BANK OF ENGLAND GOVENOR MARK CARNEY’S REMARKS

The bullish in the debt market is at a near unanimity.  Most measures are at or near record proportions.  One measure of risk relative to the compensation investors receive to hold longer dated obligations is at a 58 year low according to Bloomberg.  Perhaps the recent 100 year Austria’s bond offering highlights this point as it was priced to yield just barely above 1% as per Bloomberg.

I have spoken at length about the now $13 trillion stockpile of negative yielding debt and the over $20 trillion of debt that has negative real yields.

Little attention in the US has been focused upon the two prominent and formerly highly regarded European asset management groups that today are suffering a liquidity crisis. Bank of England Governor Mark Carney (equivalent to the FRB Chair) recently testified “these funds are built on a lie, which is that you can have daily liquidity for assets that fundamentally are not liquid.”

Carney further stated “on the broader systemic point around the structure of these funds is a big deal…this is something that could be systemic.”

At this juncture the issues are primary focused in the two firms above, but Carney further stated “there is more than $30 trillion of global assets are held in investment funds and vehicles that promise daily or instamatic liquidity whose underlying asset are potentially illiquid.”

Wow! Can you imagine if the FRB Chair made similar remarks? As noted the issues and the words have fallen on deaf ears, especially in the US.

I must write if the markets suffer a liquidity induced breakdown it would not be the result of some spectacular event such as the 2008-09 economic meltdown nor would such a breakdown usher in a similar economic crisis. It could however alter market perceptions for a generation.

Equities were relatively quiet but Treasuries declined almost point and oil gained another 2.5%.

Last night the foreign markets were mixed.  London was down 0.40%, Paris down 0.28% and Frankfurt up 0.06%. China was up 0.69%, Japan up 1.19% and Hang Sang up 1.42%.

The Dow should open nervously higher ahead of a potentially pivotal G-20 meeting. The 10-year is up 2/32 to yield 2.04%.

kent
The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.