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How Many Days Will It Take To Sell $10 Million Of...

Tyler Durden's picture




 

It will come as no surprise to any reader that volumes in general are dismal. This leads inevitably to the question of just how liquid markets are in general. This may not be a critical question for mom-and-pop buying some IBM or CAT at the margin but for institutional investors it is critical to the decision to enter a position. Pairing off reward expectations with risk concerns tends to focus too much on volatility and too little on liquidity and by looking at daily market turnover and the bid-offer spread of each asset class, UBS finds taking liquidity into account can make a huge difference to performance (and risk-appetite). Unsurprisingly, the most liquid assets are large cap equities and US Treasuries. The least liquid assets include various fixed income securities, and in particular high yield credit. Perhaps this goes a long way to explaining why US Treasuries have maintained their strength and why large cap equities have been so strong relative to credit markets (a topic we have discussed at length) as money finds its 'easiest' hole to fill and thanks to liquidity concerns, high yield credit investors remain more pragmatic entrants to an ever-inflating bubble of liquidity (as exits will be small and crowded at the first sign of tightening). We suspect the increasing dispersion between the most and least liquid securities in each asset class will likely feed on itself as fewer funds are willing to 'earn' an 'illiquidity' premium given the bigger binary risks facing all markets.

It is evident that credit markets are notably less liquid that equity markets (a fact well known to most market participants). This is a chart of the period post-Lehman, pre-S&P bottom - a relatively illiquid period...

Compared to the current environment... SENSEX (comp EM) liquidity looks to have suffered the most but what is apparent is the widening spread between most and least liquid securities as new marginal money appears to have become bloated in a narrower and narrower group of securities...

This is highlighted clearly here as equity market liquidity for relatively illiquid securities is as bad as it has ever been (while liquid securities have it as good as ever)...

But credit liquidity remains much more 'jumpy' and considerably 'worse' than post-crisis highs with illiquid HY weakening once again as, perhaps thanks to the HY ETFs, we see liquid HY credit improving - though still an order of magnitude greater than equities...

The clear concentration risk in both equities and credit should be cause for concern for retail and institutional investors alike as the crowd becomes more restless and gaps will become more likely. The lesson from credit markets remains one of more pragmatic entry, as opposed to short-term momo games, and maybe helps explain the lack of enthusiasm for credit compared to equity as the latter makes new cycle highs and the former remains considerably more concerned.

 

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Mon, 03/12/2012 - 09:42 | 2246934 Dr. Engali
Dr. Engali's picture

Shit Cramer was just making bullish comments on gold. Oh well it should provide a good buying opportunity until he flips.

Mon, 03/12/2012 - 13:08 | 2247643 LowProfile
LowProfile's picture

Dude...  If there's another deflationary event, gold is liable to make a ~30% correction from the 1900 highs.

That will be the the mother of all buying opportunities for 2012.

Mon, 03/12/2012 - 09:44 | 2246937 jover
jover's picture

I wouldn't mind waiting 1000 days for my 10.000.000 to be unwound.

That is still 10000 a day. :)

Mon, 03/12/2012 - 09:47 | 2246944 sampo
sampo's picture

..And pretty soon they are all running to the exits..

Mon, 03/12/2012 - 14:48 | 2247992 h3m1ngw4y
h3m1ngw4y's picture

dude its not about the number of days but the moving of price ;)

Mon, 03/12/2012 - 09:49 | 2246943 MillionDollarBonus_
MillionDollarBonus_'s picture

There is an obvious solution to this problem. Why doesn't the Federal Reserve start making markets in equities? They can set reasonable bid ask spreads and make a profit for the tax payer, and in some cases they could set bids higher than asks and pull offers to help out struggling top tier investment banks. This is the 21st century, and in my view it is unacceptable that there should be a lack of liquidity in today’s equity markets, especially when the global economy is this sensitive.

Mon, 03/12/2012 - 09:59 | 2246967 Dr. Engali
Dr. Engali's picture

Don't give them any ideas MDB. They might take you seriously. We all know they're incapable of creative thinking themselves.

Mon, 03/12/2012 - 09:56 | 2246970 LongSoupLine
LongSoupLine's picture

lol MDB, you just made my day!  Thanks for posting early today.

 

"They can set reasonable bid ask spreads and make a profit for the tax payer..."

 Holy shit, now that's funny!

Mon, 03/12/2012 - 10:10 | 2247006 Quizzical
Quizzical's picture

Isn't it simp,Eric to hit Ctrl P and let the banisters believe they did it all themselves? A million MDB's with no guilt whatsoever!! Brave new world!

Fri, 03/16/2012 - 14:38 | 2262763 MeelionDollerBogus
MeelionDollerBogus's picture

as a matter of fact Jim Rickards suggested that making markets in equities is precisely what's coming for the Fed. It will start with gold on the new evolved gold standard of Fed Reserve control at a very high price compared to today, to keep the dollar alive (in his theory) but it goes so far over the line compared to today's activities of the FOMC that by all means being a market-maker for all equities becomes "acceptable"

Mon, 03/12/2012 - 09:50 | 2246953 Zola
Zola's picture

One defining feature of hyperinflation is that there is less and less money ... sounds strange ? Ponder then why more money "needs" to be printed...

