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$140 Billion Bond Fund Goes To Cash As It "Braces For Bond-Market Collapse"

Tyler Durden's picture




 

Recently, it’s become readily apparent that some of the world’s top money managers are getting concerned about what might happen when a mass exodus from bond funds collides head on with a completely illiquid secondary market for corporate credit. 

Indeed, bond market illiquidity is the topic du jour and has almost become something of a cliche among pundits and mainstream financial media outlets years after we first raised the issue in these pages. But just because something has become fashionable to discuss doesn’t mean it’s not worth discussing and indeed, we’re at least pleased to see that the world is suddenly awake to the fact that a primary market supply bonanza catalyzed by rock-bottom borrowing costs and yield-starved investors could spell disaster when paired with shrinking dealer inventories. 

For illustrative purposes, here’s a look at turnover in corporate credit…

Chart: Barclays

...and a snapshot of shrinking dealer inventories and ballooning bond funds…

Chart: Citi

...and finally, here's UST market depth…


What all of these charts show is that whether you’re talking about corporate credit or “risk free” government debt, liquidity simply isn’t there and as was on full display last October, wild swings in illiquid markets will be exacerbated by the presence of parasitic HFTs. 

Meanwhile, Treasury market participants are shifting to futures and corporate bond fund managers are using ETFs to offset “diversifiable” outflows, phenomena which prove investors are actively avoiding credit markets by resorting to derivatives, a practice which only serves to make the underlying markets still more illiquid. 

Of course one way to mitigate risk is simply to move to cash (as we noted over the weekend, some managers are even moving to physical cash), a strategy TCW’s Jerry Cudzil is currently implementing in order to ensure he’s not one of the ones “looking silly” after the crash. Bloomberg has more

TCW Group Inc. is taking the possibility of a bond-market selloff seriously.

 

So seriously that the Los Angeles-based money manager, which oversees almost $140 billion of U.S. debt, has been accumulating more and more cash in its credit funds, with the proportion rising to the highest since the 2008 crisis.

 

“We never realize what the tipping point is until after it happens,” said Jerry Cudzil, TCW Group’s head of U.S. credit trading. “We’re as defensive as we’ve been since pre-crisis.”

 

TCW isn’t alone: Bond funds are holding about 8 percent of their assets as cash-like securities, the highest proportion since at least 1999, according to FTN Financial, citing Investment Company Institute data.

 

Cudzil’s reasoning is that the Federal Reserve is moving toward its first interest-rate increase since 2006, and the end of record monetary stimulus will rattle the herds of investors who poured cash into risky debt to try and get some yield.

 

Of course, U.S. central bankers are aiming to gently wean markets and companies off zero interest-rate policies. In their ideal scenario, borrowing costs would rise slowly and steadily, debt investors would calmly absorb losses and corporate America would easily adjust to debt that’s a little less cheap amid an improving economy.

 

That outcome seems less and less likely to Cudzil, as volatility in the bond market climbs.

 

“If you distort markets for long periods of time and then you remove those distortions, you’re subject to unanticipated volatility,” said Cudzil, who traded high-yield bonds at Morgan Stanley and Deutsche Bank AG before joining TCW in 2012. He declined to specify the exact amount of cash he’s holding in the funds he runs.

 

Price swings will also likely be magnified by investors’ inability to quickly trade bonds, he said. New regulations have made it less profitable for banks to grease the wheels of markets that are traded over the counter and, as a result, they’re devoting fewer traders and money to the operations.

 

To boot, record-low yields have prompted investors to pile into the same types of risky investors -- so it may be even more painful to get out with few potential buyers able to absorb mass selling.

 

“We think the market’s telling you to upgrade your portfolio,” Cudzil said. “Whether it happens tomorrow or in six months, do you want look silly before the market sells off or after?”

Well, preferably neither, but point taken and we would have to agree that if ever there were a time to take one's money and run — before the realities of a dealer-less corporate credit market and/or an HTF-infested, VaR shock-prone government bond market conspire to prove, once and for all, that in today's world, the idea that bonds are any safer than other asset classes is completely and utterly false — this is it.

 

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Mon, 06/22/2015 - 20:47 | 6223969 Newsboy
Newsboy's picture

They must be fully out to announce it.

First move is best, but they have some strong reason to believe that irrational markets won't outlast them here.

The announcement is meant to help that, of course.

Mon, 06/22/2015 - 21:13 | 6224046 teslaberry
teslaberry's picture

total nonsense. the bond bubble will never unwind. you will get rampant inflation. that is not the bond bubble unwinding. that is money's value unwinding. 

 

that is not a short term bubble burst, that is  a whole sale displacement of capital ( purchasing power) from the western world to china, russia, and other countries with a surplus of hard assets and cheap labor, as opposed to debt . hard assets and cheap labor will accelerate the attraction of capital in a situation of high inflation in the west. 

 

and it is most certainly coming. resource rich countries like norway will be in the best of all positions. 

Mon, 06/22/2015 - 21:18 | 6224068 Captain Debtcrash
Captain Debtcrash's picture

Defaulting through inflation would be one way it could unwind I'll give you that.

Mon, 06/22/2015 - 22:28 | 6224239 MonetaryApostate
MonetaryApostate's picture

Annie get your gun(s)?

Tue, 06/23/2015 - 01:54 | 6224598 cookie nookie
cookie nookie's picture

There's no real inflation.  The market is just in a bubble.  Deflation is here to stay.  You can't print it away.

Tue, 06/23/2015 - 02:41 | 6224643 cnmcdee
cnmcdee's picture

You have to run adblocker *and* noscript to keep a high end computer from overheating opening one of these pages.. really?!

Tue, 06/23/2015 - 06:20 | 6224750 THE 4th Quadrant
THE 4th Quadrant's picture

$140 Billion? psszzzzzt. Fucking Pentagram looses 5 trillion on a good weekend.

$140 Billion is that loose change sitting beneath ya sofa cushions.

