London South East | The UK's favourite investor portal.

My son studies accounting and economics. His take on the state of affairs (the cut down version)....The global financial system is a poorly engineered, conflicted and opaque shambolic system, well past its useby date. We have trillions outside the system washing around in the "treasure island" tax haven flotilla, which was carefully designed for the purpose, and which facilitates profit shifting (strange about that) which seriously undermines the development of the poor countries (so they never develop, and the profits - both on top of the table and under the table- end on an island of choice). The global currency is the US$, which seems to be at the mercy of a twitter feed. The global trading system, which had and has tariffs which cut against the principles expoused in the globalisation principles (and always looked like a massive con job at best), is now getting more tarrifs with every tweet. ....
What hope has a poor boy got?

World needs to end reliance on US dollar: Carney
Jackson Hole, Wyoming | Bank of England governor Mark Carney took aim at the US dollar's "destabilising" role in the world economy on Friday and said central banks might need to join together to create their own replacement reserve currency.
The dollar's dominance of the global financial system increased the risks of a liquidity trap of ultra-low interest rates and weak growth, Carney told central bankers from around the world gathered in Jackson Hole in the United States.
China's yuan represented the most likely candidate to become a reserve currency to match the dollar, but it still had a long way to go before it was ready, Carney said. Bloomberg
"While the world economy is being reordered, the US dollar remains as important as when Bretton Woods collapsed," Carney said, referring to the end of the dollar's peg to gold in the early 1970s.
Emerging economies had increased their share of global activity to 60 per cent from around 45 per cent before the financial crisis a decade ago, Carney said.
But the dollar was still used for at least half of international trade invoices - five times more than the United States' share of world goods imports - exposing many countries to damaging spillovers from swings in the US economy.
Carney - who was considered a candidate to be the next head of the International Monetary Fund but failed to secure backing from Europe's governments - said the problems in financial system were encouraging protectionist and populist policies.
Earlier on Friday, US President Donald Trump said he was ordering US companies to look at ways to close their operations in China, the latest twist in mounting trade tensions between Washington and Beijing.
"My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?", said Donald Trump on Friday.
Carney warned that very low equilibrium interest rates had in the past coincided with wars, financial crises and abrupt changes in the banking system.
China's yuan represented the most likely candidate to become a reserve currency to match the dollar, but it still had a long way to go before it was ready, Carney said.
The best solution to dislodge US currency would be a diversified multi-polar financial system, something that could be provided by technology, Carney said.
Facebook's Libra was the most high-profile proposed digital currency to date but it faced a host of fundamental issues that it had yet to address.
"As a consequence, it is an open question whether such a new Synthetic Hegemonic Currency (SHC) would be best provided by the public sector, perhaps through a network of central bank digital currencies," Carney said.
Such a system could dampen the "domineering influence" of the US dollar on global trade.
"Even a passing acquaintance with monetary history suggests that this centre won't hold,"

By contrast,.....funds are limited in their ability to make markets by adjusting prices. Their ability to buy and sell is dependent on the flows of investible funds.
Large inflows necessitate buying, as most fund have limits on how much money they can keep in cash. At the same time, since most funds offer investors the chance to withdraw their money on short notice, redemptions obligate funds to sell.
Where investors are leveraged, the need to meet margin calls restricts liquidity and trading activity. This further limits the ability of investors to provide market liquidity just when it's most needed.
Other investors are constrained by mandates and investment rules. ETFs, which are now a major influence, must adjust holdings to reflect the underlying benchmark, irrespective of value or price considerations.
Algorithmic traders compete with central and commercial banks in chasing safe and highly liquid assets. Perversely, this diminishes liquidity for those assets.
Diminished trading liquidity has several implications for investors. Their ability to trade is increasing fragile. Volumes can evaporate quickly when volatility rises, as investors turn from buyers to sellers and algorithmic traders withdraw.
In effect, providers of liquidity then become users, destabilising markets. Price discovery, which underlies all trading and valuations, becomes unreliable.

The different focus of investors in the current cycle complicates matters. Investors searching for return have invested in riskier, less liquid assets. As investors in Argentina have discovered, a quick exit is sometimes impossible in emerging markets.

