to get from the nest to the food and back. Those infinite number of paths are an ants free will. But it still brings the food back to the nest. Is that free will?
If there was true free will then we would surely freely choose to live without debt. Yet we don't.
If there was true free will then we would surely freely choose to live without war. Yet we don't.
We are on an endless treadmill where the pschopaths and narcissists slowly rest control of the resources from the rest of us until a breaking point is reached and people fight back.
The only slight problem this time is nuclear weapons and domestic nuclear power. Civilisation up to this point could absorb massive unrest because the destruction although widespread was still contained, so to speak.
I think it's unstoppable now. The moment war breaks out, whether nuclear weapons are launched or not, I'd almost guarantee that every single nucelar power plant in the NH has its co-ordinates plugged into to an ICBM, somewhere.
We'll be facing 10-20-30 Fukushima's in the not too distant future.
Isn't this the goal? Central banks own everything? Citizens are all renters?
There is no longer a moral justification for anyone to ever work or pay taxes again.
I see the House Republicans handed ObammaMa Fast Track while everyone was watching the Lone Gunman Part-XXII
IMF = International Mother Fuckers
+infinity
" Central banks may need to become "market makers of last resort" if there is not enough liquidity during volatile sell-offs, a senior International Monetary Fund official said on Thursday."
Sounds like the Volcker Rule has had some impact on markets. So now with the CB's becomig the market makers of last resort ... who clears their trades? Oh yeh...they do....
They are already Market Makers. This changes things how?
It's Official
Like that is not what is going on now? Start getting ready for the black market folks.
Hey Janet, send me my tax free check for $3 Million overdue since 2008.
I'll buy one share each of: Apple, Chipotle, Netflix. That should fix things.
it is difficult
to make a market
in yak poop..
Trust the IMF to be what five years behind the curve, in their public statements? Bunch of drunken Eurocrats still trying to figure out what Bernanke was doing in 2008. Markets, hey I remember markets.
I don't even know wtf they mean by "liquidity". In the absence of liquidity prices would presumably be plunging, or volumes, volatility would be higher unless the market shut down entirely. But The Janet has decided to suppress volatility in advance of the Fed's boost - and then continue to suppress it afterwards. Smooth, gentle movements only, rock a bye baby.
Is this necessary? Useful? Evil? Meaningless? I dunno. It is what it is. Someone send the IMF a link to ZH.
So Kuroda, Draghi, and Yellen walk into a bar, someone hits the lever for the trap door to the alligator pit. More of a fantasy than joke.
the term risk is obsolete. there are no markets, ergo there is no risk.
In the near future we're all be "Naked & Afraid." Except those of us with Guns, Ammo, Food & PM's
People with assets attract supporters, friends and the envious.
Tyler you filthy whore enough with the ads ...
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Don't forget NoScript and Ghostery......and for a REAL hoot....."Collusion" and / or "Lightbeam" add-ons.
So what this says is that stocks and bonds are not going to drop....much....there is a backstop...and to the moon is OK...when they finally own 50% of the market..will anyone care...at that point the 1%ers will own 100% of everything else....there will be change...and it will not be nice...
The title should read "Central banks ARE the markets".
Frankenmarkets! There, mo' bettah.
its all an illusion... ink and paper generated to be used in exchange for real goods and services produced by real human effort.
preaching to the choir, but its good to repeat it.
This is all bullshit.
I've gotten kicked off of other "financial sites" for saying this.
You trade heartbeats for something. That something might be paper, that something might be PM's.....or that something might be zero's and ones on someones monitor.
IMF confirms that free market capitalism is dead
And you actually think that there has been a free market in the USA since, oh, say 1861? Oh, that's right, it was all about slavery. Don't delude yourself and definitely don't blame laissez faire free enterprise! Free markets, I hardly knew ya!
In the end, the CBs will have to buy up all the financial assets.
NO ! The Central Banks, notably the Fed, are not marketmakers. Ever. A marketmaker will continuously provide a Bid / Ask price. The Fed only has a Bid for Equities and Bonds and a Ask for Gold and Silver.
They are not market makers ... they are 1 way price manipulators using immorally printed fiat. The are Natural Law breakers, not Maket makers.
May they get their just rewards in the near term.