SOURCE ET SUITE
On the first day of this week, which would soon mutate into the worst week for capital markets since the 2008 financial crisis, we warned that markets are about to go full tilt for the simple reason that "there is no liquidity", something we first highlighted at the start of the month when we pointed out "Two More Problems For The Bulls: Market Liquidity And Short Interest Are At All Time Lows."
Why our constant focus on liquidity? Because as Goldman explained on Thursday, "liquidity and volatility are interconnected, creating a self-reinforcing loop, and as a result liquidity conditions have been an important contributor to the velocity of recent S&P 500 moves." Yet while liquidity had dipped in the past on numerous stressed occasions, what we saw in recent days has been borderline biblical as top-of-book depth for SPX E-mini futures, typically the conventional metric of liquidity representing the dollar-amount of SPX E-mini futures available to trade electronically on the typically 25-cent wide market, has - as Goldman put it - "started to lose meaning as fewer and fewer market participants are quoting one-tick-wide markets for the futures at all."
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