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Are we now in the midst of a liquidity crisis?

Discussions about the economic and financial ramifications of PEAK OIL

Are we now in the midst of a liquidity crisis?

Unread postby dohboi » Mon 09 Mar 2020, 14:42:24

Gold is down

wtf

people are rushing to liquidity

where will this end?

https://seekingalpha.com/article/433061 ... 19-spreads

https://moneymaven.io/mishtalk/economic ... N-JpsBWi9Q

https://en.wikipedia.org/wiki/Liquidity_crisis

forces mutually reinforce each other during a liquidity crisis. Market participants in need of cash find it hard to locate potential trading partners to sell their assets. This may result either due to limited market participation or because of a decrease in cash held by financial market participants. Thus asset holders may be forced to sell their assets at a price below the long term fundamental price. Borrowers typically face higher loan costs and collateral requirements, compared to periods of ample liquidity, and unsecured debt is nearly impossible to obtain. Typically, during a liquidity crisis, the interbank lending market does not function smoothly either.

Several mechanisms operating through the mutual reinforcement of asset market liquidity and funding liquidity can amplify the effects of a small negative shock to the economy and result in lack of liquidity and eventually a full blown financial crisis
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Re: Are we now in the midst of a liquidity crisis?

Unread postby jedrider » Mon 09 Mar 2020, 15:01:36

I went to financial planning seminars where they promoted GUARANTEED growth for a cut off the top. Basically, you can't lose.

I wonder how that will work out if this crisis goes an entire year? I think the expectation was that the Feds would ALWAYS bail out the market, if it can.

I presume that they always have money as long as everyone doesn't bail together and they make money over the 'long' term regardless (as long as there is inflation of the currency and printing by the feds).
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Re: Are we now in the midst of a liquidity crisis?

Unread postby dohboi » Mon 09 Mar 2020, 15:59:06

NOTHING is guaranteed

Anyone saying it is, is either a fool or trying to sell you something :)

https://www.youtube.com/watch?v=ThDwS79HPhs
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Re: Are we now in the midst of a liquidity crisis?

Unread postby Pops » Mon 09 Mar 2020, 16:08:35

Wouldn't people be selling gold to cover their calls?
The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves -- in their separate, and individual capacities.
-- Abraham Lincoln, Fragment on Government (July 1, 1854)
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Re: Are we now in the midst of a liquidity crisis?

Unread postby Outcast_Searcher » Mon 09 Mar 2020, 16:16:06

dohboi wrote:Gold is down

wtf

people are rushing to liquidity

where will this end?


Well, at a minimum, we have the usual panic selling, which tends to cascade.

One good point is that at least, the vast majority or perhaps all mainstream money market mutual funds regulated by the US are a form of "government" funds, meaning they have to be composed of high quality short term paper (generally US treasuries). Apparently virtually all fund families went to those, re having to "break the buck" on the price, when credit quality changes during stressful markets, for example.

So at least this time around, such cash will be deemed safe and prudent (with inflation being the risk, as always).

Gold, short term, is a speculative asset, just like any other commodity. If the world markets are forecasting a deep global recession, super low interest rates, etc., it's not like high inflation is likely. I wouldn't expect gold to be selling off like crude oil, but how much should it rise when liquidity is king? The markets will decide, of course.

At SOME point, this will no doubt be a good long term buying opportunity for many risk assets. I miss a lot of such opportunities during various short term panics, because I never like to rush in. If this thing persists, re a true global pandemic, I just might get my chance to do some meaningful buying this time.

However, as ebullient as the markets had been, I'm in NO hurry to jump in until things settle down some AND prices are still meaningfully lower overall. Even for oil, I'm fine biding my time and seeing how things go as global hotspots mount.

I'd rather miss an opportunity than get crushed by greed, which is why I'm generally only about 50% long, re asset allocation, on globally diverse index stock funds, over time. But then again, I value sleeping at night very highly.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: Are we now in the midst of a liquidity crisis?

Unread postby Outcast_Searcher » Mon 09 Mar 2020, 16:22:39

Several mechanisms operating through the mutual reinforcement of asset market liquidity and funding liquidity can amplify the effects of a small negative shock to the economy and result in lack of liquidity and eventually a full blown financial crisis

There is a reason there are financial clearing houses, margin calls, margin requirements, etc. It's to deal with trying to maintain liquidity in the overall system. No system is perfect and all risk can't be eliminated, but over time, that system in the US markets has done damn well, re stocks, options, and futures, including in financial crises.

Now, how well have TPTB done in getting, say, TBTF banks to behave? That's a whole different kettle of fish, of course. That area is one place where I really agreed with Liz Warren (sans the screeching), re better bank regulation.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: Are we now in the midst of a liquidity crisis?

Unread postby Outcast_Searcher » Mon 09 Mar 2020, 16:29:48

Pops wrote:Wouldn't people be selling gold to cover their calls?