Keep your perspective grounded while surfing The Hedge.
https://www.youtube.com/watch?v=0KaWSOlASWc

Tue, 06/23/2015 - 07:54 | 6224858 MonetaryApostate
MonetaryApostate's picture

THE 4th Quadrant look sir, no offense intended but, the I quadrant isn't jack shit without the B quadrant, and when B folds up (Which it has been folding up since 2008, or are you not seeing the "For Lease" signs everywhere?), then the I quadrant will soon follow, unless you think the sharks in the markets trying to eat everyone (for those pensions) are going to save you?  I wouldn't put my trust anywhere in the markets, take out whatever cash you can now, convert it to anything that is tradable / sellable, monetize the hell out of everything you have and stock up on non-pershiable foods, water, guns, alcohol, cannabis, and anything else you can LEGALLY at this time, oh and don't forget the guns & ammo too!  Stash some cash, silver, brass, and copper too, but not too much cash...  (Probably wouldn't hurt to hold some physical gold, but not too much)

A Consumer Based Economy doesn't work when people are broke & the banks are instituting trickle down economics, the end is near, and what I mean by that is, the largest theft in history is about to be pulled off on the sheep...  The big digital corps. like M$, Apple, Google, Amazon etc, is probably the only safe place to be atm, but I wouldn't expect those corporations not to tank in the times ahead, and we should all be expecting all stocks to at some point begin to show their true depression level value, or we can simply believe what the MSM reports... (Everything is awesome!!! / NOT!)

Whether we see inflation or deflation it won't matter, those holding cash will be screwed, those holding anything that isn't a hard asset & and things that will produce money after the crash @ it's new value, then you really aren't holding nothing worth talking about.  Is there really any protection against deflation?  If so, that's something we should be talking about, before it comes...

Tue, 06/23/2015 - 08:33 | 6224980 Save_America1st
Save_America1st's picture

what do you think of using a chunk of extra cash to buy a small bugout place that would have no mortgage and minimal costs for upkeep?

Tue, 06/23/2015 - 13:07 | 6225996 claytonmoore50
claytonmoore50's picture

In a good location, Always a good idea.

No cities, no suburbs...

Tue, 06/23/2015 - 02:47 | 6224651 dogfish
dogfish's picture

cookie nookie is a spamer dont click his link.

Tue, 06/23/2015 - 05:49 | 6224742 Captain Debtcrash
Captain Debtcrash's picture

Asset price inflation IS inflation. One of the tricks they have pulled off is to convince us that if the price rises are in assets it is not inflation when it is just as dangerous if not more so than consumer goods.

Mon, 06/22/2015 - 22:01 | 6224190 Pareto
Pareto's picture

Good answer. It was proffered by many on this site a few years back and then it got quiet. I think there is some evidence backing your assertion. I've often thought the housing market in Canada,  Australia and other resource rich places was  soon to bust and yet prices continue to rise.  Perhapsas we watch people steadily buying what is perceived to be an over priced home in Winnipeg Manitoba what one is really observing is a quiet stealth migration of people anticipating the monetization of outstanding treasury et al debt that will impose a level of price inflatio on the world that would make Paul Volkers follow up job to the 70s print fest a cake walk in comparison. 

happy thoughts /s in any event. It's enough to make you sick just fucking following it through and  connecting the dots.

END THE FUCKING FED. Geeeeeee.... Zzzuuuuuzzzzzzz

Mon, 06/22/2015 - 23:11 | 6224354 Wild Theories
Wild Theories's picture

things only go bust when the next buyer fails to show up.

and when the next buyer is coming from overseas - Chinese, they are not viewing your Australian/Canadian RE through local eyes and making comparisons to local prize levels, they are comparing it to other overseas realty location(UK, US, Cananda, Australia, NZ) costs as well as the opportunity cost of obtaining a foreign residence outside China/finding a cleaner and healthier environment to live/and getting into a good neighbourhood for western schools for their kids(they still fantasize about western education)

there is a point at which price will be too high for them too, of course, but that point cannot be measured by local metrics, it has to be measured through Chinese eyes.

Tue, 06/23/2015 - 00:16 | 6224490 Antifaschistische
Antifaschistische's picture

I'm quite familiar with how Chinese measure 'things.'   I'm not sure they are comparing real estate to anything.  These are the same people who have explained to me how buying a $10,000 Burbury (or however you spell it) purse is a good investment.....and I'm dead serious.  They live in a culture where prices only go one direction and it doesn't matter what you pay for anything....next year, it will be worth more....so they don't care whether it's in San Marino or Winipeg or Hedwig Village here in Houston....just buy buy buy, that's all that really matters.

Tue, 06/23/2015 - 01:30 | 6224577 FoundInTranslation
FoundInTranslation's picture

they still fantasize about western education

I can confirm this. The Chinese have no clue how shitty Western education really is. It will take a whole generation to stamp out that meme.

Mon, 06/22/2015 - 23:13 | 6224357 Wild Theories
Wild Theories's picture

dupe

Tue, 06/23/2015 - 02:43 | 6224645 cnmcdee
cnmcdee's picture

Their not that smart.

They are highly conditioned and climitized to good steady high paying oil jobs, low interest mortgages, and a 'there is no other option we have to buy' mentality.

The carnage will be epic when it comes.

Mon, 06/22/2015 - 23:23 | 6224373 Excursionist
Excursionist's picture

My thesis is all bubbles eventually burst one way or another.

But this one is unlikely to do so anytime soon when so much institutional capital, MSM talking heads and even retail investors are going on and on about imminent collapses in [pick your asset class].

If there were a collapse in [pick your asset class], then it would be historically unique.  There is currently a preponderance of pessimism for a (lasting) collapse to occur. 

Flash crashes... whatever.  If your portfolio isn't weather-proofed for something non-Black Swanish like that, then you deserve to be parted with your capital.

Tue, 06/23/2015 - 02:46 | 6224650 cnmcdee
cnmcdee's picture

It will come.

When people's shrinking pay cheques, breat baskets are offset by ballooning credit debt.

 

Tue, 06/23/2015 - 00:34 | 6224515 The Steaksmith
The Steaksmith's picture

"hard assets and cheap labor will accelerate the attraction of capital in a situation of high inflation in the west."

