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These Three Events Will Shatter "Liquidity Illusion", Trigger Crisis, OECD Says
The OECD has released its first Business and Finance Outlook which the organization describes as “an annual publication that presents unique data and analysis that looks at what might affect and change.. tomorrow’s world of business finance and investment.”
Over some 250 pages, the first edition offers a sweeping look at the global financial landscape and outlines, in excruciating detail, many of the major themes we’ve built on in these pages including companies’ propensity to spend on buybacks and dividends at the expense of capex, the dangers of employing unrealistic pension fund investment return assumptions in a ZIRP world, and, of course, the liquidity paradox, wherein trillions in central bank cash injections mask underlying illiquidity — especially in bond markets.
Here’s how Reuters summarizes the report:
Encouraged by years of central bank easing, investors are ploughing too much cash into unproductive and increasingly speculative investments while shunning businesses building economic growth, the OECD warned on Wednesday.
In its first Business and Finance Outlook, the Organisation for Economic Cooperation and Development highlighted a growing divergence between investors rushing into ever riskier assets while companies remain too risk-averse to make investments.
It urged regulators to keep a close eye on investors as they piled into leveraged hedge funds and private equity and poured cash into illiquid assets like high-yield corporate bonds.
Meanwhile, judging by stock market returns, investors were rewarding corporate managers focused on share-buybacks, dividends, mergers and acquisitions rather than those CEOS betting on long-term investment in research and development.
And here is the OECD’s take on the “liquidity illusion”:
There appears to be some illiquidity illusion in these trends. There has been a veritable “super-highway” of inflows into these “liquidity premium” products: corporate and emerging corporate credit, private equity and alternative assets. The “Super highway” into these products is not a dual carriageway — and when investors want to sell in a stressed environment they may find that there will be “accidents” in the reversal of flows.
High yield bonds have reduced liquidity due to declining covenant protection, making them harder to sell in a stressed event.
ETFs and alternative products that offer daily liquidity through trading in secondary markets when referencing illiquid underlying securities could be severely tested by redemptions in a sell off even where shares must be redeemed for in kind securities rather than cash.
Among the triggers the OECD says could spark a “liquidity crisis” are: 1) monetary policy normalization, the return of the EMU debt crisis, 2) a “falling oil price surprise” which could, in the organization’s words “undermine the oil-related and fracking business investment in the US,” 3) and geopolitical turmoil in the Middle East and Eastern Europe.
“Any of these events would likely trigger asset price volatility [and] attempts by institutional investors to redeem illiquid corporate bonds in crisis circumstances would amplify volatility.”
Once again we see that the proliferation of HY bond funds and other esoteric products (that have attracted unprecedented inflows in an environment where risk free assets yield at best an inflation adjusted zero and at worst have a negative carry) is cause for serious concern among very "serious" people who, years after the issue was first raised here, are now suddenly coming to the realization that when the market finally turns (due either to a poorly executed Fed liftoff or a geopolitical catastrophe), and previously diversifiable flows suddenly become a one-way rush to the exits, fund managers will be forced to sell the underlying assets, and in the absence of dealer liquidity (which has all but dried up in the post-crisis regulatory regime) a self-feeding firesale will ensue at which point central banks will either do as the IMF recently suggested and become market makers of last resort, or watch in horror from the sidelines as the bubble blown by allowing otherwise insolvent corporate issuers to stay afloat by tapping capital markets at artificially suppressed rates implodes in spectacular fashion.
Grab some popcorn.
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Sacre Bleu!
Among the triggers the OECD says could spark a “liquidity crisis” are: 1) monetary policy normalization, the return of the EMU debt crisis, 2) a “falling oil price surprise” which could, in the organization’s words “undermine the oil-related and fracking business investment in the US,” 3) and geopolitical turmoil in the Middle East and Eastern Europe.
Thease highly paid persons can only come up with 3 triggers
Start a list Ladies and gentalmen
only one matters really, global insolvency. So many bullshit paper/digital promises, so few real assets.
The insolvency can be pushed down the road for a long time. They have enough control on the helm to keep it going until there is a trigger. Any trigger will do, and yes, these guys have blinders on if they can't see more than this short list of possibilities. I'm waiting for the asteroid but the counter party risk is high on that one.
I already see a lot of barter going on at the street level. The amount of consumable calories required to maintain a decent standard of living is what it is. So , yes, as standards of living drop around the world it will go on for a while.
Some will have access to those calories, most will not, same as it ever was...
I can see the obesity epidemic here in the U.S. getting a round or 3 of shock therapy. 1500 calories/day (if yer lucky) All the better for it too.
