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The Liquidity Crisis Intensifies: ‘Prepare For A Bear Market In Bonds’

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Bear Market - Public DomainAre we about to witness trillions of dollars of “paper wealth” vaporize into thin air?  During the next financial crisis, a lot of “wealthy” investors are going to be in for a very rude awakening.  The truth is that securities are only worth what someone else is willing to pay for them, and that is why liquidity is so important.  Back on April 17th, I published an article entitled “The Global Liquidity Squeeze Has Begun“, but it didn’t get nearly as much attention as many of my other articles do.  But now that the liquidity crisis is intensifying, hopefully people will start to grasp the implications of what is happening.  The 76 trillion dollar global bond bubble is threatening to implode, and if it does, the amount of “paper wealth” that could potentially be lost during the months ahead is almost unimaginable.

For those that do not consider the emerging liquidity crisis to be important, I would suggest that they check out what the financial experts are saying.  For instance, the following comes from a recent Bloomberg report

There are three things that matter in the bond market these days: liquidity, liquidity and liquidity.

How — or whether — investors can trade without having prices move against them has become a major worry as bonds globally tanked in the past few months. As a result, liquidity, or the lack of it, is skewing markets in new and surprising ways.

Things have already gotten so bad that Zero Hedge says that some fund managers “are starting to panic” about the lack of liquidity in the marketplace…

Fund managers who together control trillions in assets are starting to panic in the face of an acute bond market liquidity shortage.

Dealer inventories have collapsed in the post-crisis regulatory regime, eliminating the traditional source of liquidity in secondary corporate credit markets, while HFTs and central banks have combined to create the conditions under which USTs and German Bunds can, at any given time, trade like penny stocks (October’s Treasury flash crash and May’s dramatic Bund rout are the quintessential examples).

For a moment, just imagine what would happen if someone yelled “fire” in a very crowded movie theater, and the only exit was a very small doggie door that only one person at a time could squeeze through.  According to experts, that is what the bond market could soon look like

When the unwind comes, like we’ve seen in the past few months, it comes abruptly and sharply as the exit door is tiny,” said Ryan Myerberg, a London-based fund manager at Janus Capital Group Inc., which oversees about $190 billion.

Are you starting to get the picture?

In the end, I believe that those that “squeezed through the door” during this time period are going to be very glad that they got out while they still could.

For much more on the coming bond collapse, check out this YouTube video from Ron Paul in which he explains why we should “prepare for a bear market in bonds”…

Another very prominent voice that is deeply concerned about bonds is Carl Icahn.  The following is what he told CNBC on Wednesday…

Carl Icahn warned investors on Wednesday that he believes the market is “extremely overheated—especially high-yield bonds.”

I think the public is walking into a trap again as they did in 2007,” the activist investor told CNBC’s “Fast Money Halftime Report.” “I think it’s almost the duty of well-respected investors, like myself I hope, to warn people, to tell people, that really you are making errors.”

Icahn compared the current market situation to the prerecession days, when mortgage-backed securities were being widely sold. “It’s almost deja vu,” he said.

Let’s talk about high-yield bonds for a moment.  Prior to the last financial crisis, they started crashing way before stocks did, and now we see the exact same pattern repeating once again.

Normally high yield credit tracks stocks very closely.  When there is a disconnect, that can be a huge sign of trouble.  The following chart comes from Zero Hedge, and it brilliantly demonstrates how similar things are today to the period just before the stock market crash of 2008…

S&P 500 HY Credit

It is glaringly apparent that we are due for a “correction”.  And even though stocks have recently hit brand new record highs, there are rumblings under the surface that a big move down is right around the corner.

For example, USA Today is reporting that mutual fund investors have pulled more money out of stocks than they have put in for 16 weeks in a row….

In a sign of stock market nervousness on Main Street, mutual fund investors have yanked more money out of U.S. stock funds than they put in for 16 straight weeks.

