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It's Not Just ETFs Anymore, Cash Bond Markets Are Plunging
While high-yield bond ETFs have been under massive pressure, some have argued that this carnage has yet to really hit the underlying cash bond market (since the flows are more exchanges between two parties as opposed to redeeming ETFs for actual bonds). It would appear that pattern is changing as today the bloodbath in ETFs is spilling directly into the corporate bond markets themselves with every sector in investment grade and high yield deep in the red.
As Bloomberg noted Friday,
HYG saw outflows of $560 million on Friday, its third worst day ever. But this was only 13 percent of its total $4.3 billion in trading volume, meaning 87 percent of the trading didn’t involve touching the underlying bonds. To put it another way, 87 percent of the trading was between two parties over an exchange and/or through a market-maker taking the other side. Some 13 percent, however, involved the redemption of HYG shares to the ETF's provider, Blackrock, in exchange for a basket of junk bonds.
But today, the pressure is really starting to hit the underlying bonds...
Now the vicious cycle begins... and as we have already seen - the contagion is spreading.
Charts: Bloomberg
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I'm not worried until it spreads to equities, I'm a dumb sheeple.
I have been telling my friends and family for the last 2 months now to move their investments or IRA/401k's into moneymarket account equivalent products. I don't think anyone of them listened to me. I have already done it with my families investments. Looks like I will get the I told you so moment.
any bets that the money market accounts get taken down too?
I'm about 50% hedged in MMA's. So, I'm betting the goon squad takes that, along with my dividend bearing equities and good for nothing treasuries.
theres just no way the squid and company don't somehow take it all. They do run the FED, and own the government, after all.
sure wish I could buy me a congressman. I'd line my pockets with all sorts a free cash.
https://i.imgur.com/UPcsVTA.gif
That spot between the matress and the bedframe is looking like a really hot investment opportunity right now.
If they take MMA's, which is the ONLY place most 401k sheep can "park" cash (as MANDATED by most plans), there most definitely will be fucking blood. The bankers and financiers basically FORCED everyone in 401ks that use to have some pretty good options, now they are FORCING (via K-street) people into losing positions. The best part comes when the bankers and financier actually profit from those losing positions and then request another BAILOUT because the company store went bankrupt (even though they made out like bandits).
Still waiting for all plans to FORCED to make everyone have a MyIRA... many already have to have a certain amount of government paper...
Go ahead motherfuckers, pull it, I triple dog dare you.
FYI Fidelity's "Money market" equivalent is now a gov bond fund... Former coworkers told me about it. I had liquidated my 401k earlier in the year...
lube accordingly...
I gave up preaching, they just assume you dont know what you're talking about as its not in the mainstream press.
The funniest bit I hear is to stop being negative and I respond with I'm pretty excited as I've got short positions. That always messes with their heads
Lmaoooo! It is excting! I short too. News like this is music to my ears.
Me too! I am actually tired of saying it... now I just node and smile and keep to myself. And when they ask for my opinion i ask them " Do you want to hear what you want to hear, or the truth?" Generally my conversation stops there. Although, couple of my friends/cousins have listened to me. Slowly they are appreciating my advice as new information becomes available.
uh oh, I thought we were assured this was 'largely contained'?
I wonder if this will put the stops on the Ole Yellerin rate hike?
They cannot ever saying anything but "Everything is fine" or will be fine, nothing to worry about so they themselves don't cause a panic or market run. Don't trust a word from them.
Next leg down for PMs on its way. Last chance to sell gold over $1000... probably for the next 15 years... maybe more.
I am not sure about the timeline but I agree that deflation will happen across the board including PM's. In 2008 Gold and Silver went down with the rest of everything else. I do think that it will rebound first though. For the record I am not selling any of my PM's they are simply a hedge against dedollarization that I don't see happening now but you never know.
I do think that it will rebound first though
If there is truly the paper shitshow some suspect may occur across all assets, gold may be the only thing rebounding
We've not reached anywhere near the panic stage .... yet.
Also, it is not unusual at the start of distressed periods (And I am not saying anything about whether this is or is not, just a historical what usually happens) everything tends to get hammered into the initial stages. The "Only Port in the Storm" so to speak is cash equivalents. Even today 0.1% is better than negative as in red ink, losses, etc.
And BTW, for professional money managers, the greatest sin is to loose money. Preservation on the downside can make up for many years of under-performance on the upsides.
Then the flight to quality shortly thereafter ensues ... Treasuries (or Bunds in DE, Guilts in GB, etc) ... and PMs
However, with respect to PMs, that has usually been the case when we've already had high inflation or the Fed is going bananas easing (Stirring up inflationary expectations)
All the meanwhile, the Risk assets just leak lower or get pounded.
Now, during the Big downturns, the critical bell-weather has almost always manifested itself in the cash/short term markets.
Why?
Because that's where, aside from the banks, that liquidity is to be found (Liquidity as in funds availability, not marketability) And in absence of liquidity, then there's either insolvency or bankruptcy, etc.
So the Hail Mary Indica is to be Found in the Short Term Markets.
Why do you guys and gals think that Paul McCulley (of PIMCO, who was a phenomenal thinker) sat on the short term desk?
Will it or won't it? Time will tell, but it is unfolding like a classic precursor of Much Worse Ahead
the next 15 years..
That's the year when you graduate High School you fucking stooge.....
Next leg down, I'm going to double-down and back up the truck. Thinking Ag rather than Au for now, however.
whatever, dude.
Such wit! Such intelligence!
Given all the juvenile comments, downvotes and very few reasonable arguments against, I have to assume I'm on the correct side of the trade as there is still FAR too much bullishness in the gold bug community.
arbwhore has a point. Some folks must capitulate before a bottom's in. And the capitulation will make eTrade baby cry for mommy.