 

So you're saying that the Russians & Chinese want our Caitlyn Jenner $10 bills?

Mon, 06/22/2015 - 21:19 | 6224072 Uchtdorf
Uchtdorf's picture

Won't that be the point where IRAs (er, MyRAs) get nationalized, for the children, and Uncle Sam guarantees eternal bliss? I don't see any other way to pay for the rigged markets and fat Fed Res balance sheet.

Mon, 06/22/2015 - 22:14 | 6224220 Alexandre Stavisky
Alexandre Stavisky's picture

See precipitation cycle.  Huge rainfall followed by clear skies as earth has all the moisture.  Eventually after daily evaporation over many months, the land becomes arid again and the rising water vapour forms clouds.  How long can the clouds above remain, how long can they remain super-saturated and overheavy with rain before delivering moisture up again to quench the earth?  Tug-of-war.

Like the rain cycle so the sovereign bonds.  Unbelievable how well coordinated sovereign debt has been worldwide among the 225 captured countries; still, one plants in order to harvest and bonds having neared the zero bound and in some small instances reached negative yields, when would a prudential money manager sell?  It is harvest time.  Unless their motives are other than maximizing their and shareholder return, there will probably never be a better time to liquidate and distribute.  Problem is that it is a massive, massive field of harvest trying to sell into very, very thin buy market.

Hold and make Uncle Sam or Uncle Mario happy with your "plays well with others" tactic, or selfishly harvest and reap the benefit of highest price in the bond market?

Soon time to tell.  Either the gov't and investing institutions are captured and acting under command and control orders, or the selling begins and the yields begin to spike....and we all know what MUST follow.

Bonds, unlike funny-money stocks, actually have a capped profit potential, not considering margin, and the zero bound is the bell ringing.

For whom does the bell toll....?

Tue, 06/23/2015 - 07:19 | 6224826 Fun Facts
Fun Facts's picture

A bond fund that moves to all cash is then a cash fund.

Tue, 06/23/2015 - 09:01 | 6225089 Obama LaForge
Obama LaForge's picture

Couldn't just one of these funds single-handedly start a bank run? There's only 1.1 some trillion in US dollars actually printed, am I right?

Mon, 06/22/2015 - 20:47 | 6223971 NoWayJose
NoWayJose's picture

Plus 0.15% is going to look very good compared to most bond funds losing 10% soon.

Mon, 06/22/2015 - 20:51 | 6223980 asteroids
asteroids's picture

When, not if everyone runs to dump bonds, I suspect there will be a currency implosion somewhere.

Mon, 06/22/2015 - 20:53 | 6223984 Roanman
Roanman's picture

Ok, I gotta ask the dumb-ass question.

What the hell are "cash-like securities" for purposes of this conversation?

Mon, 06/22/2015 - 21:00 | 6224008 ncdirtdigger
ncdirtdigger's picture

I would assume they are very short term notes.

Mon, 06/22/2015 - 21:02 | 6224011 FlacoGee
FlacoGee's picture

Cocaine, Heroin, and similar

Mon, 06/22/2015 - 21:06 | 6224025 NoPension
NoPension's picture

Bingo. I'm thinking the same thing.
There was an article not too long ago, that told how those who " think" they have cash in their portfolio, really have a security that serves as a placeholder for cash.
So, what it this cash of which is spoken?

If I would have trouble pulling out $20,000 in c-notes, where do yo go to get $140 million?

Mon, 06/22/2015 - 21:52 | 6224171 MollyHacker
MollyHacker's picture

The'll be issued as 150year treasuries.

Mon, 06/22/2015 - 22:58 | 6224327 philosophers bone
philosophers bone's picture

"Perpetual Patriot Bonds"?

Mon, 06/22/2015 - 21:59 | 6224185 disabledvet
disabledvet's picture

"Billion" so it says.

 

Dollar, oil and treasuries as the Fed continues to fail to create recovery "via inflation" remains my view.

 

Certainly Government has failed. The response to riots has been moar woar not recovery.

 

Or maybe it's the other way around...hard to tell at this point.

Mon, 06/22/2015 - 22:03 | 6224199 DollarMenu
DollarMenu's picture

I don't think you actually "get" any thing - cash-like securities or whatever, they are just e-digits in some folk's computers.

Good luck trying to do anything with them when TSHTF.

 

Mon, 06/22/2015 - 22:33 | 6224273 Bill of Rights
Bill of Rights's picture

Cash like = Gold, but they don't dare say so.

Mon, 06/22/2015 - 20:56 | 6223990 stant
stant's picture

I wonder what a bond crash will look like from the window of the White House ?

Mon, 06/22/2015 - 21:09 | 6224031 OldPhart
Mon, 06/22/2015 - 21:21 | 6224085 Crocodile
Crocodile's picture

No air-bag; bummer.

Mon, 06/22/2015 - 21:24 | 6224092 Handful of Dust
Handful of Dust's picture
Caterpillar will lay off workers due to mining sector slump

 

http://finance.yahoo.com/news/caterpillar-lay-off-workers-due-mining-sec...

Mon, 06/22/2015 - 22:58 | 6224236 OldPhart
OldPhart's picture

That's odd, we've bought about six loaders/scrapers and diggers combined over the last year in excess of $5 million and our mines are at full tilt production (particularly now at the seasonal uptick).  Of course the equipment we bought wasn't from Caterpillar...we're putting better than $50k a month, minimum, in repairs to the Cats we have.

Caterpillar is learning what the car companies felt in the 80's when Japan/Korea came over and ate their lunch.

Tue, 06/23/2015 - 08:30 | 6224968 quasimodo
quasimodo's picture

Excellent point OP, and even the farmers around here that were buying Cat tractors and combines for the name only are having some hard lessons.

People think that just because it says Caterpillar on the side that it must be the very best there is, however that line of logic has begun to slip. Like everything else mechanical, it will break down or require repairs at some point, and Cat is one of the worst when it comes to cost to own over time.

Sat, 06/27/2015 - 06:20 | 6240761 gladius17
gladius17's picture

Yes. Caterpiller is junk. Like America, in general.

