Experts warn liquidity crisis could hit U.S. stock market
Photo: Hiroshi Watanabe/Getty Images
The U.S. stock market may be running low on liquidity, experts say, and that could very well weigh down prices and lead to further selling.
Why it matters: The dysfunction over the past few weeks in the repo market, which is where large financial institutions sell assets like Treasuries when they need quick cash, may have been the first signal of a wide-ranging liquidity shortage.
That shortage could be poised to deliver a larger shock to the broader financial system, with Wednesday's stock market selloff being the latest (and most prominent) example of a liquidity event.
What they're saying: "Over the past year we have seen liquidity risks bubbling up," Bank of America Merrill Lynch equity and quant strategist Savita Subramanian said in a note to clients.
"When the wall of worry turns to panic selling, we worry about an unlikely area of liquidity risk: the S&P 500."
The nagging issues in the repo market are "just a symptom of a larger macro problem," Yves Lamoureux, president of macroeconomic research firm Lamoureux & Co., told Axios.
"The economy requires much more credit and the Fed has gone too far in its tightening of the balance sheet."
"Liquidity is the blood needed to hold up the stock market. The simple fact that indices are dropping like rocks is a testament to its lack thereof."
Watch this space: The rapidly rising popularity of passive investing, converging stock ownership, and increasing fund flows from pension funds and large money managers into private equity is drying out typical sources of liquidity to the stock market and could mean major outflows in the face of bad news, Subramanian adds.
"Liquidity rarely matters, but when it does, it's all that matters."
Go deeper: The ultra-liquid ultra-rich
Source: Axios
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______________________________________________________
All articles, videos, and images posted on Dinar Chronicles were submitted by readers and/or handpicked by the site itself for informational and/or entertainment purposes.
Dinar Chronicles is not a registered investment adviser, broker dealer, banker or currency dealer and as such, no information on the website should be construed as investment advice. We do not support, represent or guarantee the completeness, truthfulness, accuracy, or reliability of any content or communications posted on this site. Information posted on this site may or may not be fictitious. We do not intend to and are not providing financial, legal, tax, political or any other advice to readers of this website.
Copyright © 2019 Dinar Chronicles
Photo: Hiroshi Watanabe/Getty Images
The U.S. stock market may be running low on liquidity, experts say, and that could very well weigh down prices and lead to further selling.
Why it matters: The dysfunction over the past few weeks in the repo market, which is where large financial institutions sell assets like Treasuries when they need quick cash, may have been the first signal of a wide-ranging liquidity shortage.
That shortage could be poised to deliver a larger shock to the broader financial system, with Wednesday's stock market selloff being the latest (and most prominent) example of a liquidity event.
What they're saying: "Over the past year we have seen liquidity risks bubbling up," Bank of America Merrill Lynch equity and quant strategist Savita Subramanian said in a note to clients.
"When the wall of worry turns to panic selling, we worry about an unlikely area of liquidity risk: the S&P 500."
The nagging issues in the repo market are "just a symptom of a larger macro problem," Yves Lamoureux, president of macroeconomic research firm Lamoureux & Co., told Axios.
"The economy requires much more credit and the Fed has gone too far in its tightening of the balance sheet."
"Liquidity is the blood needed to hold up the stock market. The simple fact that indices are dropping like rocks is a testament to its lack thereof."
Watch this space: The rapidly rising popularity of passive investing, converging stock ownership, and increasing fund flows from pension funds and large money managers into private equity is drying out typical sources of liquidity to the stock market and could mean major outflows in the face of bad news, Subramanian adds.
"Liquidity rarely matters, but when it does, it's all that matters."
Go deeper: The ultra-liquid ultra-rich
Source: Axios
______________________________________________________
If you wish to contact the author of any reader submitted guest post, you can give us an email at UniversalOm432Hz@gmail.com and we'll forward your request to the author.
______________________________________________________
All articles, videos, and images posted on Dinar Chronicles were submitted by readers and/or handpicked by the site itself for informational and/or entertainment purposes.
Dinar Chronicles is not a registered investment adviser, broker dealer, banker or currency dealer and as such, no information on the website should be construed as investment advice. We do not support, represent or guarantee the completeness, truthfulness, accuracy, or reliability of any content or communications posted on this site. Information posted on this site may or may not be fictitious. We do not intend to and are not providing financial, legal, tax, political or any other advice to readers of this website.
Copyright © 2019 Dinar Chronicles
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