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FX Liquidity Is Tumbling To Dangerous Levels
Back in the summer of 2013, the Treasury Borrowing Advisory Group made a very explicit plea to the Treasury (and the Fed): please help us, liquidity in bond markets is plunging; the plea was so loud the Fed - whose monetization of Treasurys remains the primary culprit for the collapse in fixed income liquidity - promptly announced it would first taper, and then completely halt QE (at least until such time as Congress provided a generous surge in monetizable debt).
It took the peanut gallery a few years to pronounce that "everyone is worried about bond market liquidity", even though this had been clear for years to anyone who actually traded bonds in these broken markets.
A far more concerning development over the same period has been not so much the evaporation of equity, or debt, liquidity but that of the one "market" which central banks have no qualms about intervening on a daily basis: currencies. A recent example of just how thin liquidity had become in FX took place on March 18 during the infamous USD flash crash, when just after the market close, the USD index went, well, "crazy"
Furthermore, as we also discussed in the past year, one of the primary reason why FX liquidity has imploded is that after soaking up commodity, bond and equity markets in the past several years, HFT firms such as Virtu decided to make FX their latest trading arena.
And while the practical impact of collapsing liquidity in this last remaining asset class was also quite clear to market participants, especially those who relish the daily USDJPY stop hunts, there had been little theoretical work done on analyzing just how bad said liquidity vacuum had become.
Until today, when courtesy of DB's FX strategist Oliver Harvey, we have the answer: using a "framework for measuring liquidity in FX based on the ratio between average weekly volumes and realized vol" Harvey the obvious: FX liquidity is going, going, gone. To wit:
There has been further deterioration of this measure of liquidity across 8 out of 12 commonly traded G10 pairs. EUR/crosses in particular have suffered, with EUR/USD and EUR/JPY seeing the largest declines, further evidence of how painful euro funding unwinds have been for investors.
The bottom line: "liquidity in EUR/USD is closing in on the lowest levels save after the Lehman bankruptcy, with only late-2010 worse."
Other crosses reveals the same trend: "Liquidity has also fallen in USD/JPY but only towards its longrun average, while liquidity in GBP/USD has moderately improved but from low levels. While quoted bid-ask spreads are a different, and probably inferior, measure, interestingly they tell out the same story (see chart 5), with 3 year rolling percentiles very elevated in EUR/USD but low in USD/JPY. Turning to volumes, these continue a steady decline from late last year across G10 FX, a spike at this month’s Fed meeting notwithstanding (chart 6)."
So just in case anyone needed a reason to feel bad for big bank FX traders, especially after all the currency rigging revalations, here it is:
The above underscores the tricky current environment for risk allocation. The same message is provided by our Regime Machine indicator released today which shows our measures of trend (VHF), uniformity (cross correlation between currency pairs) and smoothness (inverted realized vol) to have collapsed to historical percentile lows, the worst possible conditions for momentum strategies.
And here, for the visual learners, is DB's complete chart pack showing that there really is no way out: the moments a massive inversion in sentiment arrives, the FX market will simply go bid-or-offerless as all the HFT-driven fake liquidity in the market disappears with the switch of a button.
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All is well .. facts are overrated.
Liesman, is that you?
That Martin Armstrong dude might actually be on to something....
I have to drive to cali for a wedding....will this hold together for another 3 weeks....serious questions, need advice, it's my brothers wedding
no...the market will end before your brothers marriage.
Seriously markets have crashed in Sept/Oct many many times 20% plus falls: 2001, 2008, 1869, 1987, 1907, 1929 and when this one goes you are be looking at 50%+ but who knows when the FED really loses control...they still have QE 4-10 as they are all in on the fraud this time. There is really no going back for the insane people in Central banking....they can not abandon their crooked mega bank brothers...that is their retirement fund
Take a rain check and just call him if you have doubts.
"will this hold together for another 3 weeks" -- aye, she'll hold, Scotty...
we'll save some QE4 cake for ya for when you come back
Scotty - Your gonna need a new warp core for that printer.....
Knowing your brother, he won't show up to the wedding either. Stay home and continue BTFD.
What part of Cali? It's a big state and not all areas are as screwed up as others.
Temecula / San Diego Area
Well that's not as bad as LA or the Bay Area would be if the SHTF but I would make sure you have the car gassed up and ready to go with a good escape route planned out. Since all the gas stations are owned by Pakistanis or other middle easterners you might be able to get some gas if you have some "real" money with you. If you are inclined to bring some firepower with you make sure you follow the interstate firearms transportation laws, I.E. unloaded and locked in a hard case, ammo can be in the same container just not in the firearm. Tell your brother there better be some hot brides maids in the wedding to make up for the danger he is putting you in lol.
I have a 1450 mile trip from TX. I have a truck. Is it legal to bring a non cali compliant ar-15? I'm not sure what to do
Very bad idea from a legal standpoint - just having a standard 30 round mag (even if you don't have a gun) will get you ass raped.
