Guggenheim CIO Warns "Everything Is Liquid Until You 'Need' To Sell"

Tyler Durden's picture

The holidays came early to the world's investor class, as instead of 12 Days of Christmas, Scott Minerd, Global CIO of Multi-billion-dollar Guggenheim Partners, dropped his 12 lessons for today's meltup-market participants.

In a series of tweets, Minerd offers some clear-cut advice for the complacent many...

He begins by noting "The rally in risk assets is probably not over, but strength is an opportunity for investors to move towards the exits."

Then explains...

Merkel's failure to effect a coalition increases the risks of longer QE from #ECB.

 

The myth of higher long term rates in the US ignores the risk that the business cycle's terminal rate may be lower than many think.

 

With the neutral rate stuck at zero, a December rate hike will move the #Fed into restrictive territory.

 

The Senate plan to delay a corporate tax cut into 2019 is likely to create a massive drag on the US economy. Bad policy!

 

The shape of the yield curve is telling us that we are on track for a recession and that monetary policy is becoming restrictive. The #tax bill is not a reason to rethink this signal.

 

Market phase has moved from recovery to fundamental and now to speculative. There's little price appreciation now, just clipping coupons. It is time to become more conservative and book gains.

 

To paraphrase Hemingway, credit downturns happen slowly and then all at once. Don't let yourselves be surprised by a sudden increase in spreads and defaults.

 

We are at a moment in time where complacency in the markets will be badly punished in accounts, bonds, and careers.

 

People who snooze will get run over by the bear market in risk assets.

 

The markets have had a great run, and it is easy to get complacent after such a long period of returns.

Ending with some crucial advice for everyone..."Everything is liquid until you NEED to sell. Plan accordingly."

As Minerd concluded recently, based on the historical relationship between market cap to GDP ratios and subsequent 10-year returns, today’s market valuation suggests that the annual return on a broad U.S. equity portfolio over the next 10 years is likely to be very disappointing.

As such, investors may want to seek better opportunities elsewhere.

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Paul Kersey's picture

The Fed will keep pumping the market until there's little wealth left to extract from the hoi polloi. Then the Wall Street kingpins will short the market, leaving pension plans holding the bag for the losses.

Here's my conspiracy theory: The Republican tax "reform" plan, the recent decision to end net neutrality, along with the Citizens United Supreme Court decision are only the latest and most advanced weapons being used by the corporations to crush individual Americans, especially those who make up what's left of the American middle class. With 78% of Americans living from paycheck to paycheck, and with 69% of Americans having less than $1,000 in savings, the masses, in general, have become debt-serfs in a devolving neo-feudalistic society.

Survey: 69% Of Americans Have Less Than $1000 In Savings - Forbes.

"Sep 23, 2016 - Niall McCarthy , Contributor. A new survey suggests that nearly 7 in 10 Americans have only $1,000 or less in their savings accounts. GoBanking asked 7,000 people around the country how much money they had set aside in savings accounts for the future, and found that 34 percent of them have absolutely nothing set aside."

The major international banksters, on the other hand, never lose. When their banks crashed in 2008, the U.S. Central Bank (Fed) they control, printed up over $29 trillion to not only bail them out, but to guarantee them multi-generational wealth. By 2010, they were already paying themselves record bonuses, while the members of the hoi polloi were out of work and fighting foreclosures. The corporate banking cartel never loses, because the game is always rigged. The banksters own the game.

FreeShitter's picture

No conspiracy there, that's legit truth.

Arnold's picture

Gated redemption put padlocks on the already too small exits doors.

Nobodys Home's picture

Can't pull it out for 30 days. Just long enough to watch it ALL disappear.

44magnum's picture

And the politicians make sure we keep playing it.

Antifaschistische's picture

those who receive and spend the counterfeited cash FIRST...always win.   our electronification of cash manufacturing (i.e. FED credit) just makes it that much easier.

Hapa's picture

watch out below!

BurningBetty's picture

Stop. With. These. Articles.

THE FED and ALL CBs around the globe will BUY IT ALL WITH THEIR MONOPOLY MONEY! 

Seems these idiots still can't wrap their heads around the fact that the reason the markets are setting ATH every week is due to neverending buying by CBs. They will own it all in the end.