The last time domestic stock funds had positive net cash inflows was in the week ending Feb. 25, according to data from the Investment Company Institute, a mutual fund trade group.

In the week ended June 17, the most recent data available, mutual funds that invest in U.S. stocks suffered net outflows of $3.45 billion, according to the ICI.

Since late February, U.S. stock funds have suffered estimated outflows of nearly $55 billion. Those net withdrawals come despite the fact the benchmark Standard & Poor’s 500 hit a fresh record high of 2130.82 on May 21 and the Dow Jones industrial average notched a fresh record on May 19.

Those that are smart are getting out while the getting is good.

In all the time that I have been publishing The Economic Collapse Blog, I have never seen stocks so primed for a crash.  If you were writing up a scenario for a textbook that imagined what a lead up to a major stock market crash would look like, you could very easily use the last six months as a model.

For a long time, many people out there (including some of my readers) have been very impatiently waiting for the financial markets to crash.  But this is not something that any of us should want to see.  When this next great financial crisis comes, it is going to be absolutely horrible.  Millions upon millions of workers will lose their jobs, and there will be tremendous economic suffering all over the planet.

Tomorrow I plan to share something that is going to shock a lot of people.

It is going to be something that I have never done before, but the time has come.

Stay tuned…

  • kfilly

    Its like that kids song. Pop goes the weasel. Just it will be bonds that will go pop!

  • Mike Smithy

    Michael, I look forward to your article tomorrow.

  • GetReal4U2

    I have never seen stocks so primed for a crash…
    nuff said…
    can’t wait for the article tomorrow…

  • K

    I have also never seen the market so over inflated. The whole rigged system, is beyond absurd. Those who wish the collapse would hurry up. I just do not think they grasp, how terrible it will be this time. What is coming is something never before seen in the U.S. And the majority will not believe it is happening, even as the watch it happen.

    • Mike Schrute

      I still want it to happen. My life and that of my wife’s are basically to fix the world for our little kids. I think it’s better to know real liberty and we’re willing to pay any price. Even the risk of death.

  • JailBanksters

    Bondpocalypse here we go.
    Can’t paper over it, might have to buy some Bondo as a filler

  • Paul

    This is not happening. It cannot be happening.. Just an FYI I was messing with y’all about an economic recovery yesterday.

  • Tommy

    @Michael: I’ve never used Disqus before, but I had to respond to this question. The reason people are impatient for the collapse is because there are only 2 options: A) Pop the bubble now and fall a long distance, or B) Pop the bubble later and fall even further. If there was a 3rd option, such as go a bit higher and then get off on the next floor, then yes, we would want this to go on a tiny bit longer.

    But to put this in an explicit example, if you have gangrene, and you have the option of cutting off your foot now or your entire leg later, and there is no third option of getting medicine, then I would be BEGGING the doctor to cut off my foot now so I can save as much of my body as possible.

    This collapse will most likely have permanent effects on everyone (including everyone worldwide), but even in the worst case scenario that the economy collapses completely (no electricity, no food delivery, no water, no medicine, etc.) and the majority of people die, it will be more likely for the worst case scenario to happen if these multiple bubbles pop later than if they pop now (if only because the book of Revelations says that people will continue to live until all the prophecies in it are fulfilled.)

    P.S. I’ve been reading your articles for a year since Rush Limbaugh had a link to this site, I’ve found it to be several days to several months ahead of the mainstream media, and because of that I’ve found it really informative. I look forward to reading your blog tomorrow with something you’ve never done before.

    -Tommy

    • Infidel51

      Exactly Tommy. Many people want to see the wheels come off of this crime in progress. People don’t like being lied to and it will feel like some sort of justice to see this ridiculous experiment in central banking crumble to the ground. However, I fear that the system that is being designed to “rescue” us from the turmoil will be one thousand times worse.

    • pissedlizard كافر ‏

      You hit the nail on the head. Nobody wants the crash but we all know it’s coming. This posters explaination is the best I’ve seen.

