NO STRINGS ATTACHED NEWS THAT MAINSTREAM JUST WON'T COVER.
Democratic presidential candidate Tom Steyer is far from thrilled that fellow billionaire Mike Bloomberg might enter the race for the party’s 2020 nomination.
https://www.foxnews.com/politics/battle-of-the-billionaires-steyer-jabs-bloomberg-says-i-dont-think-he-should-run
Blackwater Founder Erik Prince Held Secret Meetings With Maduro Government
As if recent Washington regime change efforts in Venezuela — which on a couple of occasions this year led to brief military coup attempts which were quickly stamped out — weren't already shady and murky enough, enter the prince of off-the-books black ops and covert dirty tricks himself:
Erik Prince, a private security mogul with ties to the Trump administration, held secret talks in Caracas last month with Venezuela’s vice president after briefing at least one senior U.S. official on his plans, according to people familiar with the situation.
Even though Prince was earlier publicly on record (as recently as April) pushing a plan to use thousands of mercenaries to back coup efforts in favor of US-recognize 'interim president' Juan Guaido, this latest effort revealed in the Bloomberg report appears an unconventional change in tactic by the Trump administration — a possible private back-channel opening of sorts via Prince — perhaps realizing Maduro is here to stay as Washington loses confidence in Guaido's prospects.
Prince, and Venezuelan Vice President Delcy Rodriguez
In Caracas Prince had "proposed a business deal and urged freedom for six imprisoned Citgo executives in the meeting with Vice President Delcy Rodriguez, according to one of the people." It's possible the efforts made headway, given those employees were released to house arrest from prison last week. Rodriguez is an outspoken close ally of Maduro and is under US sanctions.
Details of just what the ultimate goal is of Prince's personal intervention remain unclear, but Maduro was reportedly briefed on the matter. The meeting was held on either Nov. 20 or 21, according to a separate report in Reuters.
Among proposals discussed included, according to the report, Prince's suggestion of "sending personnel to train the nation’s police force as well as protecting judges and political candidates to help pave the way for new presidential elections." So it's perhaps part of a new 'unofficial' US administration effort to begin slowly dealing with Caracas, in hopes of influencing a political outcome?
The other interesting context to the revelation is that VP Delcy Rodríguez is a sanctioned individual, meaning discussion of any business arrangement with her without authorization is against US law (not that Prince was every overly concerned with that).
Delcy Rodríguez alongside Venezuela’s President Nicolás Maduro in Caracas in January. Image source: AFP/Getty
Bloomberg speculates further on potentially what's in it for the Venezuelan government:
For the Maduro regime, holding talks with an arch-enemy like Prince makes sense because they could present an opportunity for a deal that would alleviate the financial pressure the oil-producing country is under. While Maduro has successfully managed to stave off Guaido’s bid to take control of the government, top officials have been hamstrung by crippling U.S. economic sanctions.
But interestingly, the State Department claims no knowledge of the visit, with special envoy for Venezuela Elliott Abrams saying in a statement, “Neither the meeting nor any offers made were on behalf of the United States Government and on their face such offers would appear to violate U.S. sanctions.”
No doubt, the administration will continue to talk regime change in public while perhaps secretly using opportunists like Prince as back-channels for concessions, as the situation remains stalemated.
Erik Prince
But then one wonders how Caracas would ever trust someone like the former Blackwater chief. But then again he is accustomed to doing dictatorial regimes' "dirty work" from China to the UAE to that of any top bidder ultimately.
Tyler Durden Sat, 12/14/2019 - 17:00 Tags Politics"The Art Of The Deal" & How To Lose A "Trade War"
Authored by Lance Roberts via RealInvestmentAdvice.com,
This past Monday, on the #RealInvestmentShow, I discussed that it was exceedingly likely that Trump would delay, or remove, the tariffs which were slated to go into effect this Sunday, On Thursday, that is exactly what happened.
Not only did the tariffs get delayed, but on Friday, it was reported that China and the U.S. reached “Phase One” of the trade deal, which included “some” tariff relief and agricultural purchases. To wit:
“The U.S. plans to scrap tariffs on Chinese goods in phases, a priority for Beijing, Vice Commerce Minister Wang Shouwen said. However, Wang did not detail when exactly the U.S. would roll back duties.
President Donald Trump later said his administration would cancel its next round of tariffs on Chinese goods set to take effect Sunday. In tweets, he added that the White House would leave 25% tariffs on $250 billion in imports in place, while cutting existing duties on another $120 billion in products to 7.5%.
China will also consider canceling retaliatory tariffs set for Dec. 15, according to Vice Finance Minister Liao Min.
Beijing will increase agricultural purchases significantly, Vice Minister of Agriculture and Rural Affairs Han Jun said, though he did not specify by how much. Trump has insisted that China buy more American crops as part of a deal, and cheered the commitment in his tweets.”
Then from the USTR:
“The United States will be maintaining 25 percent tariffs on approximately $250 billion of Chinese imports, along with 7.5 percent tariffs on approximately $120 billion of Chinese imports.”
Not surprisingly, the market initially rallied on the news, but then reality begin to set in.
Art Of The Deal Versus The Art Of WarOver the past 18-months we have written numerous articles about the ongoing “trade war,” which was started by Trump against China. As I wrote previously:
“This is all assuming Trump can actually succeed in a trade war with China. Let’s step back to the G-20 meeting between President Trump and President Xi Jinping. As I wrote then:
‘There is a tremendous amount of ‘hope’ currently built into the market for a ‘trade war truce’ this weekend. However, as we suggested previously, the most likely outcome was a truce…but no deal. That is exactly what happened.
While the markets will likely react positively next week to the news that ‘talks will continue,’ the impact of existing tariffs from both the U.S. and China continue to weigh on domestic firms and consumers.
More importantly, while the continued ‘jawboning’ may keep ‘hope alive’ for investors temporarily, these two countries have been ‘talking’ for over a year with little real progress to show for it outside of superficial agreements.
Importantly, we have noted that Trump would eventually ‘cave’ into the pressure from the impact of the ‘trade war’ he started.
The reasons, which have been entirely overlooked by the media, is that China’s goals are very different from the U.S. To wit:
China is playing a very long game. Short-term economic pain can be met with ever-increasing levels of government stimulus. The U.S. has no such mechanism currently, but explains why both Trump and Vice-President Pence have been suggesting the Fed restarts QE and cuts rates by 1%.
The pressure is on the Trump Administration to conclude a “deal,” not on China. Trump needs a deal done before the 2020 election cycle AND he needs the markets and economy to be strong. If the markets and economy weaken because of tariffs, which are a tax on domestic consumers and corporate profits, as they did in 2018, the risk-off electoral losses rise. China knows this and are willing to “wait it out” to get a better deal.
China is not going to jeopardize its 50 to 100-year economic growth plan on a current President who will be out of office within the next 4-years at most. It is unlikely as the next President will take the same hard-line approach on China that President Trump has, so agreeing to something that won’t be supported in the future is doubtful.”
As noted in the second point above, on Friday, Trump caved to get the “Trade Deal” off the table before the election. As noted in September, China had already maneuvered Trump into a losing position.
“China knows that Trump needs a way out of the “trade war” he started, but that he needs something he can “boast” as a victory to a largely economically ignorant voter base. Here is how a “trade deal” could get done.
Understanding that China has already agreed to 80% of demands for a trade deal, such as buying U.S. goods, opening markets to U.S. investors, and making policy improvements in certain areas, Trump could conclude that ‘deal’ at the October meeting.”
Read the highlighted text above and compare it to the statement from the WSJ: on Thursday:
“The U.S. side has demanded Beijing make firm commitments to purchase large quantities of U.S. agricultural and other products, better protect U.S. intellectual-property rights and widen access to China’s financial-services sector.”
What is missing from the agreement was the most critical 20%:
Cutting the share of the state in the overall economy from 38% to 20%,
Implementing an enforcement check mechanism; and,
Technology transfer protections
These are the “big ticket” items that were the bulk of the reason Trump launched the “trade war” to begin with. Unfortunately, for China, these items are seen as an infringement on its sovereignty, and requires a complete abandonment the “Made in China 2025” industrial policy program.
The USTR did note that the Phase One deal:
“Requires structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange.”
However, since there is no actual enforcement mechanism besides merely pushing tariffs back to where they were, none of this will be implemented.
All of this aligns with our previous suggestion the only viable pathway to a “trade deal” would be a full surrender.
“However, Trump can set aside the last 20%, drop tariffs, and keep market access open, in exchange for China signing off on the 80% of the deal they already agreed to.”
Which is precisely what Trump agreed to.
This Is The Only DealThis is NOT a “Phase One” trade-deal.
This is a “Let’s get a deal on the easy stuff, call it a win, and go home,” deal.
It is the strategy we suggested was most likely:
“For Trump, he can spin a limited deal as a ‘win’ saying ‘China is caving to his tariffs’ and that he ‘will continue working to get the rest of the deal done.’ He will then quietly move on to another fight, which is the upcoming election, and never mention China again. His base will quickly forget the ‘trade war’ ever existed.
Kind of like that ‘Denuclearization deal’ with North Korea.”
Speaking of the “fantastic deal with N. Korea,” here is the latest on that failed negotiation:
“Reuters reported Thursday via Korean Central News Agency (KCNA) that, even if denuclearization talks resumed between both countries, the Trump administration has nothing to offer.
North Korea’s foreign ministry criticized the Trump administration for meeting with officials at the UN Security Council and suggested that it would be ready to respond to any corresponding measures that Washington imposes. ‘The United States said about corresponding measure at the meeting, as we have said we have nothing to lose and we are ready to respond to any corresponding measure that the US chooses,’ said KCNA citing a North Korean Foreign Ministry spokesperson.”
While Trump has announced he will begin to “immediately” work on “Phase Two,” any real agreement is highly unlikely. However, what Trump understands, is that he gets another several months of “tweeting” a “trade deal is coming” to keep asset markets buoyed to support his re-election campaign.
Not Really All That AmazingWhile Trump claimed this was an “amazing deal” with China, and that America’s farmers need to get ready for a $50 billion surge in agricultural exports, neither is actually the case.
China did not agree to buy any specific amount of goods from the U.S. What they said was, according to Bloomberg, was:
CHINA PLANS TO IMPORT U.S. WHEAT, RICE, CORN WITHIN QUOTASFurthermore, there is speculation the agreement is primarily verbal in terms of purchases, and the actual agreement of the entire trade deal will never be made public.
The source says a signing ceremony will not happen with President Xi. There will be a rollout of the agreement by the White House Friday. The Chinese have requested that the language of the never be made public. #China #Trade
— Edward Lawrence (@EdwardLawrence) December 13, 2019 https://platform.twitter.com/widgets.jsBut let’s put some hard numbers to this.
Currently, China is buying about $10 billion of farm produce in 2018. That is down from a peak of $25 billion in 2012, which was long before the trade war broke out.
Since the trade war was started, China has sourced deals from Brazil and Argentina for pork and soybeans to offset the shortfall in imports from the U.S. These agreements, and subsequent imports, won’t be cancelled to shift to the U.S. since at any moment Trump could reinstate tariffs.
More importantly, as noted by Zerohedge on Friday, if this “deal” was as amazing as claimed, the agricultural commodity index should be screaming higher.
Importantly, even if China agrees to double their exports in the coming year, which would be a realistic goal, it would only reset the trade table to where it was before the tariffs started.