Whalley World's picture

When the plug is about to be pulled, will you be advised in advance? Not likely

DEMIZEN's picture

Everything Is Liquid Until You 'Need' To Sell.  good one ill write that on my daily reminder wall 

DivisionBell's picture

End the federal individual income tax by repealing the 16th amendment and moving to a sales-tax and tariff trade equalization model.

Do this and you will see an economic boom you won't believe.  Factor in some sound money and we'll be reaching for the stars again... these chains on us now are just too heavy.

 

Endgame Napoleon's picture

My state, with its $19k per capita income, already has zero income tax. We also have a near 10% sales tax on food. Due to the high out-of-wedlock birth rate and the mass of illegal immigrants with sole male breadwinners, many people do not care due to groceries financed by Uncle Sam. For those with earned-only income, it means a big chunk of the money to cover every small basket of groceries going to sales tax. When you spend all of your income on necessities, you are taxed on all of your income—taxed at 100%. Well, rent takes more than half of your pay, so you are taxed on about 45% of your earned-only income. My state also has many 1099 jobs. In these jobs, you pay twice as much SS tax — 15.30%, not 7.65%. The moms who get the free food, free rent and $6,318 child tax credits for womb productivity are not the ones working those 1099 jobs. They take the part-time office jobs.

ATM's picture

Q: so whats the difference in paying 10% sales tax on 100% of your income and 20% income tax on 1/2 of your earnings?

A: I can control what I buy.

Quivering Lip's picture

The Senate plan to delay a corporate tax cut into 2019 is likely to create a massive drag on the US economy. Bad policy!

Why would it? I thought corporate profits were great already . Enough with this bullshit. Corporations don't pay anywhere near 35%, and already pay the lowest amount, as a percentage of federal tax receipts in history.

Lower corporate taxes won't lead to business expansion or more jobs but instead will just bring more buybacks.

Mikeyyy's picture

Couldn't agree more.  GDP growth is over 3% , corporate profits are at records.  Why would no change cause a problem?  

TrustbutVerify's picture

I'm wondering...will the Fed and central banks around the world be willing this time around to do a bail-out/QE, etc., that takes the soon to crash markets where the previous QEs have taken this market?  ...up up and away?  Or, and it seems possible this time around with total debt and Fed balances where they are, will there only be a partial bail-out?  During 2008-9 crash, Lehman was sacrificed. It was allowed to fail.  It was musicial chairs and for Lehman there was no chair - and intentionally so.  

When it all hits the fan again I predict there will be more judicious, even targeted, bail-out considerations.  If its going to take $X trillion to make things whoke again, or 100%, who or what this time around is going to be the Lehmanesque sacrificial lamb to be slaughtered.   It would be an easy political decision for central banks to refuse to the most leveraged, the most foolish within $X trillion travesty.  Suddenly, the central banking money printers would be seen as showing a modicum of wisdom.  A sacrifice for the masses - like Lehman was.  Its would not be a total solution but one that might be broadly beneficial to the central banks.   

Also, we may be witnessing a bit of gamesmanship going on now in regard to various government holdings and the glacial pace sell-off of QE assets in such a dangerous economic environment?  Wouldn't it be best in every way to have - to wait for - China to crash first?  It would be major international moral/political high ground talking point if China crashed first.  A China crash would take down associated markets around the world, too.  We all know some arguments suggest China is the most vulnerable.  Money might pour into the US when it all hit the fan, bolstering our market (though perhaps temporarily), with the Fed possibly taking advantage of the international carnage by accelerating its sell off of its own massive balance sheet. 

Wouldn't crashing world markets be willing to buy anything U.S. based - some of it the Fed balance sheet holdings - than anything connected to their own crashing markets that is connected to China?  

So, maybe there's just watching and waiting going on now - worldwide.  Not sure how a sudden dramatic Yuan deval might affect this thesis. 

So maybe at this point its just a waiting game.  Who fails first?  Just sayin'.  

indygo55's picture

Baron Von Rothschild?

 

JBPeebles's picture

Saw the illiquidity problems here early this year. Tried to move some money and it took four weeks.

