This morning both the NYSE broke (canceling all open orders) and China outlawed selling stocks for large investors. These two items seem completely unrelated… however, the reality is they are both based on a them we outlined back in May 2015. That theme is as follows: that as the next Crisis unfolds, it will more and more difficult to get your money out of the financial system.
Going forward it will be more and more difficult to get your money out of the financial system. The reason for this concerns the actual structure of the financial system. As I’ve outlined previously, that structure is as follows: 1) The total currency (actual cash in the form of bills and coins) in the US financial system is a little over $1.36 trillion.
Immediately after Lehman Brothers failed, a money market mutual fund called Reserve Primary "broke the buck"--it did not have enough money in its coffers to pay the shareholders what they'd had. Since money market funds are essentially used as bank accounts, this was a big problem--and it triggered a bank run on the money markets, which ended only when the government stepped in and said it would backstop these funds.
JP Morgan’s Nikolaos Panigirtzoglou put a fascinating report out last week, looking at supply and demand in the global bond market in 2014. And although I consider myself something of a bond nerd, I was genuinely astonished by some of the charts he put together, starting with this one:
Flows into equities this month have been breaking all kinds of records, and they've spurred a lot of chatter about a "Great Rotation" out of fixed income funds and into equity funds as stocks climb higher.