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Bond Market Has $900 Billion Mom-And-Pop Problem When Rates Rise

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http://www.bloomberg.com/news/2014-06-23/bond-market-has-900-billion-mom-and-pop-problem-when-rates-rise.html

It’s never been easier for individuals to enter some of the most esoteric debt markets. Wall Street’s biggest firms are worried that it’ll be just as simple for them to leave.

Investors have piled more than $900 billion into taxable bond funds since the 2008 financial crisis, buying stock-like shares of mutual and exchange-traded funds to gain access to infrequently-traded markets. This flood of cash has helped cause prices to surge and yields to plunge.

Now, as the Federal Reserve discusses ending its easy-money policies, concern is mounting that the withdrawal of stimulus will lead to an exodus that’ll cause credit markets to freeze up. While new regulations have forced banks to reduce their balance-sheet risk, analysts at JPMorgan Chase & Co. (JPM) are focusing on the problems that individual investors could cause by yanking money from funds.

There’s a bigger risk “that when the the Fed starts hiking in earnest, outflows from high-yielding and less-liquid debt will lead to a free fall in prices,” JPMorgan strategists led by Jan Loeys wrote in a June 20 report. “In extremis, this could force a closing of the primary market and have serious economic impact.”

Wall Street firms prepping for another bailout as the money doesn't exist to pay out all investors?

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To keep the system alive, they will need to change the rules again. To keep the banks alive they need to keep asset prices high and some level of volatility. It's hard to see what they will change this time since interest rates are at 0.5% and it's not going to be possible for them to give people more money by cutting the interest on their mortgage. In the FT video Democruptcy posted yesterday one of the guys said that the number of people with a mortgage has dropped 15% since 2008. Obviously this is really really bad for banks and if it continues at the same rate for the next 5/6 years the banks will be in serious trouble as they won;t be collecting much interest from mortgages. Other than come out with HPC reasoning that BOE/government will collude to bring down house prices and write more loans it's very hard to see what changes TBTB will make to the system. - If only I had a crystal ball. Wage inflation would resolve the situation, but you could only achieve that by introducing import tariffs or devaluing the pound. You would first need to spark a situation to achieve either of those.

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To keep the system alive, they will need to change the rules again. To keep the banks alive they need to keep asset prices high and some level of volatility. It's hard to see what they will change this time since interest rates are at 0.5% and it's not going to be possible for them to give people more money by cutting the interest on their mortgage. In the FT video Democruptcy posted yesterday one of the guys said that the number of people with a mortgage has dropped 15% since 2008. Obviously this is really really bad for banks and if it continues at the same rate for the next 5/6 years the banks will be in serious trouble as they won;t be collecting much interest from mortgages. Other than come out with HPC reasoning that BOE/government will collude to bring down house prices and write more loans it's very hard to see what changes TBTB will make to the system. - If only I had a crystal ball. Wage inflation would resolve the situation, but you could only achieve that by introducing import tariffs or devaluing the pound. You would first need to spark a situation to achieve either of those.

Bingo!

Pwoductividee followed by 4-5% wages rises and 3% inflation for a few years. Same old.

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