Mon, 03/12/2012 - 09:51 | 2246959 jover
jover's picture

They need to print currency. You cant print the real money!

Mon, 03/12/2012 - 09:52 | 2246961 Village Smithy
Village Smithy's picture

We could see day after day of limit down and circuit breaker halted markets. There is a lot of money in this market that thinks it's just going to step away as soon as things go south. Good luck.

Mon, 03/12/2012 - 10:29 | 2247073 mess nonster
mess nonster's picture

LIQUIDITY (def) investopedia

1. The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.

2. The ability to convert an asset to cash quickly. Also known as "marketability".

Who's got the CASH?

A: Whoever's got the cash, ain't buying anyone else's hyper-levereaged bullshit. If anyone wants to sell all they've got, they'll take the writedown immediately. Substantial penalty for withdrawal now, later, anytime.

Who's got the cash? Nobody's got any cash. Cash is the realm of Drug Cartels, but they all answer to Wells Fargo and BOA to keep such big banks afloat with the cash transfusions. Cash is the realm of gold buy-and-hold-ers who claim they're bracing for hyperinflation when their actions are in fact deflationary.

Deflation bitchez, is how you spell "liquidity freezeup".

Mon, 03/12/2012 - 16:29 | 2248363 Alpha Monkey
Alpha Monkey's picture

I hope the banks screw over the drug cartels, perhaps getting some Scarface action into bankster homes.

 

Mon, 03/12/2012 - 10:32 | 2247085 espirit
espirit's picture

No real need to be a top caller here.  Retail pretty much gone, and only scalpers left to pick up pennies with one foot out the door.

DaBoyz are left picking each others' pockets to keep up the ponzi, which is public pension funds. 

iThink the music has stopped, and recognition to find a chair while the building burns has just set in.

Mon, 03/12/2012 - 10:36 | 2247100 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Everyone thinks they are the biggest and the best...... until the day someone learns he is late to the game.

Mon, 03/12/2012 - 10:16 | 2247017 Xkwisetly Paneful
Xkwisetly Paneful's picture

So the metals did not benefit like equities from high liquidity or just chose to omit them as it doesn't jive with the Joe Granvilliing of ZH?

Everything has gone up thanks to money printing and everything will come down absent money printing.

 

Mon, 03/12/2012 - 10:17 | 2247022 writingsonthewall
writingsonthewall's picture

This is why CFD's have become so popular. Let's hope the writers know what they're doing!

Mon, 03/12/2012 - 11:21 | 2247236 GMadScientist
GMadScientist's picture

Requisition more mattresses!

Mon, 03/12/2012 - 11:33 | 2247268 mclant004
mclant004's picture

2 plus 2 =    

Come on guys! you are talking about it all day but i havent seen anybody take the logical next step!

Do you all agree hyperinflation is coming?

Do you agree hyperinflation will cause the underlying captial in a loan to reduce to a tiny value in the next couple of years?

Do you agree ? that gold rocks

SO .......

TAKE OUT LOANS THAT YOU CAN HANDLE AND BUY GOLD  

It is the last moment in our lives that you can exchange paper for gold! do not let it slip away!!!!

Mclant004

Tangible Investments 

Mon, 03/12/2012 - 12:19 | 2247457 Widowmaker
Widowmaker's picture

Gold is only yours by the stroke of a pen.

Until you remove the fascist pen you have no security whatsoever from stardust -- you just think you do which is (like most gold bugs betting the ranch) false security, the worst spot to be in on game day.

Mon, 03/12/2012 - 13:11 | 2247657 LowProfile
LowProfile's picture

Gold is easily transportable across borders.

If you think the deluded inbred fucks that are trying (a la "Pinky and the Brain" style) to take over the world can pull it off, then by all means:  Don't buy gold.

Twat!

Mon, 03/12/2012 - 16:18 | 2248291 Alpha Monkey
Alpha Monkey's picture

There will always be thieves. 

If my choices are:

1) hold my wealth and keep it in a private, secret location, hidden from thieves to the best of my ability

OR

2) give my wealth to the thieves, hoping they pay me a percentage and that they will give it back when I ask for it....

Imo, it's pretty clear that contracts are meaningless, regulators are working for the agencies they are supposed to regulate, and bank owned computers run the markets.

I'll take number one please.

Mon, 03/12/2012 - 19:03 | 2248883 smiler03
smiler03's picture

I really wish that I understood what this means...

"We suspect the increasing dispersion between the most and least liquid securities in each asset class will likely feed on itself as fewer funds are willing to 'earn' an 'illiquidity' premium given the bigger binary risks facing all markets."

I think it's bad news?

I honestly really love you Tyler xxxx  :O)

Tue, 03/13/2012 - 02:22 | 2249688 cnhedge
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