      • Nemnor

        Right! Nobady wants the crash because they fear the PAIN involved with a crash.

        Additionally, many are not (yet) aware of the main root cause of the major socioeconomic issues facing the USA and the World, and hence, would not even begin to know what the REAL solution should be.

    • A Friend

      I agree that Michael’s website appears to be several days to months ahead of the mainstream media. I hope it will continue to be a blessing to all who read it, including yourself. Try not to get discouraged. Even though things seem dark, I feel that God will provide supernatural reassurance and assistance to us all.

      Agree with Infidel51 that people don’t like being lied to and so therefore it will feel better to see this banking fiasco come to a close. But yes the “rescue” will be a dark tradeoff indeed.

      • Liberty First

        Good post. Extremely saddened today by the Supreme Court scam pulled on us via Obamacare. As a lawyer, I can tell you that in any sane world, that law would have been struck as petitioned. This is the sickest, most corrupt day in legal history as far as I am concerned, save for Dred Scott.

        • CharlesH

          Agreed. Any 1st year law student would have laughed at having to even being asked to issue an opinion.

        • Mike Smithy

          Amen. Welcome to judicial tyranny and the rule of law be damned.

          • Gay Veteran

            peasant, buy the insurance!

        • Gay Veteran

          well it’s not just the politicians the top 0.1% own

      • Mike Schrute

        I think it may be partly God’s assurances behind so many of our obsession with prepping.

    • Rukander

      They have de printing way and everythings is OK.

    • Liberty First

      I agree that it is better the Bubble pop now than later.

      One thing I wonder about is what will happen with mortgages, and perhaps Michael could weigh in. With so many people unemployed, would they issue some kind of moratorium on paying mortgages? Not that this would be respectful of private property – it is as socialist as could be – but given that these Big Banks have so raped the American taxpayer already.

      On the other hand, they own Congress, so . . .

      • Mike Schrute

        I’ve been worried about that for awhile. A crash could lead to the banks holding a lot of our homes. We may be in for a life of indentured servitude. Wait. Stupid me: we’re already doing that.

    • Mike Schrute

      Extremely well said!

  • rat28

    Bond market is the main pillar of the US financial market . Fed will print unlimited money to make sure liquidity is not an issue.

    • Forgiveness!!!

      But what happens when people wake up and realize they are getting screwed by buying all these bonds? What if they need for dollars disappears? What if you printed so much money you have no more cotton in your country anymore?

  • rentslave

    States bonds only fell 18 per cent last time-and recovered within a year.The governors will squeeze the wealthy at an unprecedented rate to avoid default.Once a state does so ,it is out of business forever.

  • Jordan

    I agree with Tommy. Sometimes things have to get ugly before they can get better. In a situation like this especially when the entire economy is fake. When we are living on the wealth of future generations it is immoral to continue living that way. It must be brought to an end.

    • Nemnor

      And the REAL solution requires a fundamental change away from the current economic system in the USA (and the World)

  • Heinrich van Rooi

    Wow, Wow Michael just yesterday I commented financial chaos will implode from Bond Markets through to everything… Sorry to say crunch time has begun and now you took it way further..Great articles

  • Guest

    “Tomorrow I plan to share something that is going to shock a lot of people.”

    Oh, man. I can’t wait until tonight. :-)

  • Will

    The evidence is overwhelming. The big question is what does one do? I have a retirement account that only invests in bonds or stocks of some variation. I am hoping to get to it before it is devalued. That all I can think of to do. Any other thoughts?

    • Eric Ortega

      You can’t move it to a Money Market fund? You should be able to..

    • jaxon64

      I am concerned about this issue also— my wife and I try and “diversify” our retirement funds that we set aside. Hers however are almost 100% in her company matching retirement plan/mutual funds….essentially the markets. We are in our late 40’s early 50’s and there is no way to access or transition her funds without EXTREME penalties ( still think we’re free and that it’s our money?)–but there is no way that it won’t hit a reset before 2030.