Tue, 06/23/2015 - 08:42 | 6225009 Save_America1st
Save_America1st's picture

are you hiring? :-)

Tue, 06/23/2015 - 02:49 | 6224652 cnmcdee
cnmcdee's picture

It is hard to sell into a market when ritchie bros auctions is moving quarter sections of equipment every three months.

 

They had to add another 1/2 quarter just for the pick-up trucks being brought to auction.  tip for you .  If you ever buy a oil-truck lease back it's value is what it's rubber tires are worth not a penny more. 

Tue, 06/23/2015 - 06:33 | 6224778 new game
new game's picture

interesting, the fucking market is flooded with trucks that need big tyme cash to keep this shit running. good luck in a declineing price envirnment. i know make it up on volume, ha...

deflation baby deflation, except what ya need to live...

Mon, 06/22/2015 - 20:56 | 6223992 Milestones
Milestones's picture

Even the big boys are getting antsy. Gee whiz, what will come next--Maybe Benny can tell us over his internet B.S.         Milestones

Mon, 06/22/2015 - 20:58 | 6223994 youngman
youngman's picture

smart move..why not sell at the top...

 

Mon, 06/22/2015 - 21:00 | 6224006 Lokking4AnEdge
Lokking4AnEdge's picture

Eventually funds will have to sell stock holdings to raise cash as there will not be liquidity in the bond market. We will than see the floor open up for no-bids in stocks.....imagine........

Tue, 06/23/2015 - 06:35 | 6224781 new game
new game's picture

the mutherfooks can print or create digits for the algos - the brave new world of finance. geeks fucking buy9ing stwaaks, fucken - eh, shit for brains? don't cha know...

Mon, 06/22/2015 - 21:02 | 6224012 buzzsaw99
buzzsaw99's picture

Bond funds are holding about 8 percent of their assets as cash-like securities...

color me impressed.

Mon, 06/22/2015 - 22:29 | 6224262 Augustus
Augustus's picture

Yeah, real impressed.

The headline would suggest a large move to cash.

Going to 8% is more like a slight rebalance.

That % might help with liquidation problems from withdrawals though.

Tue, 06/23/2015 - 09:05 | 6225108 buzzsaw99
buzzsaw99's picture

imo a good bond fund should always keep copious cash on hand. withdrawals, as you say, and buying opportunities. in a world of zirp there is no reason in hell not to hold cash.

Mon, 06/22/2015 - 21:03 | 6224015 disabledvet
disabledvet's picture

So no problem with issuance in a war with Russia.

 

That sounds bullish for treasuries and debt...not so much recovery, inflation and growth.

Mon, 06/22/2015 - 21:03 | 6224016 wet_nurse
wet_nurse's picture

Honest question: is it possible The Fed will end up holding the vast majority of bond/treasury debt when SHTF leaving them holding the bag? If so, that sounds like a good thing to me. I'm a hobbyist so I don't know the ins and outs. Thanks

Mon, 06/22/2015 - 21:13 | 6224050 ISEEIT
ISEEIT's picture

You should consider a different hobby.

 

ASAP.

Mon, 06/22/2015 - 21:27 | 6224105 Sages wife
Sages wife's picture

Asshole.

Mon, 06/22/2015 - 21:35 | 6224127 SickDollar
SickDollar's picture

@ ISEEIT  you are an IDIOT
we are here to share and learn you FOOL

Mon, 06/22/2015 - 21:46 | 6224155 Pareto
Pareto's picture

You should eat a bag of dicks. Your call of course. 

Mon, 06/22/2015 - 21:47 | 6224158 wet_nurse
wet_nurse's picture

....wouldn't they get foisted on their own retard....or however that saying goes...I'm a English Lit hobbyist too

Tue, 06/23/2015 - 02:04 | 6224618 jez
jez's picture

Just the two mistakes there, wet nurse.

High school was a long time ago now, but I'm sure its "hoist on their own petard". Also fairly sure it's from Hamlet. A petard is a bomb.

Mind you, being foisted on a retard wouldn't be much fun either.

 

Mon, 06/22/2015 - 21:34 | 6224125 buzzsaw99
buzzsaw99's picture

that is exactly what will happen

Mon, 06/22/2015 - 22:06 | 6224204 disabledvet
disabledvet's picture

If it's what will happen why hasn't it happened already?

 

The deficit is WAY down...tax receipts have soared.

 

Default risk is off the charts.

 

The Fed can only monetize so much.

 

At some point the Banks will have to buy the debt.

Mon, 06/22/2015 - 22:18 | 6224221 buzzsaw99
buzzsaw99's picture

...why hasn't it happened already?

It is ebb and flow, tidal gravity! It is ecological balance!  [/Arthur Jensen, Network]

right now the flows are all inward. when the demographic shift comes for real, when pension funds become net sellers, when the budget deficit comes roaring back, when the underlying rot in equities becomes fully evident and margin players and foreign gubbermints get nervous, mark my words the fed will be BACK WITH A VENGEANCE. I think long term, is it a tradeable thesis for you? probably not but I stand steadfast in saying rates can only go one direction over the next ten years and the fed will be a key player in making sure that happens. all the turmoiling and volatility are a bogus ruse. there is no market, there is only the fed.

Tue, 06/23/2015 - 05:26 | 6224735 LawsofPhysics
LawsofPhysics's picture

Yes, so long as the dollar is still accepted.

Mon, 06/22/2015 - 21:48 | 6224161 CourtJester
CourtJester's picture

Long run, I would say yes.  As the lender of last resort, they would inherently have to be the buyer of last resort as well.  Espcially once it starts flowing back.  At least, that's what this hobbyist would guess.

 

PS. Don't let ISEEIT get to you.  Douchebags are everywhere.  His/Her response screems either "I know and don't want to tell you" or "Hell if I know, so I'm just going to be a dick".

Mon, 06/22/2015 - 21:58 | 6224180 wet_nurse
wet_nurse's picture

....namaste, Buddhist hobby

Mon, 06/22/2015 - 22:02 | 6224195 TheReplacement
TheReplacement's picture

That is one way to look at it.