It will be epic and there won't be any "backing up the truck" comments like we see every time there is a tiny dip downward.
"Reasonable arguments" against "Last chance to sell gold over $1000"?
I'm not sure if that's possible.
Such wit! Such intelligence!
Like your one line post that I should be in awe of? And that puts you on the right side of the argument??
I'll give you my one liner, gold will be at $30,000.00 in eight months...probably.
Just like The Poseidon Adventure, the wave finally has arrived.
( The Pig ) Wheeeee! Wheeeee!
I'm thinking Ned Beatty
Not one thing to worry about... Jack's got your back!
NIRP! '
Full Retard...All systems go! Warp Factor 10!
Its TRANSITORY people. ITS ALL TRANSITORY. The Federal Reserve said so. Dont worry. Those assholes at the Federal Reserve have our backs. Nothing bad will happen.
ah, blackrock, you beneficent bastard.
I told people to get out months ago.
And TVIX is crashing on a high volatility day?
Let's make sure we understand the correct pecking order as the economy implodes once again:
- Commodities/materials/industrial products have already gotten the message as these markets have been slaughtered over the past year. From energy/oil to base materials to the BDI, etc., the market has actually been working via supply outstripping demand and prices falling.
- Now the HY/Junk credit markets are getting the message and beginning to price accordingly. I understand the liquidity issue as being a significant factor in prices falling (as if no liquidity is available, sellers are exiting into a black hole). However let's remember the most important fact with these markets. That is, the underlying companies that act as collateral for the debt simply can't repay the loans. Energy, transport, mining, base materials, etc., they all gorged themselves on cheap/easy debt with false market assumptions. Now its time to pay the piper. So markets may actually be working again and pricing the debt for the base credit risk present within these companies.
- Next up (as pointed out by ZH) will be the IG credit markets as the real risk of debt/loans will be repriced by the market.
- Then equities will finally join this party as generally this market is often one of the last to really understand what is happening. That is, companies are going to fail as their business models can not produce enough cash flow to repay debt (let alone produce real, and not manufactured, profits).
- After this, jobs/employment will come along for the ride as companies realize that they have to slash expenses in order to survive. Jobs are the easist target but not during the holiday season. I suspect that Q1 job cut announcements will not be what the Fed wants to see/hear with the 2nd quarter being even worse.
- Finally, it will be everyone's hard assets that finally implode. From houses they never should have bought to extended car loans to you name it, once their employment situation darkens and personal cash flow drys up, in the infamous words of Yogi Berra, it will be "Deja Vu All Over Again". I suspect by the end of 2016, there are going to be some excellent bargins from individuals dumping personal assets.
So its up to the Fed or one of its proxies again, to save the day, to step in the credit markets to provide liquidity and bailout the malinvestment it has created for the past 20 years, to yet again drive another bubble in one last ditch effort to salvage 100 years of failed concepts.
Can an implosion in the HY/Junk credit markets lead to another negative economic shock, similar to 2008/2009, yes I suspect so. Would it be big enough to bring the entire system down, no I don't think so. I believe that panic/fear would have to form in the biggest credit markets in the world, that being soverign debt and FX (as remember, all currencies are a form of debt), before the entire financial system would reset. Is this coming, yes but probably not for another couple of bubble cycles as the markets finally have to accept that fiat currency and soverign debt, in relation to claims on real assets, is the financial bubble of all bubbles.
Good analysis, but here is why I'm skeptical.
We've seen oil prices crash and take HY down a few times before. There was a 10 year + period starting in the 80s. It didn't spread to investment grade or stocks. Tremendous pain in Texas/Louisiana, but not really beyond the oil patch.
The difference now is old yeller is starting a rate normalization on the up side. I suspect they will raise so gradually it will have very little effect on the overall economy. But a head wind is not a tail wind. Therefore, decade or more of stagflation (same as last 15 years).
For those of you hoping for easy shorts or a crash/reinvest -- sorry, not for a while. The US may have the flu, but europe/south america/china have ebola. Safe haven money will continue to prop up us dollar assets.
So you have concluded that the Asians and the South Americans will just give us the fruits of their labor. I would study det to GDP ratios and buy currency accordingly.
That said we are one tactical nuke away from a global reset.
That's without an eco diaster.
And you really believe that things can continue to worsen without rebellion.
You live a sheltered life.
bill
Everyone forgets the European debt crisis of a few years back.... Italy went from 7% to NIRP on their bonds......
Can they do it here, dunno, but I sure wouldnt discount it.
If you think cash sitting in a Money Market Fund is easy to withdraw at any time?
Maybe not.
The SEC in all it's wisdom to protect the managers of the Money Market Funds came up with this perverted bit of legislation.
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542347679
This means if the management of a Money Market Fund screws up and pulls a Corzine, they can lock you out for 10 business days. And also charge a fee.
Some highlights:This insulates the managers of the Money Market Funds from any pain, but if used, guarantees people that have money in the Money Market funds, lots of pain.
In case you were always wondering and never dared to ask, Brian (I call all my guests on the show "buddy", even if it's Bill Gross) Sullivan finally explains what the real concern with ETF's is:
"The concern about the ETF market is that - correct me if I'm wrong - is that is not that the ETF market has a problem. It's that if you buy an ETF you're buying a stake in something else. The ETF is the way to get a bunch of stuff that you can - you know - would be a pain in the butt to buy a bunch of stuff seperately. The concern is, do we have the assets that the ETF represents? are they there? can they be sold? In other words, does that ETF have the stuff to back it up?"
Any questions?