“La sabiduría de la vida consiste en la eliminación de lo no esencial. En reducir los problemas de la filosofía a unos pocos solamente: el goce del hogar, de la vida, de la naturaleza, de la cultura”.
Lin Yutang
Cervantes
Hoy es el día más hermoso de nuestra vida, querido Sancho; los obstáculos más grandes, nuestras propias indecisiones; nuestro enemigo más fuerte, el miedo al poderoso y a nosotros mismos; la cosa más fácil, equivocarnos; la más destructiva, la mentira y el egoísmo; la peor derrota, el desaliento; los defectos más peligrosos, la soberbia y el rencor; las sensaciones más gratas, la buena conciencia, el esfuerzo para ser mejores sin ser perfectos, y sobretodo, la disposición para hacer el bien y combatir la injusticia dondequiera que esté.
MIGUEL DE CERVANTES Don Quijote de la Mancha.
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17 de agosto de 2015
Citigroup: Something Big and Fundamental Has Changed in Markets
Markets used to be self-limiting, but they aren't anymore
Liquidity in bond markets has grabbed all the headlines in recent months (and years).
The
ability to trade fixed-income securities without overly affecting
prices is front and center in the minds of many investors, traders, and
regulators, although there's plenty of disagreement as to the extent of the so-called liquidity issue, as well as the reasons behind it.
New
regulations that have made it more difficult or more expensive for
banks to hold bonds on their balance sheets and to facilitate trades for
their clients are an oft-cited culprit, though the growth of the big
investors that buy such assets is an additional factor.
In
a new presentation, Citigroup Strategist Matt King argues that the
liquidity issue is a pervasive one that expands beyond fixed income and
cannot be solely attributed to shrinking bank balance sheets.
Source: Citigroup
In
the 42-page presentation, King points to increasing concentration and
one-way positioning by large investors as a major factor behind current
liquidity woes.
The crux of this argument is that markets used
to be self-limiting. Prices of securities would move up to a point
where their yields would become unattractive, at which time investors
would trim some of their positions, causing prices to go down and yields
to recover. Now the intense search for returns has altered that
dynamic, with investors chasing inflows as a means of getting higher prices and higher profits.
While
the notion that value investing is disappearing in a market that has
moved ever upward for the past five years is not exactly new, King's
presentation here is stark. Investors have been moving in tandem, he
says, making markets far more homogenous. The chart below shows investor
positioning in credit markets, where the number of longs has vastly
outnumbered the shorts, along with the International Monetary Fund's
herding metric. In short, investors across a number of asset classes are
going mooo as one-way positioning dominates.
Should investors decide to change positions all at once, liquidity will, understandably, evaporate.
Source: Citigroup
The
good news here is that some of that herding behavior may fade as the
U.S. raises interest rates, global economies begin to diverge, and cracks emerge within asset classes. The bad news is that we're vulnerable to hitting market air pockets, so to speak, until then.
Here is King's conclusion:
