The mirage of liquidity in low volume markets

Our firm has been pointing out the escalating capital risk of low and declining volume in capital markets since 2009. This is not the way an organic bull market is supposed to move. A declining pool of legitimate buyers warns of danger to investment capital. There are several good reasons for low participation rates which include:

  • An investing public who has been repeatedly harmed since the secular bear began in 2000, continues to steadily withdraw month after month what’s left of their savings, firing the legion of inept advisers and managers who keep offering their clients return-free risk for a fee.
  • Insufficient controls and transparency on profit-desperate exchanges, have led to a casino-world where skimming machines drive 70 to 80% of trading volumes in split-second phony transactions.  This activity has increasingly led legitimate investors to move to the sidelines.
  • Central bank-goosed asset markets that are decoupled from economic reality, present unattractive investment prospects to those who have capital to loose and the training and discipline to assess return probabilities.  “Smart cash” continues to pile on the sidelines waiting for rational risks worth taking.  Where there is nothing good to do, patient capital is prepared to wait for more rationale prices while the desperate, naive and reckless continue to “play” on ever-thinning ice.

Scarlet Fu displays the declining volume across multiple markets which has been falling since 2010. Here is a direct link..

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7 Responses to The mirage of liquidity in low volume markets

  1. FredB says:

    The money that isn’t going into the stock market is going into savings accounts.

    http://www.zerohedge.com/news/2012-11-20/largest-weekly-inflow-bank-savings-accounts-record-flashing-red-alarm

  2. michael says:

    “return free risk for a fee”…..I love it .

    You are absolutely right, but “play” we will. I do it for the education, the “thrill” .
    I “play” with +/- 10-12% of LNW because I can afford it and if half of it dissappeared overnight on some black swan event I would not be devastated.

    There are however a lot of folks who “play” with a lot more of their LNW, some with all of it and a very large number who’s net is not of a significant amount that they should even be wasting their time thinking about the financial markets at all.

    I chuckle at the puffy chested kind of statements that continually come from the unlearned, the “newby” who thinks the next 30 years will be like the last 30.
    Thiry years ago, 1982, was the beginning of the greatest bull market in the history of the world. It was begun and continually fueled by interest rates dropping from 20% to near 0% ,deregulation and “generous” accounting rules.
    When the party ended in 2000 unprecidented manipulation, intervention, cover-ups and outrite fraud became the norm in a futile attempt tokeep the pig in the air.
    Where are we now? It doesn’t take a genius to figure it out and I am certainly not that but I can guarantee you that the next 30 years will not look anything like the last 30.
    Be prepared.

  3. FredB says:

    Is “LNW” is something from your own private baby talk?

  4. michael says:

    Right Fred baby talk…Liquid Net Worth…do you have any?

  5. aliencaffeine says:

    May I mention you forgot to say that 1982 was also the entrance of the great babyboomer generation, who may I say you forgot to mention are beginning to exit markets in ever-increasing numbers expection their ‘returns’?

    As an aside, I recently spoke to my surgeon and asked how she can make any money with all the cutbacks. She said she can’t, and is going to retire very soon (before ObamaCare kicks in 2014). She also said that the 70 and 80 year olds are NOT GOING TO GET OPERATIONS due to the third person in the once two person room (doctor-patient). And that third person is the government bureaucrat on the Death Panel who decides the useful from the useless eaters. Sarah Palin was correct. ObamaCare is going to ruin the US.

  6. michael says:

    alien….I agree re; boomers…also forgot to mention incredible advances in technology which were responsible for hugh leaps in productivity.

    RE: health care…..in Canada we have universal health care…..it is a joke…. my mother recently broke her hip…she lay in wait of operating room space for 3 days…her surgeon was available at any time…but the operating theater was on an 8 hour day shift……she survived… 25% do not…not because of the broken hip but because of infections and blod clots…and overmedication… entirely preventable….seems we have “Death Panels” here as well.

  7. Robert Lynn says:

    Canadians are brain washed that our mediocre medical system is the world’s finest. I does not compare with medical care available in the US. When I was told not to seek any more treatment but offered a hormone shot for my cancer I went to Loma Linda University Medical Center for Proton Beam Therapy and seem to be cured. Go to a Proton Center if you require radiation therapy and never accept radiation treatment in Canada. I could go on and on about experiences with family members concerning the quality of care in Canada but will I mention just one, my late mother-in-law went to the hospital in an ambulance after suffering a stroke. She ended up sitting in the ER waiting room for over eight hours.

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