Doorways and Liquidity?
Bill Holter | Jim Sinclair's MineSet
Mar 9, 2016
http://bit.ly/1ny2ANf

[snip]

The point we are driving at here is “volatility kills”!

This thought that volatility kills has become the absolute center of ALL financial markets on the planet. Because everything has become derivatized, the “leverage” has expanded much further than just credit outstanding or margin balances. You see, derivatives morphed into the tool of choice to “price” or manage markets. Now, because these derivative markets have gotten so large, volatility cannot be allowed. Whether it be circuit breakers, “mysterious software” problems or simply pulling the plug, volatility must be tamped down at all costs.

It is no coincidence volatility is rising now as liquidity has begun to dry up. All you need to do is talk to an institutional bond trader to know this to be true. Even small $10 million trades or less are tough to move …and here is the rub. The “exit door” has drastically shrunk while the population in the room has continually expanded!

If we look at only the credit markets alone, the “room” is inhabited by $7 trillion worth of bonds trading at negative interest rates. Stating the obvious, this is the largest “greater fool” trade in all of history. Are bond traders really buying bonds to lock in a negative return? Do they really believe they will “win” because the underlying currency will gain value even though the stated goal of every central bank is to debase? No, the only reason a bond trader would purchase a negative yield is because they believe there is a greater fool out there who will purchase that bond from them at an even greater negative yield.

Now you must ask yourself one more question, are negative interest rates the new normal and here to stay? Logically the answer is “no” because mathematically a system based on negative rates is like a snake eating its own tail. Practically speaking, negative rates are an accident waiting to happen when someone finally yells FIRE!