    • Sandbagger

      The only thing you can do is cash out. Move your money to a vanilla savings account and cash and precious metals.

      Take the tax hit now. That’s what we did.

      • secretrestricteddata

        Us too.

  • Priszilla

    Always keep cash on hand. Then you won’t have a liquidity crisis.

  • df NJ

    Why everything so effed up? Jesus versus the New World Order of devil worship. So far it doesn’t look like Jesus is winning:

    Ordo Templi Orientis is the first of the great Old Æon orders to accept The Book of the Law. This book proclaims a New Æon in human thought, culture and religion. The Æon arises from a single supreme injunction: the Law of Thelema, which is Do what thou wilt.

    “Do what thou wilt shall be the whole of the Law.”
    “Love is the law, love under will.”
    “There is no law beyond Do what thou wilt.”

    JFK warned us about secret societies and he was killed:

    “The very word “secrecy” is repugnant in a free and open society; and we are as a people inherently and historically opposed to secret societies, to secret oaths and to secret proceedings. We decided long ago that the dangers of excessive and unwarranted concealment of pertinent facts far outweighed the dangers which are cited to justify it. Even today, there is little value in opposing the threat of a closed society by imitating its arbitrary restrictions. Even today, there is little value in insuring the survival of our nation if our traditions do not survive with it. And there is very grave danger that an announced need for increased security will be seized upon by those anxious to expand its meaning to the very limits of official censorship and concealment. That I do not intend to permit to the extent that it is in my control. And no official of my Administration, whether his rank is high or low, civilian or military, should interpret my words here tonight as an excuse to censor the news, to stifle dissent, to cover up our mistakes or to withhold from the press and the public the facts they deserve to know.”

    • df NJ

      I just heard a really cool quote, “Love is the ultimate power because it takes away that which is preventing us from having power which is fear.”

      • Nemnor

        It depends on how strong that “love” is.

        Because it is indeed fear, and lack of proper knowledge, and lack of true love of self and for others, that is preventing us from having the fundamental change needed to FIX the USA and the World.

    • jaxon64

      I just watched that Kennedy speech a few days ago-quite moving and telling. Kennedy was more pro-republic than 90% of the current “republicans.”
      As an aside, Michael, I believe that liquidity shortage is rife throughout all levels of our society.
      The Poor have none ( liquidity) and most likely never will as they subsist on the Democrat breadcrumbs that keep them enslaved.
      The lower and middle-Middle Class are predominantly paycheck to paycheck with any kind of 3+ month disruption in income or services is likely to send them to desperation.
      The upper Middle Class may have some with nest eggs in cash or PM’s but mostly they have worked their whole lives trusting that their pensions and 401k’s will be there when it’s time to collect. Also there are many upper MC’s that always seem to still live on the edge as they spend and borrow just as much as they earn.
      The rich are piling some monies into assets, real estates, stocks, treasuries and tend to diversify–however many of these “assets” are not truly liquid if there is no market or prospective buyers with liquidity.
      Strange and interesting times–I too feel it coming to a head and have taken a large step forward in preparing by de-cluttering “luxury” things ( although with so few people with cash, it seems that I’m getting 65 to 75% FMV for items if I can liquidate them at all !)

      • df NJ

        At least things are good to have if hyper-inflation hits.

    • Nemnor

      However, I personally AGREE with the basic “law” – Do what thou wilt. BUT, I will add one modification (or extension) to that basic “law”, which would be – Do what thou wilt, knowing that, whatever you do, it is (often) better to do unto others as you would rationally and reasonably have them do unto you, and this shall be the whole of the law.

      One should do what they really feel and want to do (without fear), but with the (moral) understanding that, everybody would come out a WINNER, IF we ALL do onto other as we would rationally and reasonably have others do unto us.

