Liquidity Has Dried Up

Sherman says it is nothing like 2020 lock up and 8 minutes later says current liquidity is OK, I quit watching at 31:00, it's not like credit markets are locked up. What I do know is all that PDO I bought between $13.90 and $14.10 at significant discounts to NAV is paying off and PIMCO is buying distressed credits all over the globe.

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Presumably the Fed is going to start accelerating itsdumping of MBS’s from its balance sheet

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Yep. The rate at which the Fed was buying up MBSs and Treasury notes for the last decade-ish is what a lot of our economy has been floating on.

MBSs make up ~1/3 of what the Fed holds, the other ~2/3 are Treasuries. I don't think they'll get into mass shedding, but just stopping their buying is going to push rates up (which have been moving up fairly steadily since the end of July). Any Fed sales will only add to this.

How much is waiting on the sidelines?

At least my $2500/month. I just keep depositing it and not really sticking it anywhere just yet. I might miss a run or 2 in the interim, but I think the worst is yet to come.

glad my strategy of dripping $150 every 2 weeks into a S&P500 index fund (over 50 years) wont be affected by any of this

Husss I’m sure you see the chart. We’re going down

High yield credit is drying up but there are mixed signals because credit spreads are closing. Once we get a few more quarters of these earnings haircuts that virus will spread into investment grade debt. This happened in Q1 2020 prior to the world cosplaying WWZ. The way bond funds are strucutred now those fallen angels get systematically sold and it freezes up all corporate credit.

It's hard to say right now because the Federal Reserve is acting like a bunch of toddlers. Without any market intervention you would see an inability for corporations to refinance at rates low enough to keep them cash flow positive while their earnings and cash flow are contracting so they would be rolling debt at higher rates with deteriorating profitablity. Basically a cycle of insolvency. But this is America where only mom and pop shops are allowed to go under

I have a friend in middle market M&A and he is saying the same thing

Fed finally hit the QT button at the bear market rally top. Plus the assassination in Russia is likely to stir that war up hard. And China is showing signs of economic collapss