I drive through temecula all the time. You really do not need any kind of gun. Food stamps yes, gun no.
Are 5- 10 round mags clamped together legal? I don't suppose a 100 round drum with 90 plastic rounds and 10 live would cut the mustard with the cops either. Just guessing. We still have the 2nd Amendment here in Ohio.
In my life, the more I find myself fretting over something, that meant that nothing is going to happen.
The inverse is also true.
But, if you have a REALLY bad feeling, as in a gut feeling, just don't go. Gut feelings have proven to be much more reliable and accurate than my best analytical thinking ever was.
Hitlery, seriously, leave the AR home. If you gotta bear arms, bring a pistol, .38 or better with 10 round magazine(s) max, and keep it well out of sight. Always keep at least a 1/2 tank of gas or better in the truck.
But go to the wedding - Family is important.
Federal law allows the transportation of non-compliant AR type weapons acrossed state line but as others have pointed out it is not the best thing to do. I live in Nevada but have property in Cali so all my weapons have been purchased to be legal in both states. For instance an M1A without the standard muzzle flash hider is legal in Cali as long as you don't have a mag larger then 10 rounds. Kel-tech makes the SU-16CA that is Cali legal and takes standard AR-15 mags, of course no evil mags bigger then 10 rounds. Best long gun option would be a shotgun to be on the safe side. Most of the cops in Cali are not that familiar with the byzantine Assault Weapons laws and can't even tell what is legal and what is not so its best to stay away from AR type weapons.
A handgun will keep the zombies off. Bring some PMs and give some to your bro and wife for their wedding present. It's a classy move that may save their butts one day.
Probably be a check from .gov waiting in your mail box when you get back. You know... to cover the expenses.
Keeping a gas can in the car can extend your range a too. ;)
Kidding aside.
You'll be fine, do not stop living, that kills the beast.
Hitlery - cash and carry to the wedding.
Silver and Gold - the gifts that will keep on giving.
USDX poised on a death cross cliff. Just needs a little push.
meh
http://quotes.ino.com/chart/index.html?s=NYBOT_DX&t=&a=&w=&v=dmax
Looks more like it's consolidating before moving higher, but who knows
get some drano
Yeah, about that whole Shemitah thing....., I'm really beginning to wonder.
Paused till another horn blow from what I'm told...
by liquidity, do you mean they stole so much money no one trusts them and no wants to trade with them anymore? The Lehman Disease!
"Liquidity" as used in this article, and in most articles, has no comprehensible meaning whatsover.
Just substitute "whatever" as a synonym.
If you had a three-day old carcass of a road-killed dead skunk offered for sale for the "best offer", and received no bids, you could explain by saying "whatever", or by saying there was a "lack of liquidity".
That seems to be an overly complicated way of saying USD/JPY is going under 110.
Why is it "dangerous" exactly?
http://www.zerohedge.com/news/2015-09-28/currency-warfare-ruble-plunges-...
The volatile month of October is about to arrive.Should be an interesting ride for traders.
CAD...:), oil..., ...
AUD is down where it was when I visited, way back in the nineties...
...mortgage interest deduction...and off the cliff it goes...
...Jaws theme in background...
Doesn't Martin Armstrong say that there is a turn coming up on 9/30 or 10/1?
Well.
Try 10/7
Also they lose control of interest rates ( strong rise )
circa 7/15/2016
We shall see...
Ohhhhhhhhhhh da Shiff is hitting the fan now. QE4 eva or until the dollar goes to ZERO
There was a movie out about this a long time ago.
Called " Red October "
The star of the show was a submarine that goes to the bottom.
Interesting parrallels.
That movie sunk in the ratings.
I wouldnt discount two days of window dressing comming up to close the quarter.... I hope I am wrong, but I think they want not as bad numbers on those 401k statements.
"Treasury Borrowing Advisory Group made a very explicit plea to the Treasury (and the Fed): please help us, liquidity in bond markets is plunging."
They just don't seem to get it. Lack of liquidity is caused by one thing and one thing only. THERE ARE NO BUYERS. Begging for more money printing is not going to change "the reason" there are no buyers. Economic nature will take its course and there's not a damned thing they can do about it.
Oh come on - lack of buyers? We are dealing with PhDs in economics that understand the fine points of liquidity, fuck this common sense bullshit.
Print! and the buyers will come...
Can't tell if you're serious or not. The size of the collapse that's coming will dwarf any amount of money printing they could even dream of... by 100 fold. Nope... the buyers will come out and blow all that additional QE that's coming and it won't make one iota of difference. The markets will tank anyway. Once the deflation gets into second gear it will be an event like the world has never seen before. Seriously... 10 times as big and bad as the Lehman collapse.
A crash is coming....
http://taomacro.com/why-the-fed-canrsquot-stop-the-next-market-crash.html?m