While China may have “agreed” to buy more, it is extremely unlikely China will meet such levels. Given they have already sourced products from other countries, they will import what they require.
Since most don’t pay attention to the long-game, while there will be excitement over a short-term uptick in agricultural purchases, those purchases will fade. However, with time having passed, and the focus of the media now elsewhere, Trump will NOT go back to the table and restart the “trade war” again. As I wrote on May 24, 2018:
“China has a long history of repeatedly reneging on promises it has made to past administrations. What the current administration fails to realize is that China is not operating from short-term political-cycle driven game plan.
As we stated in “Art Of The Deal vs. The Art Of War:”
“While Trump is operating from a view that was a ghost-written, former best-seller, in the U.S. popular press, XI is operating from a centuries-old blueprint for victory in battle.”
Trump lost the “trade war,” he just doesn’t realize it, yet.
No More “Trade Tweets?”Since early 2018, and more importantly since the December lows of last year, the market has risen on the back of continued “hopes” of Federal Reserve easing, and the conclusion of a “trade deal.”
With the Fed now signaling that they are effectively done lowering rates through next year, and President Trump concluding a “trade deal,” what will be the next driver of the markets. While will the “algo’s” do without daily “trade tweets” to push stock markets higher?
While I am a bit sarcastic, there is also a lot of truth to the statement.
However, what is important is that while the Trump administration are rolling back 50% of the tariffs, they are not “removing” all of them. This means there is still some drag being imposed by tariffs, just at a reduced level.
More importantly, the rollback of tariffs do not immediately undo the damage which has already occurred.
Economic growth has weakened globally
Corporate profit growth has turned negative.
Tax cuts are fully absorbed into the economy
The “repo” market is suggesting that something is “broken.”
All of which is leading to rising recession risk.
In other words, while investors have hung their portfolios hopes of a “trade deal,” it may well be too little, too late.
Over the next couple of months, we will be able to refine our views further as we head into 2020. However, the important point is that since roughly 40% of corporate profits are a function of exports, the damage caused already won’t easily be reversed.
Furthermore, the Fed’s massive infusions of liquidity into the overnight lending market signal that something has “broken,” but few are paying attention.
Our suspicion is that the conclusion of the “trade deal” could well be a “buy the rumor, sell the news” type event as details are likely to be disappointing. Such would shift our focus from “risk taking” to “risk control.” Also, remember “cash” is a valuable asset for managing uncertainty.
With the market pushing overbought, extended, and bullish extremes, a correction to resolve this condition is quite likely. The only question is the cause, depth, and duration of that corrective process.
I am not suggesting you do anything, but just something to consider when the media tells you to ignore history and suggests “this time may be different.”
That is usually just about the time when it isn’t.
Tyler Durden Sat, 12/14/2019 - 16:30 Tags Business FinanceBernie Rescinds Endorsement Of Dem Candidate After "Legalize Bestiality" Video Resurfaces
Popular progressive political commentator Cenk Uygur is running for Democratic California Rep. Katie Hill’s seat, who resigned amid scandal in October after allegations she slept with a congressional staffer and a campaign staffer, and nude photographs of her surfaced.
But "The Young Turks" star founder is already finding himself at the center of bizarre controversy involving past statements he made over bestiality during a live program, causing Sen. Bernie Sanders to retract his highly sought after endorsement a mere day after announcing it.
In a Young Turks segment from 2013, he talks about how “hot” women from the Dominican are in somewhat typical remarks of his over the years that fellow progressives have lambasted him as sexist for. But then the segment took an insane turn. “Here comes the controversial part I shouldn’t say,” Uygur said, according to the resurfaced video. “I believe that if I were the benevolent dictator of the world, I would legalize bestiality where you are giving, you are pleasuring the animal.”
VIDEO: Young Turks host and California congressional candidate Cenk Uygur endorses sex with animals. pic.twitter.com/bD8ywsSXG9
— Mark Dice (@MarkDice) December 13, 2019 https://platform.twitter.com/widgets.jsSanders had endorsed Uygur on Thursday, calling him "a voice that we desperately need in Congress" — but a mere 24 hours later had this to say:
“As I said yesterday, Cenk has been a longtime fighter against the corrupt forces in our politics,” Sanders said in a statement. “However, our movement is bigger than any one person. I hear my grassroots supporters who were frustrated and understand their concerns. Cenk today said he is rejecting all endorsements for his campaign, and I retract my endorsement.”
Uygur blamed “corporations, lobbyists, and special interest groups” for the avalanche of push back Sanders faced over his endorsement. “That’s why I have decided that I will not be accepting any endorsements… The only endorsements I'll be accepting going forward is that of the voters,” he said in a statement.
The popular left wing media host had long been source of controversy over statements made about women, the Huffpost previously reported.
In 2013 #Cenk2020 discusses what "score" a woman has to be if she asks to "suck your d*ck." Cenk says 99% of men would let a woman who is "hot" or a "9." But a "2" or "3"? Meh. Maybe 50%. Didn't Harvard men's soccer get in trouble for lewd rankings of women like this? #CA25 pic.twitter.com/AWhpSgm7Jf
— M. Mendoza Ferrer (@m_mendozaferrer) November 26, 2019 https://platform.twitter.com/widgets.jsIn 2017 he was fired from progressive political action committee the Justice Democrats over past blog posts and columns degrading to women, some of which were as follows:
“Obviously, the genes of women are flawed,” Uygur wrote in a 1999 post lamenting the inadequate amount of sex he was having while living in Miami, Florida. “They are poorly designed creatures who do not want to have sex nearly as often as needed for the human race to get along peaceably and fruitfully.”
In a 2002 entry in which Uygur described the “rules of dating,” he specified that “there must be orgasm by the fifth date.” And in a 2003 column, he described drunken revelry at Mardi Gras in New Orleans, Louisiana, where he “kissed over 23 different women, saw and felt countless breasts.”
In addition, a 2004 post by Koller described teenage girls that he and Uygur met near a gas station in Pennsylvania as “whores in training, literally looking for boys to pick them up.”
During the newly resurfaced bestiality segment, his female co-host was clearly uncomfortable with his exploring "legalizing" sex with animals because it would be "pleasuring the animal". She vocalizes here extreme discomfort with the subject multiple times.
Audible gasps and cries of "What!?" are heard coming from his own producers, but that didn't dissuade him from continuing the bizarre discussion. "It's the dumbest thing I said?" Cenk questions. His co-host replies, visibly shocked and wanting to move on: "It really is the dumbest thing you've said."
He actually continues to explore the topic in lurid detail over whether a horse would appreciate such an 'encounter' or not. "Who got harmed?" Cenk asks in a moment of seriously attempting to persuade his listeners of his argument, implying that the horse was just fine.
Tyler Durden Sat, 12/14/2019 - 16:00Anti-Impeachment Democrat Jeff Van Drew Defects To GOP
Anti-impeachment Democratic Rep. Jeff Van Drew of New York has confirmed that he will switch parties and become a Republican, following a lengthy meeting with President Trump, according to Politico.
Van Drew is one of two Democrats who voted 'no' on opening the impeachment inquiry in the first place, and has been a vocal opponent of the effort, according to the report.
Nancy Pelosi isn't just hemorrhaging votes for her impeachment gambit, she's now facing wholesale defections from the Democrat party because of its impeachment hysteria. https://t.co/iWkH1bcous
— Sean Davis (@seanmdav) December 14, 2019 https://platform.twitter.com/widgets.jsOn Saturday, Van Drew's congressional and campaign staff were notified of the expected switch, Democratic sources tell Politico. The only question which remains is when he will make the move official given next week's House impeachment vote expected for Wednesday.