Another is that they are using things like Citadel to buy up everything (as in everything).

Yet another is that they are buying up everything and selling us out.

Take your pick.  It doesn't matter.  USA is cooked.

At least we have nukes so we don't have to burn alone.

Mon, 06/22/2015 - 22:10 | 6224211 eclectic syncretist
eclectic syncretist's picture

Will the fed be left holding the bag? 

The fed could absorb it all and then simply reverse imagineer it back out of existence. If that doesn't make any sense to you don't worry, smoke and mirrors are a Fed specialty.

Mon, 06/22/2015 - 23:34 | 6224401 Cheyenne
Cheyenne's picture

It sure seems possible given something that Jeffrey Lacker said at an FOMC meeting once. (Lacker and Hoenig are probably the 2 of the most honest Fed officials we've had in 10 years, at least insofar as being pretty blunt with their thoughts at FOMC meetings.) In the June 2009 meeting, right when the Fed had recently launched QE and was casting about for ideas to unwind its balance sheet (which ideas were never and will never be implemented), a few Fed officials raised the idea of Federal Reserve bills.

Lacker then lets loose with this:

"I’m against Fed bills. I don’t want us to have that ability. I don’t want to make us a target for those who would want us to finance stuff. We’ve gotten involved in housing finance, and I think one of our biggest political problems in the next couple of years is going to be backing away from housing finance, the way we had to back away from it in the 1970s. That transition out, I think, would be made more difficult if we have this off-balance-sheet thing. I was stunned to learn in the [Fed] staff memos that if this had full faith and credit, our books would be consolidated with the U.S. government."

http://www.federalreserve.gov/monetarypolicy/files/FOMC20090624meeting.p... (p. 97)

Now, what the exact ins and outs of that disclosure are, I can't tell you. What I can tell you, given the outrageous shit we've all seen seemingly every day over the last 7 years, is the fact that every single time the Wall Street-D.C. psychopaths have an opportunity to horse-fuck ordinary Americans, they've taken it with wild abandon. I read Lacker's statement as a virtual certainty that what you're saying will come true, it's just a matter of when...

Mon, 06/22/2015 - 21:07 | 6224024 ejmoosa
ejmoosa's picture

For this bond fund to go to cash, someone had to take those bonds.  

Who's gonna get caught holding this paper?

 

In the end, I am gonna place my bets on the FED to be the sucker...

Mon, 06/22/2015 - 21:12 | 6224042 gdiamond22
gdiamond22's picture

Hmmmm...this makes me think we need one more new high in bonds (low in yields) just to really get everyone bent out of shape (especially the FED)

Mon, 06/22/2015 - 23:55 | 6224045 jomama
jomama's picture

Those hebes really take that Shemitah shit pretty seriously, eh?

Mon, 06/22/2015 - 21:15 | 6224057 enloe creek
enloe creek's picture

Last quarter end the fed used swaps to add liquidity as I understand it because the banks had less capital reserves than needed. Is this quarter end the same situation or is the liquidity not related

Mon, 06/22/2015 - 22:05 | 6224203 TheReplacement
TheReplacement's picture

Haven't they been using that trick most quarters for the past couple of years?

Mon, 06/22/2015 - 21:16 | 6224059 wendigo
wendigo's picture

End of the day, is the cash in my checking account safe? 

Mon, 06/22/2015 - 21:50 | 6224167 wet_nurse
wet_nurse's picture

Sure, as long as it's an online checking account.

Mon, 06/22/2015 - 21:18 | 6224069 new game
new game's picture

hmmm, cash. well, better than stocks and bonds. but he forgot to dig deeper. maybe he has moved to phyzz and is that smart. but doubt it as it is not his money...

Mon, 06/22/2015 - 21:20 | 6224078 gafgroocK
gafgroocK's picture

 

 

 

Good luck getting the Cash out, lol!

Mon, 06/22/2015 - 21:36 | 6224129 q99x2
q99x2's picture

Good bring it down. I"m tired of fairyland anyhow.

Mon, 06/22/2015 - 21:44 | 6224151 ghostzapper
ghostzapper's picture

I really don't see much difference between this guy's "cash" position and his UST positions. At that size he has no shot in converting either ponzi-layered on-ponzi into real assets.

Kind of like one question I always ask about PMs. If/when you "win" and you want to "cash out" will you indeed want cash if say gold is at 10000 FRN/ounce?

Mon, 06/22/2015 - 22:07 | 6224207 TheReplacement
TheReplacement's picture

If you took on debt in dollarinos and you got real and valuable assets out of it, quite likely.

Mon, 06/22/2015 - 21:45 | 6224152 Bobbo
Bobbo's picture

If your going to move to hard currency, be sure you do not store under a tall building.  It's amazing how money can be made to disappear when a building or two (or three!) disappears from around it!

Mon, 06/22/2015 - 21:49 | 6224163 Latitude25
Latitude25's picture

In articles like these I always scan for what the concept of "cash" is.  It appears to still be nearly all digital cash which can be wiped out with a key stroke.  I like things I can touch and which have some inherent value.

Mon, 06/22/2015 - 22:35 | 6224276 Oscar Mayer
Oscar Mayer's picture

Cash, or Legal Tender, is defined by law, specifically Section 31 U.S.C. 5103.  In it, you will not find the credit generated by the banks or the Federal Reserve listed.  In point of fact, there is no law anywhere that grants to either the Federal Reserve or the banks the authority to create money, not even the Federal Reserve Act does that.

There is a difference between Money and Credit

It's the third essay down.

Isn't it odd how people denounce 'fiat currency' and 'government debt' while remaining totally oblivious to the contradiction posed by both existing at the same time....funny....

Mon, 06/22/2015 - 22:19 | 6224232 GRDguy
GRDguy's picture

Imagine that; going from one set of promises (bonds) to another set of promises (cash).  The Feds, due to their control of the economic education process for all these years, have prepared these money managers well. (Banksters win; folks lose.)

