Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.
This past week, Kass sees several factors conspiring to reduce liquidity, grants a peek inside his retirement account and shares his concerns about the housing market.
Losing Our Liquidity
Originally published June 2 at 8:15 a.m. EDT
"Oh liquidity, it's smaller.
It's now smaller than you think.
And you are not me.
The lengths that I will go to
Change the duration of my bonds.
Oh no, I've said too much.
I set it up."
-- My version (and apologies to) R.E.M., Losing My Religion
The world's central bankers have delivered liquidity to markets around the world and fed a boom in financial asset prices.
A number of factors are conspiring, however, to dramatically reduce this liquidity and could threaten to turn this boom into a bust.
The loss of liquidity was something we all experienced last October, when the long bond's yield dropped by 40 basis points in less than an hour.
More recently, German 10-year bund yields rose from 6 basis points to 78 basis points in a couple of days. And the equity markets' daily volatility and loss of memory from day to day give some credibility to the new risks of lost liquidity.
What gives? And what does it mean for our markets? Consider the growing roles of the following: