7 ms·

I’m not sure this is that weird. Cash is more valuable then holding the asset, no matter how safe that asset is. Why hold a bond, if you have no idea when you’

I’m not sure this is that weird. Cash is more valuable then holding the asset, no matter how safe that asset is. Why hold a bond, if you have no idea when you’ll see cash/revenue again.

anonuser123456 7y ago
How safe is your cash deposit in a levered bank vs. a money market fund holding treasuries as collateral? With Uncle Powell making it rain liquidity, I'd rather have it in the latter.
- toomuchtodo 7y ago
  An FDIC insured savings account is the gold standard versus a money market fund, even with extraordinary Fed actions. Having lived through 2008, you do not want to need your money market funds and have withdrawals halted while someone waits for Fed liquidity because your fund broke $1 NAV.
  - anonuser123456 7y ago
    FDIC limits end at 250,000. If your levered bank fails, that's all you get (maybe more if it's unwound and there are assets left ... but that can take a long time). With an MM fund you're holding treasuries as collateral, which the fed will buy immediately for cash.
    - toomuchtodo 7y ago
      How many non-institutional investors are keeping that much cash at a single institution? And if you're using a cash management account such that Fidelity has, their underlying banks are giving you $1.25M in FDIC coverage in aggregate. We're arguing different use cases.
magicsmoke 7y ago
Holding cash by itself means losing value due to inflation. If you don't want to suffer the cost of the Fed's seigniorage tax you have to keep the funds you're not speculating with in bonds. Stocks and bonds both moving down could be indicative that some major players took on leverage using their stock holdings, and now that stock prices are plummeting they have to come up with the cash for their interest payments and are selling even bonds to do so. Best case scenario they all make their interest payments and take their loss on the chin. Worst case scenario some major player goes bankrupt and everyone has a collective freakout trying to figure out how this might push them over the edge as well.
- unlinked_dll 7y ago
  I mean the fed injected cash today to avoid deflation from a liquidity crisis. And 2% losses due to inflation still beats a bear market.
- runawaybottle 7y ago
  Is the thing you are describing considered ‘the corporate credit crunch’?
- nate_meurer 7y ago
  IMO this little description of the situation is even better than what's in the article.
jariel 7y ago
"Cash is more valuable than holding the asset, no matter how safe that asset is." Definitely not in most cases, if this were the case, nobody would invest in anything :) Cash is a currency, and it's not a regular financial asset, so, if you need that, then cash can be good for you.
divbzero 7y ago
> I’m not sure this is that weird. The parent is correct. Bond prices and stock prices moving together is not that weird at all and often happens during market disruptions. WSJ ran a piece by James Mackintosh a few years back that pointed to the changing relationship between bond yields and stock prices as a potential sign of trouble: [1] “A generation of traders have grown up with the idea that stock prices and bond yields tend to rise and fall together, as what is good for stocks is bad for bonds (pushing the price down and yield up), and vice versa.” “This summer [2016], the relationship seems to have broken down in the U.S. Share prices and bond yields moved in the same direction in just 11 of the past 30 trading days, close to the lowest since the start of 2007.” “This is far from unprecedented. But since Lehman Brothers failed in 2008, such a swing in the relationship has been unusual and suggests prices are being driven by something other than the balance of hope and fear about the economy. It has tended to coincide with times of deep discontent in markets, notably the 2013 “taper tantrum,” when bond yields briefly surged after Federal Reserve officials signaled they would soon end stimulus, and last year’s brief bubble in German bunds.” [1]: https://www.wsj.com/articles/time-to-worry-stocks-and-bonds-are-moving-together-1473113278 https://www.wsj.com/articles/time-to-worry-stocks-and-bonds-... That said, the severe erosion of liquidity described by OP is real. An article from MarketWatch today goes into more detail: [2] “During times of intense volatility like this week, dealers will demand a hefty premium to trade off-the-run Treasurys, as it could be difficult to take them onto their balance sheet and offload them again to a willing buyer.” “On the other side, mutual funds and other investors promise their clients that they will be able to pull money in and out of funds on a day-to-day basis. These investors who have seen their off-the-run Treasurys holdings record double-digit gains in the span of a few weeks are now trying to sell their bonds and book profits, said market participants.” “This mismatch in demand has led to a surge in the difference between the prices offered by buyers and the prices sellers are willing to accept, or the bid-ask spread, for off-the-run bonds.” [2]: https://www.marketwatch.com/story/fierce-bond-market-swings-dry-up-liquidity-in-wide-swathe-of-15-trillion-us-bond-market-2020-03-12 https://www.marketwatch.com/story/fierce-bond-market-swings-...
downerending 7y ago
Arguably, it's better to hold a mix of assets that have at least somewhat uncorrelated safety characteristics (or rather, failure of safety characteristics). This is basically what Modern Portfolio Theory is about, though that is usually invoked in the context of returns. It seems to me that the idea would be the same, though.