Mon, 06/22/2015 - 22:50 | 6224307 Oscar Mayer
Oscar Mayer's picture

Cash is not a "promise to pay", it is payment.  Says so on every note, and in law.

What isn't payment is the credit issued by the Fed and the banks.

But you'll figure that out when they turn your debit card off.....

 

Tue, 06/23/2015 - 07:25 | 6224829 ZH Snob
ZH Snob's picture

it will all go down by degrees.  it is correct that the first thing to fail (for consumers) will be electronic credit.  that will of course be a direct result of the liquidity crash.  at that point the deflationsists will feel very proud of themselves for hoarding cash.  and cash will rule the street for a while.  but then will come the devaluations. 

this is when the entire game will flip.  the banks will re-open, and people will be able to get their cash, but the old notes will have been replaced with greatly devalued notes, probably of an entirely different color so they are never mistaken for the ones they replace.  the govt will declare the old notes to be of a reduced value.  they will give the old notes an expiration date, so forget about a black market of old dollars.  everyone will be forced to bring them in for their reduced value or else lose it all in time.

Tue, 06/23/2015 - 09:41 | 6225212 Obama LaForge
Obama LaForge's picture

Ugh. I'm past thinking about investments, and am now just picking what revolution I want to die in. I'm heading to Beijing, Tank Man style.

Mon, 06/22/2015 - 22:19 | 6224234 Bill of Rights
Bill of Rights's picture

Gold and Cash...

Mon, 06/22/2015 - 22:22 | 6224242 Cdn1
Cdn1's picture

5 Trillions in NON US & Life Insurance holdings..vs Etfs & M.funds less than 2 Trillion...Maybe author focus is wrong. China selling of Treasuries through Belgium early in year may be biggest factor in rising rates recently

Mon, 06/22/2015 - 23:14 | 6224347 Something Wonderful
Something Wonderful's picture

Theory:

Say life is a video game and in the game's shop you could buy shields and food and shoes for prices that you could afford from what you garnered in the game say 300 and 10 and 50 game dollars. And say in that shop there was an item called invisibility priced at 100 Trillion dollars. And so you thought the game programmer threw that in there as a joke. And then one day your game's experienced character who thought he knew the rules to the game all of a sudden gets the shit beat out of him from apparently nowhere and all the goods he labored for and everything he tried to build was taken and destroyed. And then he sees that there were millions/billions of game players just like him similarly shitkicked. Maybe afterwards it wouldn't take too long to figure out that someone bought the invisibility somehow and went from player to become the very programmer of the game. And then this exgamer who ascendened/transcended to Programerhood through purchasing the invisibily through getting the 100 trillion dollars through what must have been to their mind divine-right wants to continue programming in perpetuity and maintain his Programmerdom. And if they had 100 Trillion then what do they have now? To the game players what may seem like an amazing amount of wealth may be seen as mortal peanuts to the Programmer(s). And being that most mortals have prices what could the programmers do with unlimited monies? What would get his rocks off? More control. Ownership of everything. Shake and clown the gamers repeatedly and buy up all their business financial media education technological agricultural institutions during programmed-crises and have them to serve the Programmers in perpetuity. Make all that exists to serve the perpetuation and the glorification of The Programmer. 

https://www.youtube.com/watch?v=ppGd-2nEOVQ

"The Future!"

Mon, 06/22/2015 - 23:10 | 6224350 JR
JR's picture

We’re having no growth, no progress in the US because the central planners have sapped the economy. It was a great huge engine of progress so it takes a little while for them to grind it to a halt. But I don’t agree with people who say it’s going to take a while for the collapse; because when there’s a massive buildup already against the Fed system, against the central bank planners’ trying to manage the economy while stealing the money at the same time, collapse of the system could happen at any time.

Without allowing the market to clean out the inefficiencies and reward the efficiencies, the system was bound to fail anyway. But, then, on top of that, they had to begin stealing, ratcheting up to the point where they couldn’t stand not to have it all.

How could the international bankers continue this heist for so long? Well, it was a rather big miracle and it takes a while to steal it.

Here’s Ron Paul in an interview on CNBC’s ‘Futures Now’ on June 18, published by RT on the coming day of the economic reckoning:.

…“The [Federal Reserve] won’t allow this market to drop. This is why I’ve always leaned toward the assumption that the Fed is never going to raise interest rates deliberately. I think the market will raise interest rates.”

“Eventually the value of money, the purchasing power of money will require that interest rates go up. But that is the game they’re playing, they fool a lot of people and as long as people believe the majority of the players still believe this, they’ll still be involved and they’re going to make a lot of money.”

“I don’t think there’s any way to know what the time [of the stock market crash, bringing with it the entire US – and possibly world – economy with it] is but, you know, after 35 years of a gigantic bull market in bonds, believe me, they cannot reverse history. You cannot print money forever and deceive the markets forever."

“You cannot have[the fallacy of economic planning through monetary policy], it’s artificial, it has nothing to do with freedom and free markets and capitalism and sound money; it’s all artificial, it’s all political and that is why we are so vulnerable… we’re all on the verge ? the country, the world, is on the verge of looking more like Detroit and Greece than anything else…it’s probably not going to happen tomorrow or next month, but it will happen because this is unsustainable.”

,.. “What I’m looking at is the ‘big one’, where all the malinvestment, all the mistakes made, all the pyramiding, all the unworthy debt that has been created, sovereign debt (our sovereign debt is really not payable... there’s no way the debt is going to be paid)… has to be liquidated and that will come, but the big question is when will it come.”

“I don’t think it’s just going to be a correction. I think what will happen is the effort made in ‘08 and ‘09 to correct all these mistakes will resume itself. That was just a notion of what the markets want to do, but because they could bail out the big guys ? the banks and big corporations ? they were able to tide it over and restore confidence, so to speak. But eventually…they will lose the confidence [in the system], and that is when you’ll see the very, very big crash.”

http://rt.com/usa/268456-ron-paul-economy-crash/

Mon, 06/22/2015 - 23:54 | 6224448 Alexandre Stavisky
Alexandre Stavisky's picture

When it corrects as it must, all the debt iou's will be market discounted and true price discovery will take place.  What happens when $223 trillion of global IOU's are offered at whatever discount the market will take.  Consider too that only a few trillion in potential buying power is available to mop up that other sum.  And what will the IOU holders do when it is exchanged for another paper fiat IOU contrived as legal tender enforced only for liquidation of other IOU's by the end of a gun?  There will be a perversity of spending as the game of "old maid" goes nuclear.

