Lack Of Liquidity!

Posted at 6:00 PM (CST) by & filed under Bill Holter.

Dear CIGAs,

Two huge pieces of news hit Monday like a one-two punch!  First; UBS Is About To Blow The Cover On A Massive Gold-Rigging Scandal followed by; Saudi Arabia withdraws overseas funds Gold and Oil both affect the dollar, and this is happening while global liquidity is drying up. The soon to be catch phrase for October will be “lack of liquidity”!

First, the Swiss investigation into the gold market has got to be a scary one for shorts both legal or naked. The investigation will not be a whitewash similar to the CFTC silver investigation where “nothing actionable” was found. Please understand the key word there was “actionable”. I ask you this, if something was found to have occurred but was in the “interest of national security” …would it be “actionable”? It is also key to understand the suppression of gold prices also act to support the value of both dollars and Treasury bonds. In other words, the dollar can be seen to be more valuable than it really is and also allow interest rates to be lower than they otherwise would be.

As for the oil news, for Saudi Arabia to pull capital back home is a natural reaction as they now are running huge deficits and obviously an effect from the lower oil prices. It also has another effect, probably a large portion of the $73 billion withdrawn were in dollar denominated assets. It also means the Saudis are not a source of demand for dollars. Please also keep in mind from a geopolitical standpoint they have signed multiple trade deals with both Russia and particularly China, it is a good bet these will not be transacted in dollars.

Lastly thrown into the mix is the disaster called Glencore. They are a huge commodity firm with huge leverage and derivatives outstanding. Current CDS rates suggest (and it is not JUST Glencore …. they have a better than coin flip chance of bankruptcy. Should this occur, you must understand it as a “credit” event rather than a commodity event. Yes of course unwinding their commodity positions will be a nightmare, the implications to the overall credit structure of the system are however MUCH GREATER!

This is happening at a time when liquidity has and is drying up all over the world. Whether you look at dollars, euros, yen or yuan, liquidity is just not there. Please view this link showing liquidity in the U.S. S+P 500 over the last eight years, it is basically GONE! What this means is if you are a large holder of positions, there is no exit and you are trapped! This is what I believe we will find out very shortly.

The lack of liquidity will create vacuums beneath asset prices, stocks, bonds, commodities and will culminate in a currency/credit crunch. This is very easy to see and anticipate if you are willing to see it. The “light switch” moment is near. Should we see a day where the Dow loses 700-1,000 points followed by another disaster day …it will be game over. Should the PPT lose credibility, neither the Fed “put” nor PPT “put” will be in place and it will be every man for himself. We are very close to the moment in time where the only solution to halt the selling will be to “pull the plug”!

Standing watch.

Bill Holter
Holter-Sinclair collaboration
Comments welcome