      By extension, using this “moral code”, the current (devilish) world-wide economic system will NOT exist, IF we really do unto others as we would rationally and reasonably have others do unto us. (i.e. exploitation of man by man and country by country will virtually cease to exist.)

  • Sandbagger

    “In the end, I believe that those that “squeezed through the door” during
    this time period are going to be very glad that they got out while they
    still could.”

    The GREEDY are still all-in. I won’t be crying a river for them when they get caught with their pants down. I will, however, be crying a river for the innocent workers and their families, myself included, who are going to be affected by this.

  • SunnyFlaSnotress

    “Are we about to witness trillions of dollars of “paper wealth” vaporize into thin air?”
    You mean because of Greece? In the USA? I highly doubt it.

  • df NJ

    At least it’s comforting to know when people die they can’t take it with them.

    • Nemnor

      But this “pseudo” comfort is one of the things that are preventing people from taking real (revolutionary) action to fix the USA.

      If one is “comforted” by the knowledge that the corrupt rich people will not take their riches to the grave, then this reduces the chance that one gets angry enough and do something (effective) against the corruption.

  • df NJ

    The nice thing about TPP is CEOs can hire workers from Viet Nam for 56 cents an hour and no labor unions. All government is a boondoggle for billionaires. Government by the rich, for the rich, screw the American worker!

    • Nemnor

      df NJ, what you stated is true (in general).

      However, even with that awareness, IF we are not aware of the main root cause of the major economic issues facing the USA (and the World), we will not know what the REAL solution should be.

      • df NJ

        “Most people are other people. Their thoughts are someone else’s opinions, their lives a mimicry, their passions a quotation.” – Oscar Wilde

        Most people are repeaters, sausage machine people, programmed through repetition, they are repeating what Fox News told them to believe, few control the many, mind control.

        ism – a distinctive practice, system, or philosophy, typically a political ideology or an artistic movement. “of all the isms, fascism is the most repressive”

        “If you want a vision of the future, imagine a boot stamping on a human face – forever.” George Orwell

    • Gay Veteran

      don’t forget NO environmental laws

  • CharlesH

    Michael – Thanks a million for all your hard work. Your articles are increasingly making me more nervous. I don’t even know if I want to read what you’re going to show us. I’m praying Michael.

  • CharlesH

    Michael – “Tomorrow” is actually already here. WHEN exactly will you put up your next article – the one you mentioned at the bottom of this article?!? EVERYONE’S HOLDING THEIR BREATH!!

  • Km

    Just remember, when the crash happens, mass chaos will ensue! Then you will have your financial and physical life to worry about! For those with kids, heaven help you!

  • Craig

    OK, with BOTH stocks and bonds about to have blowouts where would you suggest we move our 401k monies?

  • Infidel51

    Michael I thought you were gonna post something major today? That still the plan?

  • Jerry

    I have read all these comments to date. This downturn will be unlike any this country has EVER see. In all other downturns, the US dollar managed to survive virtually intact. I expect this time to see hyperinflation like Germany after WWI. I do not think any paper investments will survive. Cash, gold and silver will provide a temporary help, but cannot prevent a long-term downward adjustment in the business cycle. Both the Fed and Congress are out of tools to either prevent this mess from going very bad. I hear that the government has indicated that they will not help in this next downturn, and that banks will have to rely on “bail-ins, ” like Cyprus. What about the big banks massive over commitments on Derivatives? States and big cities, for the most part, have large unfunded liabilities, primarily for pensions. Increasingly, I hear about marshal law and even the possibility of a complete governmental collapse. The only good news I can see from all of this doom and gloom is the soon return of Jesus!

  • Jeremiah Jay Allen

    Saying that “nobody wants a crash to happen” is untrue. I was able to profit nicely from the 2008 recession by investing in inverse ETF’s and then buy stocks after the price drops, when they are cheap. The same thing is coming in 2015-2016. Those who are prepared can actually make money from a “crash”.

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