There's also heightened risk of investors being unable to exit "gated" funds where redemptions are suspended. The three largest UK property funds froze over $US12 billion in assets in the aftermath of the Brexit vote.
More recently, the Swiss fund manager GAM Holding and iconic UK investor Neil Woodford have blocked redemptions.Bank of England governor Mark Carney has warned that investment funds that promise to allow customers to withdraw their money on a daily basis are "built on a lie".
There are broader implications. Illiquidity may precipitate fire sales and large asset price moves, resulting in sudden and sharp tightening in financial conditions.
In 2007, then-Citigroup head Chuck Prince made an ill-fated comparison to investing as a game of musical chairs: You kept dancing while the music played.
The problem, as traders are rediscovering, is finding a chair when the music stops. Investors are underestimating and under-pricing the risks diminished market liquidity could pose in the next downturn.
PE Ratio (TTM) Range, Past 5 Years
Minimum 9.917 Jan 27 2016
Maximum 20.70 Sep 04 2018
Average 15.47
Date Value
Aug 22, 2019 21.75 estimate
Jan 1, 2019 19.60
Jan 1, 2018 24.97
Jan 1, 2017 23.59
Jan 1, 2016 22.18
Jan 1, 2015 20.02
Jan 1, 2014 18.15
Jan 1, 2013 17.03
Jan 1, 2012 14.87
Jan 1, 2011 16.30
Jan 1, 2010 20.

Investors should be worried about the music stopping
Investors are underestimating and under-pricing the risks diminished market liquidity could pose in the next downturn.

Satyajit Das

Several factors are roiling world markets right now, from fears of a possible US recession to erratic policymaking, trade tensions and general uncertainty.

But the unusual size of the moves -- regularly on the order of 1 per cent to 3 per cent -- is being heightened by something else: the struggle to find someone with whom to trade.

The decline in trading liquidity is evident in several metrics. Volumes have declined. Since 2007, average daily trading in US Treasury bonds (measured as a percentage of market size) has fallen by over 60 per cent.

Trading in traditionally less liquid corporate and high-yield bonds has shrunk by similar amounts. The number of small trades (under $US1 million) has grown, suggesting a lack of partners for larger deals.

Over the same period, US equity market turnover has also shrunk. Goldman Sachs estimates that in 2018, by some measures, single-stock liquidity fell 30 per cent to 40 per cent.

Other telling indications include significant intra-day moves, frequent price spikes, higher volatility of bid-offer spreads and the proliferation of flash crashes such as the sharp increase in the Cboe Volatility Index or VIX at the end of 2018 and the Japanese yen flash in January 2019.

Structural changes are driving this trend. For a variety of reasons, traditional market-makers such as banks and dealers have become less active; bank trading assets have fallen from 40 per cent of total assets in 2008 to half that figure.

Regulatory changes have made trading more capital-intensive. Meanwhile, industry consolidation has reduced the number of participants. The trading inventory of government and especially corporate debt has fallen.
Trading liquidity has instead become dependent on different kinds of investors. Algorithmic traders now make up around 50 per cent of US equity trading.
Other providers range from pension fund and insurance companies to mutual funds, exchange-traded funds or ETFs, hedge funds and private investors.
The reason it works so well as a fear gauge is that SPY is the undisputed king of liquidity, with trading volume of about $US20 billion a day on average - multiple times more than any other equity.
This increased role for investors may be problematic. Investment funds and algorithmic traders are not natural providers of liquidity.

They channel investor money. Unlike banks, they do not have permanent capital to risk in providing liquidity or warehousing positions.
Traditional market makers, such as banks, can buy or sell based on assessed true value, building inventory and waiting for market fluctuations to subside. In part, this is made possible by the greater stability of their funding and capital base.

By contrast, ...see next post

Latest Share Chat

Member Info for goldgnome

Followers

Following

Posts (Last 30 Days)

Posts (All Time)

Last Post

Member Since

Share Chat Post Distribution (Last 30 Days)

Activity Log (Last 30 Days)

Latest Share Chat

Member Info for goldgnome

Followers

Following

Posts (Last 30 Days)

Posts (All Time)

Last Post

Member Since

Share Chat Post Distribution (Last 30 Days)

Activity Log (Last 30 Days)

Please enter at least 2 characters

No results found

Search results

Recently viewed

Trending