Tuesday, July 19, 2016

Grant Williams*:
The Rising Danger Of A Bidless Market
Grant Williams discusses his great concern about the liquidity risk underlying financial markets long-addicted to central bank rescue stimulus .."The danger to me has become one of liquidity. In a rising market, I will always find you an offer. If you want to buy shares in a rising market, there are always some for sale. I don't know what the price may be, maybe it's a little bit higher as people get greedy, but there's always stuff for sale. What people have forgotten since the financial crisis -- which was such a sharp wakeup call -- is: there are sometimes no bids. Every flash crash that we've seen in the last five or six years has been a preview of what's going to happen when confidence goes, because people will move to the exits. Everything that's been done -- again we come back to these rules that put in place to deflect the last crisis: Dodd-Frank, Basel III, banks being forced not to mark-to-market anymore -- we will see all the unintended consequences of these actions come out when people want to hit a bid and there's not a bid there. It could get ugly. This is not a time for panic, but it is absolutely a time for a great deal of caution. You need to understand A) Why you're still invested in markets and B) What your plan is to get out of them if you suffer a shock. Because if a shock comes and we get a move down like we did in January/February, and it's one that coincides with a whole-scale or widespread loss of confidence in central banks, they're not going to be able to turn this thing around. People need to have a plan at that point." .. 59 minutes

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