"It was supposed to be bipartisan, it was supposed to be incontrovertible. It was supposed to be something that was always on the rarest of circumstances," Van Drew told reporters days ago. "Well it’s not bipartisan."
Multiple senior Democrats tried to reach out to the New Jersey freshman on Saturday but were unsuccessful. Van Drew did not respond to calls and texts from POLITICO seeking comment.
Rumors had swirled around Capitol Hill this week that Van Drew was considering leaving the Democratic Party but he strongly denied those claims on multiple occasions. -Politico
Van Drew was elected in a heavily GOP district in southern New Jersey, flipping it blue. His win helped Democrats flip the House majority in the last election in a district that voted for Trump in 2016.
Tyler Durden Sat, 12/14/2019 - 15:46 Tags PoliticsLiquidity Matters - Retail Investors Are About To Learn A Valuable Lesson The Hard Way
Authored by Lance Roberts via RealInvestmentAdvice.com,
One of the great challenges of financial markets is that certain important events only happen infrequently – which makes it all the easier to overlook them during intervening periods. One of those important situations is when it becomes extremely difficult, if not impossible, to sell an investment because too few people are both willing and able to buy it.
Through the course of a cycle the phenomenon of illiquidity occurs periodically but is normally contained to very specific situations and does not affect broader markets. Increasingly, however, there are signs that liquidity could be a problem in the foreseeable future, so it is a good time to review the risks.
To start with, there is nothing inherently wrong with illiquid investments. In fact, illiquid investments can produce higher returns for investors who don’t need immediate liquidity. As a result, they can make great sense for long term investors like pension funds and endowments. Indeed, David Swensen has made famously good use of this characteristic with the endowment at Yale.
Of course, many other investors who might need the liquidity are also attracted to those incremental returns, and especially so in an environment of exceptionally low yields. As a result, many investors have succumbed to the temptation by plowing into private equity, venture capital, real estate, structured credit, fixed income ETFs and all kinds of other investments for which liquidity can be a problem.
As investors pursue this course of action, however, a couple of things happen along the way. One is that the prices of illiquid investments get bid up and therefore the prospective returns come down. Another is that as progressively more money flows into investment vehicles that can be difficult to exit, systemic risk increases. I described these phenomena in “A formula for losing money“.
As the risk of systemic illiquidity increases it can challenge, and overtake, the risk of slowing economic growth as a key risk factor. This change manifests itself in a subtle way. Unlike in 2017 when markets rose in a climate remarkably devoid of volatility, this year there are a number of rumblings underneath the calm veneer of market index performance. The Financial Times reports:
“Yet, through all of this, the sanctity around the market price has remained. Most don’t question whether basic formation of market prices is faulty. What if market gyrations are less to do with shifts in expectations on the economy or company performance, and more to do with participants coming to terms with a less well-functioning market?”
“It is now time to add another worry to the list: the unravelling of the market liquidity illusion.“
The “unraveling of the market liquidity illusion” is both a worthy consideration, and increasingly, a timely one. Further, there is a growing body of evidence to support the hypothesis. As the FT spells out, increasing bond market volatility is a signal:
“’It’s impossible to know the catalyst, and this market is good at shrugging off bad news. [But] bond market volatility is a good sign of the fragility,’ Mr Croce said. ‘We’ve seen steadily rising bond volatility this autumn, and that will eventually have an impact on asset prices’.”
Auctions in fixed income markets have also been highlighted by Zerohedge:
“The number of high yield credits trading at spreads over a thousand basis points over treasuries has been rising all year long. Also, you’re seeing a lot more volatility in the leveraged lending space. Credit Investors increasingly are firing first, and ask questions later.”
Russell Clarke provided similar foreshadowing in a Realvision interview dated September 18, 2019:
“Like I said, the weird classic macro indicators are diverging radically from what equities are doing. That does happen sometimes. Usually, the macro indicators are right.”
