Please pay attention to Jim Puplava at Financial Sense. He says a Liquidity Crisis Looming.

In total, index funds represent $7 trillion of U.S. stock funds that have no active manager. All buying and selling are done automatically. Active management has gone out of fashion, Puplava noted, and as this sea change occurs, the market's ability to price companies diminishes.

Ownership of stocks in the S&P 500 is concentrated with three companies; Vanguard, BlackRock, and State Street. They represent about 88 percent of the S&P 500, and if we include Schwab and Fidelity, over 90 percent of the S&P 500 is basically now in the hands of five companies.

“It's really mindless investing,” Puplava said. “The crux of the problem is that mutual funds own more bonds that seldom trade than ever before, but they're still promising to pay out investors within seven days of redemption, a promise they may not be able to fulfill in the next downturn or crisis.”

Global Problem

The problem is global.

Central bank actions explain most of what you need to know. Italian bonds provide a good example.

Despite the recent, massive selloff in Italian bonds, 10-year Italian bonds still trade at roughly the same yield as US 10-year bonds.

Is there no default risk? No eurozone exit risk?

Of course there is. But those bonds trade where they do because the ECB is engaged in QE to a far greater extent than the the Fed ever did. How nuts is that?

88% of the S&P is with Vanguard, BlackRock, and State Street. How nuts is that?

Close to $7 trillion in bonds trade with a negative yield. The figure was close to $10 trillion at one point. How nuts is that?

According to LCD, covenant-lite loan now account for a record 75% of the roughly $970 billion in outstanding U.S leveraged loans.

Covenant-lite agreements vary, but they allow things like paying interest with more debt rather than cash or skipping repayments entirely for periods of time. How nuts is that?

Totally Nuts

This is totally nuts, across the board.

Puplava calls it "mindless". I suspect he would be the first to admit that he seriously understated the concern.

My "totally nuts" position is also too mild, but I also struggle for the precise words.

Crisis Looms

A global liquidity crisis looms. It is entirely central-bank sponsored.

Just don't expect me, Puplava, or anyone else to tell you precisely when the crisis will hit. But it will. And when it does, don't fool yourself into believing that you can necessarily escape in time.

Mike "Mish" Shedlock

Housing Liquidity Crisis Coming: Debt Deflation Follows

A liquidity crisis in housing is on the way. Non-banks are at the center of the storm.

Oil Price War and Liquidity Crisis Coming

Saudi Arabia kicked off an all-out oil war on Saturday, Some expect oil at $36 when the futures open at 5:00PM Central.

Eight Reasons a Financial Crisis is Coming

It's been about 10 years since the last financial crisis. FocusEconomics wants to know if another one is due.

Financial Crisis Coming: Two Hour Live Discussion Tonight

I am on Coast to Coast for 2 hours Monday discussing the upcoming Financial crisis. 10:00 PM to Midnight Pacific.

Italian Bond Market Crisis Coming Up

Italy's 10-Year bond yield surged around the Italian election. There's heavy issuance in Sept and ECB tapering in Oct.

UN Report Cites Central Bank Liquidity Bubbles, Loose Money, Debt Expansion

A UN report has everything wrong as to the cause of current problems. Yet, the report mentions central bank liquidity.

Allegedly, There is a Gender Gap in Economics

The economics profession supposedly has a diversity problem. I have a few questions.

IMF Warns About Emerging Markets: Hello "Always Late" IMF, Global Crisis Coming

The IMF is finally warning that there may be an emerging market crisis. Hello IMF, it's already here. Look ahead.

Italy Government Approved: Crisis Over? Hardly! Get Popcorn, Gold

The FT says the political crisis is all but over. I suggest otherwise.