Brittle Markets: The Risks from Falling Liquidity

Goldman Sachs Exchanges

Julia McGonagle

Business

4.4 • 1K Ratings

🗓️ 19 August 2015

⏱️ 26 minutes

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Summary

Steve Strongin, head of the Global Investment Research (GIR) Division, and Charlie Himmelberg, GIR's co-head of Global Markets Research and global head of Credit and Mortgage Strategy Research, discuss the importance of liquidity in the market, the vulnerabilities of less-liquid markets and proposals to restore liquidity without undermining market safety. This episode was recorded on August 11, 2015. This podcast should not be copied, distributed, published or reproduced, in whole or in part. The information contained in this podcast does not constitute research or a recommendation from any Goldman Sachs entity to the listener. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, as to the accuracy or completeness of the statements or any information contained in this podcast and any liability therefor (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed. The views expressed in this podcast are not necessarily those of Goldman Sachs, and Goldman Sachs is not providing any financial, economic, legal, accounting or tax advice or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by Goldman Sachs to that listener, nor to constitute such person a client of any Goldman Sachs entity. Copyright 2015 Goldman Sachs. All rights reserved.

Transcript

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0:00.0	This is exchanges at Goldman Sachs where people from our firm share their insights on developments currently shaping markets,
0:15.2	industries, and the global economy. I'm Jake Seward, Global Head of Corporate Communications here at the firm.
0:20.3	Concerns about bond market liquidity have become increasingly pronounced in recent months,
0:25.0	igniting a heated debate among business leaders and policy makers.
0:29.0	This is not just an esoteric issue for finance wanks either in an op-ed in the Wall Street Journal,
0:34.2	Steve Schwartzman, CEO of Private Equity Firm Blackstone wrote that a liquidity drought can exacerbate
0:40.6	or even trigger the next financial crisis.
0:43.2	To discuss the state of market liquidity today in this debate, I'm joined by Goldman Sachs
0:47.4	Steve Strongen, head of the Global Investment Research Division, and Charlie
0:51.7	Himmelberg, co-head of Global Investment Research.
0:56.6	Steve, Charlie, welcome to the program.
0:59.4	Hello, thanks.
1:00.2	Steve, many people involved in financial markets have voiced concern recently about a decline in market liquidity.
1:06.0	Explain what this issue is all about and why it matters.
1:09.0	Sure, particularly to participants.
1:12.0	It's simply harder to get trades done.
1:14.6	It's become more expensive.
1:16.6	As a result, it takes longer to execute strategies.
1:20.0	And many asset managers have been put in a position of where a large number of investment strategies no longer work.
1:27.0	Those that involve trading in and out of positions quickly, those that require leverage, all of those things that become essentially impossible
1:34.7	to execute, and as a result of those strategies being missing, even the more normal buy and
1:40.0	hold strategies are harder to do, and it's harder to leave positions.
	...

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