I’m not sure this is that weird. Cash is more valuable then holding the asset, no matter how safe that asset is. Why hold a bond, if you have no idea when you’ll see cash/revenue again.

anonuser123456 7y ago

How safe is your cash deposit in a levered bank vs. a money market fund holding treasuries as collateral? With Uncle Powell making it rain liquidity, I'd rather have it in the latter.

toomuchtodo 7y ago
An FDIC insured savings account is the gold standard versus a money market fund, even with extraordinary Fed actions. Having lived through 2008, you do not want to need your money market funds and have withdrawals halted while someone waits for Fed liquidity because your fund broke $1 NAV.
- anonuser123456 7y ago
  FDIC limits end at 250,000. If your levered bank fails, that's all you get (maybe more if it's unwound and there are assets left ... but that can take a long time). With an MM fund you're holding treasuries as collateral, which the fed will buy immediately for cash.
  - toomuchtodo 7y ago
    How many non-institutional investors are keeping that much cash at a single institution? And if you're using a cash management account such that Fidelity has, their underlying banks are giving you $1.25M in FDIC coverage in aggregate. We're arguing different use cases.

magicsmoke 7y ago

Holding cash by itself means losing value due to inflation. If you don't want to suffer the cost of the Fed's seigniorage tax you have to keep the funds you're not speculating with in bonds. Stocks and bonds both moving down could be indicative that some major players took on leverage using their stock holdings, and now that stock prices are plummeting they have to come up with the cash for their interest payments and are selling even bonds to do so. Best case scenario they all make their interest payments and take their loss on the chin. Worst case scenario some major player goes bankrupt and everyone has a collective freakout trying to figure out how this might push them over the edge as well.

unlinked_dll 7y ago
I mean the fed injected cash today to avoid deflation from a liquidity crisis. And 2% losses due to inflation still beats a bear market.
runawaybottle 7y ago
Is the thing you are describing considered ‘the corporate credit crunch’?
nate_meurer 7y ago
IMO this little description of the situation is even better than what's in the article.

jariel 7y ago

"Cash is more valuable than holding the asset, no matter how safe that asset is." Definitely not in most cases, if this were the case, nobody would invest in anything :) Cash is a currency, and it's not a regular financial asset, so, if you need that, then cash can be good for you.

divbzero 7y ago

> I’m not sure this is that weird. The parent is correct. Bond prices and stock prices moving together is not that weird at all and often happens during market disruptions. WSJ ran a piece by James Mackintosh a few years back that pointed to the changing relationship between bond yields and stock prices as a potential sign of trouble: [1] “A generation of traders have grown up with the idea that stock prices and bond yields tend to rise and fall together, as what is good for stocks is bad for bonds (pushing the price down and yield up), and vice versa.” “This summer [2016], the relationship seems to have broken down in the U.S. Share prices and bond yields moved in the same direction in just 11 of the past 30 trading days, close to the lowest since the start of 2007.” “This is far from unprecedented. But since Lehman Brothers failed in 2008, such a swing in the relationship has been unusual and suggests prices are being driven by something other than the balance of hope and fear about the economy. It has tended to coincide with times of deep discontent in markets, notably the 2013 “taper tantrum,” when bond yields briefly surged after Federal Reserve officials signaled they would soon end stimulus, and last year’s brief bubble in German bunds.” [1]: https://www.wsj.com/articles/time-to-worry-stocks-and-bonds-are-moving-together-1473113278 https://www.wsj.com/articles/time-to-worry-stocks-and-bonds-... That said, the severe erosion of liquidity described by OP is real. An article from MarketWatch today goes into more detail: [2] “During times of intense volatility like this week, dealers will demand a hefty premium to trade off-the-run Treasurys, as it could be difficult to take them onto their balance sheet and offload them again to a willing buyer.” “On the other side, mutual funds and other investors promise their clients that they will be able to pull money in and out of funds on a day-to-day basis. These investors who have seen their off-the-run Treasurys holdings record double-digit gains in the span of a few weeks are now trying to sell their bonds and book profits, said market participants.” “This mismatch in demand has led to a surge in the difference between the prices offered by buyers and the prices sellers are willing to accept, or the bid-ask spread, for off-the-run bonds.” [2]: https://www.marketwatch.com/story/fierce-bond-market-swings-dry-up-liquidity-in-wide-swathe-of-15-trillion-us-bond-market-2020-03-12 https://www.marketwatch.com/story/fierce-bond-market-swings-...

downerending 7y ago

Arguably, it's better to hold a mix of assets that have at least somewhat uncorrelated safety characteristics (or rather, failure of safety characteristics). This is basically what Modern Portfolio Theory is about, though that is usually invoked in the context of returns. It seems to me that the idea would be the same, though.