My theory is that other creditors were in line before I was. Obviously the big banks have the actual liquidity. It takes a while for the money to trickle down from above. If the money transfer doesn't originate from a bigger bank, you'll have to wait until they've settled their obligations with big banks who owe the bank that owes you.

Another characteristic of a liquidity freeze is income tax payments. So tight are the banks with capital that they need to receive the income tax payments first in order to pay off debt obligations. Without a huge thrust of tax payments in mid-January there was simply no liquidity available to pay off smaller depositor's transfers in early January.

Doesn't matter if you're trying to transfer the money in or out. The end recipient will be the one unable to receive the wired funds for up to a month. If you're lucky enough to receive money from a TBTF bank then yes, you'll be more likely to get your capital sooner than others. But even they suffer from periodic liquidity crisis where they can't send funds out because they don't actually have them. They're actually more exposed but you can see the risk to the overall system should they be unable to meet liquidity needs--it would cascade down the entire system.

Fractional reserve banking breeds these kinds of problems because banks only keep a small percentage of their depositor assets in liquid form. They're encouraged to loan it out again and again yet this has become a seive for specualtion in the markets based on leverage-- a recipe for disaster.

Banks aren't investors and shouldn't be in the real estate business. But they are, speculating wildly in the same derivatives market that brought the '08-9 crisis--CDOs and other exotic investment products that greatly up market risk should any of the TBTF experience liquidity problems.

Like what happened with Lehman, should the first major financial entity lose their working capital then the Fed would step in. They've taken great efforts to increase loan loss provisions and reserves in order to close any liquity holes in the system should they appear. This doesn't mean though that there might not be periods where no cash is immediately available.

It's worth remembering that the cash isn't cash--it's a digital entry in a ledger. If no transfer is required and you have an account at a TBTF they can credit that, knowing it probably won't be withdrawn (thus no need exists to actually have the cash transferred out as it is all internal.) The ledger dutifully records every obligation, so even if you don't get the money, someone somewhere will have an IOU on their books and be obligated to pay it off...eventually.

Until the cash leaves the bank though, the IOU is only that an IOU. It has no redemption value. The Fed knows you're owed and where the liquidity problems will be stacking up at those entities that suddenly lose all their cash reserves and all those who they owe and can't pay. The Fed will absorb the outstanding IOUs directly if they have to.

Much can happen in the interim between the time you want your money and they send it to you. This period will result in great uncertainty and possible price collapse in derivatives which will lack a robust and transparet market during a crisis. Maybe the Fed will step in and simply buy everything in sight for 100 cents on the dollar. This absorption would provide desired liquidity to the system but prevents price correction from occurring.

It's worth remembering that the Fed can correct balance sheet issues with easy money but that it still takes money going from them into the failing entities, and the number of these will expand as they are interdependent on each other's balance sheet health. Prioritization of debt payments will happen along the lines of  something resembling debt seniorage--the banks in trouble will redeem IOUs to their friends first but if liquidity demands go high enough they'll restrict outgoing transfers based on their overall ability to pay.

You can be owed and this liquidity freeze could mean you can't get your money. Most likely, the monetary inflation of a Fed QE to infinity--the likely policy reaction--would spike gold and PM very quickly.  This assumes that the metals are actually there at all, with so many claims to every ounce. Reallocation would only be possible after the big boys get in at mid-crisis lows. You meanwhile would get your trade filled later, maybe even post-crisis.

Getting the money out of the intangibles into tangibles could be impossible. Although GLD poses as physical it can't produce the actual metals held on its behalf and redemptions would take a while (force majeure clauses specify liquidation in cash equivalents, not the real metal, a fraud that permits fractional reserve gold ownership.) This managerial risk could mean GLD and physical prices diverge quite radically as COMEX and other bank-dependent withdrawals of physical can't occur and can only be filled with new borrowing from the Fed. This systemic risk might crash the price of GLD and Comex due to their dependence on over-suscribed big bank PM holdings that don't exist but rather base the marketability of their paper-only existence on the implicit Fed guarantee like any other TBTF liability, which is not where you'd want to be as a creditor--waiting for fresh fiat brought in to cover for the banks as physical metal spikes.