If you take the time to look deeper into the obesity epidemic in the US you'd learn that most of these obese people are actually starving to death because their bodies are starving for nutrients that they can't get from the only shitty food they can afford or have access to.
So “normalization” will “spark a crisis” — that, ladies, is all you need to know.
No it's the opposite, the obese are undercover preppers who prefer to hoard calories this way rather than in metal cans. "So nobody can steal'em when SHTF" is their motto. In the most morbid cases, these uber-preppers can go 2-3 years without food or water. Pretty smart.
Sorry, but the "they can kick the can much further down the road" meme strikes me as fantasy. In fact, I'd argue that the collapse is already in progress, and it's simply the degree of acceleration that will ultimately make it obvious to the masses.
*They* think that they have control, but it should be clear that whatever control remains in their hands is rapidly slipping away.
Easy to agree with your comment, I think we are one CDS triggered away from a total financial collapse, being the dominoe that knocks down all the rest.
#4 Fed Audit, which is why it will only ever happen in retrospect after the whole system crashes, at which point no one will take any responsibility for Fed policies, practices, and positions being the root cause, and there will be nothing anyone can do to rectify it anyway (For other examples, see Fanny Mae).
one word says it all: deliquesce (du`jour)
" becoming liquid,... typically during decomposition!"
How about the 700 trillion credit default swap market? What's gonna happen when majority of the contracts come looking for cash? Remember AIG?
If only!
Many ways this CB bubble can pop. Can't beleive the ignorance that allows it to continue.
Those three things, or the next Black Swan event that nobody sees coming. But carry on, it's just a fancy looking goose!
Wow...OECD now has OCD. When the full moon arises, it becomes Mr List aka Snyder.
"when the market finally turns (due either to a poorly executed Fed liftoff or a geopolitical catastrophe)"
Let's set the record straight. The fed has never gotten it right when it comes to raising rates and that is by design. Once everybody is all in they close the casino so that Joe public panics and throws in his chips. This is how the elites take it all.
The Fed always gets it right where it goes to their advantage, and THAT is by design!
So lets see, Military will be in place in "hostile' area of country doing their practice drills conviently right before the planned economic september crash. so when the peeps hits the streets and riot or simply try to take "their" money out of the bank, they'll be met w/ US armed forces. That money in the bank is no longer yours anymore. BTW is Jade Helm another way of saying Green Back?
I'm shocked that there is "gambling" going on here!
what a bunch of crap!
while shunning businesses building economic growth
NAME ONE! (hell i'll bet they can being fascists and all)
It urged regulators to keep a close eye on investors...
HOW ABOUT LET THEM TAKE A FUCKING LOSS AND LET THE MARKET WORK FOR A CHANGE!!
The bureaucracy need this verbiage of motherhoods to remain employed. Quality of such reports is based on its weight.
Fast forward, they will flesh it out in some BS tomes that monitor/control Nothing.
The only people who will get slammed are the panicked. Bonds can be held to maturity, so long as the company stays in business. Grandma ain't playing the bond market.
exactly. bond investors are unflappable. those maggots are anything but investors.
Lots of buyers when it's going up..
nobody wants it when it's going down.. damn what a surprise... how's that ETF model working out for you.
i should be able to jam it higher by buying but then when i want to sell at a profit it should be mandatory that a buyer magically appear. the taxpayer or fed if necessary. after all, i did my job, i jammed it higher for years and got bonuses every year too.
Your ministry remains STRONG!
https://www.youtube.com/watch?v=qUb5IcahRuo
I too had to look it up; OECD = Office for Economic Cyanide Distribution.
Seriously guys, how much more of this shit can we take.... rinse and repeat... poor greeks getting the shit kicked out of them,,, them today .. us tomorrow...... its all fiat currency/central bank wet dream spwan,.
Get into the physical Bullion... and the stress levels drop significantly
check out www.teamramgold.com and I'll teach you how to make a system work for you to get bullion at the cheapest price... I can show you how to get the bullion home and in your hand for little over spot price ...
Im telling ye guys this programme works....
Somebody is going to be left holding negative or barely positive bonds when confidence erodes and yields rise. The challenge is that mass redemptions will start when monthly statements come out showing a 5% loss on your bond fund. And how does the fund pay out that redemption - by selling MOAR bonds at any price - and with few buyers at that point. It's a Lehman like collapse where everything has to be sold.
Ain't but one way out baby, Lord I just can't go out the door.
Ain't but one way out baby, and Lord I just can't go out the door.
Cause there's a man down there, might be your man I don't know.
Could this be an exercise in butt covering by the OECD? It is quacking like a duck.