To the extent they are over-leveraged, people will be selling things to handle margin calls. Because if they DON'T, their brokers will be selling assets for them, and they WON'T be worried about doing it in a way the customer likes.

So yeah, if selling in general really pushes the liquidity of traders with risk, it becomes sort of an "everything must go" sale, and not by choice.

I'm pretty sure, re the news, that this was part of what was going on in the fall of 2008. If this continues long, we'll see plenty of that this time around. One thing that became clear to me in the last recovery, when by say 2011 so many people went RIGHT back to the same financially irresponsible behavior we saw pre-great recession, is that re finances, the masses are largely learning impaired. Seriously.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: Are we now in the midst of a liquidity crisis?

Unread postby GHung » Mon 09 Mar 2020, 17:09:57

Outcast_Searcher wrote:
....... No system is perfect and all risk can't be eliminated, but over time, that system in the US markets has done damn well, re stocks, options, and futures, including in financial crises.
........


Easy to say if you ignore things like growing public debt, un/underfunded liabilities, long-term inflation, obscene levels of wasteful consumption, while denying future generations a fair shot at resource utilization and a friendly, viable environment. But let's pat ourselves on the back, eh? Our grandkids will likely be pissing on our graves.
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Re: Are we now in the midst of a liquidity crisis?

Unread postby Outcast_Searcher » Mon 09 Mar 2020, 17:20:13

GHung wrote:
Outcast_Searcher wrote:
....... No system is perfect and all risk can't be eliminated, but over time, that system in the US markets has done damn well, re stocks, options, and futures, including in financial crises.
........


Easy to say if you ignore things like growing public debt, un/underfunded liabilities, long-term inflation, obscene levels of wasteful consumption, while denying future generations a fair shot at resource utilization and a friendly, viable environment. But let's pat ourselves on the back, eh? Our grandkids will likely be pissing on our graves.

So it's sloganeering over facts? OK then. Just for one example, cumulative efforts re efficiency are massive, but let's NOT TALK ABOUT that, if it's positive, as it might offend some doomer's zombie fantasy. :roll:
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: Are we now in the midst of a liquidity crisis?

Unread postby GHung » Mon 09 Mar 2020, 17:58:08

Outcast_Searcher wrote:
GHung wrote:
Outcast_Searcher wrote:
....... No system is perfect and all risk can't be eliminated, but over time, that system in the US markets has done damn well, re stocks, options, and futures, including in financial crises.
........


Easy to say if you ignore things like growing public debt, un/underfunded liabilities, long-term inflation, obscene levels of wasteful consumption, while denying future generations a fair shot at resource utilization and a friendly, viable environment. But let's pat ourselves on the back, eh? Our grandkids will likely be pissing on our graves.

So it's sloganeering over facts? OK then. Just for one example, cumulative efforts re efficiency are massive, but let's NOT TALK ABOUT that, if it's positive, as it might offend some doomer's zombie fantasy. :roll:


Congratulations. Your denial is complete.
BTW: "efficiency" mean little if gross collective consumption and waste streams aren't falling. But any honest idiot could see that.
Good to see your fallback habit of calling anyone who disagrees with you a doomer is intact. Verifies your weak position every time.
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Re: Are we now in the midst of a liquidity crisis?

Unread postby dohboi » Thu 12 Mar 2020, 16:36:46

So, I guess the answer to my question at the top of the thread is...yup!

https://www.forbes.com/sites/vineerbhan ... 2ab5a853e6

The most important thing that I am seeing is the total evaporation of liquidity in almost all markets.

The Fed and other central banks think that by performing repo operations they can provide liquidity to panicked market participants and the economy. That “un-fact”, unfortunately, is a pipedream...
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Re: Are we now in the midst of a liquidity crisis?

Unread postby GHung » Sat 14 Mar 2020, 23:21:32

Here's what could really sink the global economy: $19 trillion in risky corporate debt

London (CNN Business)Companies have spent the years since the global financial crisis binging on debt. Now, as the coronavirus pandemic threatens to push the world into recession, the bill could come due — exacerbating damage to the economy and feeding a meltdown in financial markets.
Looking to take advantage of low interest rates, companies have rushed in recent years to issue bonds whose proceeds could be used to grow their businesses. Corporate debt among non-banks exploded to $75 trillion at the end of 2019, up from $48 trillion at the end of 2009, according to the Institute of International Finance.
As the coronavirus spreads — touching off a plunge in oil prices and a collapse in travel, and shutting factories from Italy to China — there is increasing alarm that companies in the energy, hospitality and auto sectors won't be able to make their bond payments. That could trigger a spree of ratings downgrades and defaults that would further destabilize financial markets and compound the economic shock.
"This certainly is another match being lit [near] the bonfire of corporate debt liabilities," said Simon MacAdam, global economist at Capital Economics. "There's definitely potential for systemic risk."
.........
https://www.cnn.com/2020/03/14/investin ... index.html


It's the debt, stupid.
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