In addition, another signal can come from broader market factors. Since the relationship of supply to demand for securities is relative, whenever sellers overwhelm prospective buyers, deficiencies in liquidity can arise. This phenomenon often occurs when investors chase a common theme, as the FT describes:
“But Marko Kolanovic, head of quantitative strategy at JPMorgan, says there is still ‘extreme crowding’ in the more defensive, bond-like parts of the stock market, as well as in stocks enjoying positive momentum. He said this was evidence of the ‘prence of groupthink … across investment strategies’.”
With several signs all pointing in the same direction, the chances of some kind of liquidity event appear to be increasing. Importantly, many of the warning signs are virtually invisible to investors and advisors who rely primarily on market indexes for information content.
Lest investors forget what happens when liquidity dries up, Russell Clarke provides a useful refresher:
Speaking of the Lehman bankruptcy in 2008, Clarke described: “Then suddenly, and it was very weird, didn’t make a lot of sense. Then suddenly, it broke in way. That’s typically how markets work. They force everyone into an asset at exactly the wrong time and then liquidity just disappears, and you are stuck in it.”
The notion of suddenly being “stuck in it” was also crystallized by the FT in a recent report. The UK Mexican restaurant chain Chilango issued mini-bonds and intentionally lured investors with an attractive yield: “Free food for four years! Plus 8 per cent APR!”
The only problem was, just months after its last mini-bond offering, the company’s solvency came into question and it was forced to hire restructuring advisers. While Chilango is reminiscent of WeWork’s bond offering to sophisticated investors, there was one major difference:
“While red-faced hedge fund managers can sell their WeWork bonds at a loss and move on, Chilango’s bonds are explicitly non-transferable. The doors are locked.”
“Unfortunately, retail investors are learning another lesson from institutional debt markets the hard way: liquidity matters.“
In simple terms, there is no way for investors to get their money out of Chilango’s mini-bonds. They are stuck. This is exactly what can happen when liquidity vanishes for whatever reason. Although there may be some recovery down the road, there will be no access to those funds for the indefinite future.
This leads to a few important lessons regarding liquidity risk. One is that it is an insidious risk. It gathers gradually, over time, without revealing at what point it might strike. Indeed, markets can be most alluring at the most dangerous times. As Clarke notes, “They [markets] force everyone into an asset at exactly the wrong time.”
Liquidity is also nonlinear – and this is very hard for many investors to fully appreciate. It is easily available for long periods of time and then suddenly vanishes. When investors start running for the proverbial exits, many end up getting trapped inside. While it is true that this happens only infrequently, it is also true that there are no do-overs – the damage can be permanent.
Finally, when liquidity shuts down, it can be contagious. When it becomes impossible to exit illiquid investments, investors have only one choice if they need cash – and that is to sell what they can – and that is usually more liquid assets. As a result, problems in a relatively small niche of illiquid investments can easily infect a much broader realm of assets. This was an important dynamic in the financial crisis of 2008 when problems with subprime mortgages started surfacing. It is a lesson that still applies today.
An important takeaway is that investors should not be unduly focused on a market crash as the worst possible outcome. Crashes happen but can be recovered from. However, if investors urgently need liquidity and cannot access it, they can suffer permanent harm. Indeed, insufficient access to cash, not a market crash itself, many be the greater risk for many investors.
The risk of losing liquidity is a real one for investors, but it is often underappreciated. B.B. King illustrates the same basic point in his classic song, “Ain’t nobody home”, in a way that is both personal and memorable.
He describes how he once fawned over a girl and followed her “wherever you’d [she’d] lead me” and in the process, endured some “pain and misery”. After he finally decides he’s had enough, she begs him to come back. By then, he is no longer in a forgiving mood and lets her know, “Ain’t nobody home.”
In a similar way, liquidity can seem so ample and forthcoming at times that it is easy to take for granted. When the tables turn, however, investors had better beware. Just when they need it most, there might not be anyone home.
Tyler Durden Sat, 12/14/2019 - 15:30 Tags Business Finance
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