No atheists in the foxhole?  But everyman just wanted the "WAR" over so he could return to home and begin anew.  What happens when the foxhole, the shelling, the horror follows everyman like a devoted raincloud.  This will be the RESET.  They long ago had the choice to allow all the markets to reprice undergoing true free market price discovery but instead opted to preserve all asset price by FURTHER increases in debt and money supply. So THREE potentialities.  (1) Reset, find the intrinsic value of fiat and all its cousin derivative IOUs, crushing immiseration, probable revolution, death, turmoil, slavery (2) STATUS QUO.  Threaten and cajole stakeholders into remaining orderly in the theater of fire. Also Zombie--intergenerational thievery, lost quarter to half centuries, demoralized populations.  A living death of sub-subsistence.  A never ending everyday of looking over one's shoulder for the grim reaper. (3) Recognition and restoration.  Germany 1947, Japan too.  Wipe out debt. Jubilee.  Give token several month subsistence bank account.  Allow reinvigoration of free market principles.  Also severe, but hope would exist.  Perhaps a renewal, renaissance.

But all bets lay upon central bank error or market imposed debt liquidation.  That is why, against all better angels of mankind's possibility, one must prepare for events which exceed any historical model.  Centralized big gov't will fail and mad-max splinter in-fighting goes hot, or centralized big gov't prevails and commands every thought, action, intention, and future possibility of man. Brave New World Order.  Bleak and grim are the sunniest probable outcomes.  What to do, what to do?

Tue, 06/23/2015 - 00:30 | 6224509 JR
JR's picture

The real story of the money-control over America by the private banks, the story of how the bankers get rich and the people get poor, is to simply rob the people by lending them their own credit on paper and charging them usury (interest).

Sheldon Emry explains in his paper, “Billions for the Bankers, Debts for the People," how Germany overcame banker plunder, and how it could be done here even in case the US monetary system collapses and our currency becomes as worthless as was the Weimar Republic’s.

Germany’s solution after the hyperinflation of the Weimar Republic was to use debt-free and interest-free money from 1935 and on. As a result, Germany rose from depression to a world power within five years.

“Germany financed its entire government and war operation from 1935 to 1945 without gold and without debt,” says Emry, “and it took the whole capitalist and communist world to destroy the German power over Europe and bring Europe back under the heel of the bankers...

"Issuing money which doesn't have to be paid back in interest leaves the money available to use in the exchange of goods and services and its only continuing cost is replacement as the paper wears out. Money is the paper ticket by which such transfers are made and should always be in sufficient quantity to transfer all possible production of the nation to ultimate consumers.

"Money issued in such a way would derive its value in exchange from the fact that it had come from the highest legal source in the nation and would be declared legal to pay all public and private debts, issued by a sovereign nation, not in danger of collapse."

Under a constitutional system, no private banks would exist to rob the people, says Emry.

Tue, 06/23/2015 - 06:38 | 6224784 Bioscale
Bioscale's picture

It's not fair to present the German rise after the Weimer Republic as a miracle of debt-free and interest-free money. Germany got billions from WallStreet banksters via BIS in Basel for building war economy, there were preparing the country for attacking Russia.

Wall Street and the rise of Hitler

http://www.reformed-theology.org/html/books/wall_street/index.html

Tue, 06/23/2015 - 11:04 | 6225482 bluskyes
bluskyes's picture

To what end? The parasite is outgrowing the host.

Mon, 06/22/2015 - 23:17 | 6224368 TeethVillage88s
TeethVillage88s's picture

Leading indicator? Guess I should sober up and read this.

Oh that is right, I don't watch MSM and don't have investments.

Nevermind.

Mon, 06/22/2015 - 23:47 | 6224430 Atomizer
Atomizer's picture

If bonds go tit's up, who's investing in the New World Order?  

/chuckles 

Mon, 06/22/2015 - 23:55 | 6224451 Atomizer
Atomizer's picture

Let's pull the $100 dollar US slot machine and hope we hit the triple diamond wheel of fortune limit. 

/sarc

Mon, 06/22/2015 - 23:59 | 6224461 Atomizer
Atomizer's picture

Tranny trust beneficiary faggots are screaming like a woman. 

Tue, 06/23/2015 - 00:34 | 6224516 TeraByte
TeraByte's picture

Avoiding the moment of truth with Greece to unfold at any cost shows, how much on the verge of a final countdown, the system finds itself despite playing the brave face. Consequences from a jump into the dark they are dead afraid of, when coffers filled with undeclared skeletons.

Tue, 06/23/2015 - 00:49 | 6224535 statelessman
statelessman's picture

Where do you deposit $140 billion in cash?

Tue, 06/23/2015 - 03:33 | 6224674 Surveyor4Pres
Surveyor4Pres's picture

Into MY bank account.

Want the routing #?

Tue, 06/23/2015 - 00:50 | 6224537 JessieSharpton
JessieSharpton's picture

2008 and 1999, hmm what happened around those 2 dates?

Something financial.

Tue, 06/23/2015 - 01:48 | 6224595 JLM
JLM's picture

The market is looking for a sucker to fleece.  It will ensure the most pain possible is inflicted on the mark.  You have to watch the pros like this guy getting out while the getting is good.  It's the tell the trap is about to be sprung.  Don't be the sucker.  How can you tell if you are the sucker?  You will be in obvious pain.  As soon as you feel it get out if you still can.

A true life story.  My daughter was teaching music lessons to a billionair's kids in New York City for many years.  One day they were discussing the great stock market sell off in 2009.  The wife let slip that they were warned in advance and they all got out (their whole circle of peers).  Didn't lose a penny and quite proud of it!!!!!  You can't make this stuff up.  It's a broken world out there.  Act wisely.  Confucious say's, "it's not about making winning trades or bets, it's about making money".  Any good gambler knows that.

