Investors continue to charge into the stock market. And when your 401(k) balance is soaring higher, it’s easy to overlook the fact that stocks aren’t the only game in town.
Not only that, stocks aren’t even the most important game in town.
It’s credit markets that matter. Without credit, from overnight lending to financing governments for 30 years or more, financial markets get far more unwieldy.
Right now, liquidity is drying up in the bond market at its highest level yet:
Market liquidity in the bond market is now worse than during the 2022 bear market or even the Great Financial Crisis.
With bond yields back to 5%, and with markets showing signs of concern over the potential replacement of Jerome Powell at the Fed before his term ends, the bond market isn’t quite in full revolt.
But it’s trending in that direction. And investors may find that in times of rising illiquidity, increasing your own personal liquidity by raising cash may be the prudent move.
~ Andrew
P.S. Yes, as an asset without any counterparty risk, gold is also a standout in a panicking credit market scenario.
But even in that situation, gold could face a selloff as investors rush to cash, the final say in liquidity in today’s day and age.
That’s what happened in 2008 and 2020 as credit markets cracked. But both times gold was the last asset to sell off, and a sign that the crisis was peaking, before moving to new highs. Bitcoin, which was created in response to the money-printing that followed the 2008 crisis, saw a similar move in 2020 – an initial flush lower, before a face-ripping rally.
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