 

 

Tue, 06/23/2015 - 02:00 | 6224612 gwar5
gwar5's picture

So if these bond managers ask the teller for $1 Billion in stacks of cash do they get reported?

Tue, 06/23/2015 - 02:57 | 6224654 kareninca
kareninca's picture

This is not on-topic but I'm so weirded-out here goes.  For years I've frequently looked at the houses for sale online near where I grew up (south-eastern CT).  This spring/summer it has been striking how very few are coming on the market, new to the listings.  I mentioned this to my father, who told me that that was indeed strange, since everywhere he and my mom drive, it seems like every house has a for sale sign.

Today he mentioned that a whole bunch of houses on a particular street in my hometown (5000 people; not a big town) had for sale signs.  I went to Zillow and Realtor.com (the usual sites), and none of them were listed.  None.  Now, it doesn't cost an agent very much at all to list on one of those sites (these weren't FSBO signs; they were realtor signs).  Is that weird or what?

Last night I solicited an online bid from a dealer for a (new) 2015 honda civic (our 19 y.o. one had finally gotten too unreliable).  MSRP 20,110.  The dealer's offer:  $16,488.  Well, we bought it (it wasn't bait and switch; they meant it).  Now, I know that loads of people get great deals on cars due to their savvy clever bargaining, but I'm not that sort of person; I didn't even try to bargain down from their offer.  I think that things must be pretty damn bad if I get a good deal on a car.  They had about a million of that make and model on their lot; I could see.

Tue, 06/23/2015 - 06:29 | 6224771 geekz_rule
geekz_rule's picture

thanks for sharing that. good real reporting of conditions on the gorund. yes, I dont think we ae in Kansas anymore..

Tue, 06/23/2015 - 03:42 | 6224677 Surveyor4Pres
Surveyor4Pres's picture

One day, the Sun will run out of Hydrogen and will start using Helium

as its fuel for the nuclear fusion process going on in its core.

The gravitational equilibrium state that it is currently in will be changed,

and hence it will grow into a Red Giant star, thus engulfing the Earth.

But long before then, our Moon, due to the effects of Earth's own gravitational pull,

will break up into millions of pieces, thus forming a ring around the Earth.

Then, the Earth will tilt on its axis to near 90 degrees.

And Cash really won't matter, any more.

Tue, 06/23/2015 - 04:11 | 6224700 Batman11
Batman11's picture

lack of liquidity = lack of bigger fools = high probability the biggest fool is you

GET OUT NOW

 

Tue, 06/23/2015 - 04:36 | 6224712 Money Boo Boo
Money Boo Boo's picture

isn't there an ETF for that?

Tue, 06/23/2015 - 05:01 | 6224723 Bopper09
Bopper09's picture

30 second clip that explains everything

https://www.youtube.com/watch?v=YHv5jgXz9I8

Tue, 06/23/2015 - 06:21 | 6224762 Billy Bob101
Billy Bob101's picture

I think there is a problem with derivatives.  If interest rates rise, there is the potential for as much as $500 trillion in derivatives coming due.  Inevitably, at some point in the future, it will happen, but the Fed will put that day off as long as possible.

Tue, 06/23/2015 - 06:27 | 6224767 ramgold2206
ramgold2206's picture

Im so fed up with all this EU bullshit...Ireland took the opposite direction to Greece yet the problems remain (just under the surface). The euro project is doomed but it will limp on for years crisis after crisis

Reading ZH convinced me to own gold to try remove myself from this madness as best I could but like nearly everybody I had F..K all extra cash to convert into bullion.

6 months ago I had no cash and no gold and a shed load of credit card debt.. Now I have a wee bit of cash,,, nice wee bit of gold... but I'm rid of the credit card debt..all from reading Zero Hedge and its commentators!!! thanks guys I owe you.

If you find yourself in the same position as me and your willing to try your hand at network marketing, you could use the commissions earned to acquire gold bullion from Karatbars. May not be for everybody and I not pushing it on anyone but it's another option for you and its working for me.

if you're interested in what is a Genuine opportunity visit  www.teamramgold.com my own site - email me for full training.  

Tue, 06/23/2015 - 06:29 | 6224772 SpoofyBlonde
SpoofyBlonde's picture

What does one buy? with their "cash like securities"? after one unwind's ones positions? And the markets are EMP bombed then resurrected with new positive balances to Central banker's  e-ledgers? And re- "ponzi-fied"?

Tue, 06/23/2015 - 06:34 | 6224776 geekz_rule
geekz_rule's picture

thanks ZH for a great article, continuing my education on this stuff.

one thing strikes: "hold in cash" aren't these massive figures today.. billions and trillions.. only 1's and 0's.. so.. they may think they have "cash", but really, only claims to cash.. at a bank or whatever institution.. and likely, if the SHTF, likely unclaimable?

Tue, 06/23/2015 - 06:35 | 6224780 No More Bubbles
No More Bubbles's picture

Yawn.....

Let me know when they get 100% Cash!

Tue, 06/23/2015 - 07:22 | 6224832 1stepcloser
1stepcloser's picture

Yawn, Yawn

Let me know when they need to convert that 100% cash into PMs

Tue, 06/23/2015 - 06:55 | 6224801 CheapBastard
CheapBastard's picture

" No one saw this coming."

Tue, 06/23/2015 - 08:00 | 6224897 pc_babe
pc_babe's picture

Thank you to whomever.  Yesterday I was reading ZH and was soooo sick of the damn poppy, flashy, in-out grey to transparant ads that seem to have multiplied by 10x in the last couple months.  I read on ZH that someone said to switch to mozilla with flashblock and adblock.   OMG!!.  I did this morning and I am a happy camper. 

I know you need to make a few buck Tyler, but jezzz it has become insane navigating all the crap.

Tue, 06/23/2015 - 10:35 | 6225377 bluskyes
bluskyes's picture

not supporting the system? sounds like financial terrorism

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