What does "org.hibernate.TransientPropertyValueException: Not-null property references a transient value - transient instance must be saved before current operation" mean?

Issue

• Following exception is logged when trying to persist entity:

org.hibernate.TransientPropertyValueException: Not-null property references a transient value - transient instance must be saved before current operation: model.Merchant.defaultPOS -> model.PointOfSale. What is the root cause of this exception and how can it be avoided?

The code:

Merchant:
...
    @OneToOne(cascade = CascadeType.ALL, optional = false, fetch = FetchType.LAZY)
    @JoinColumn(name = "defaultPOS_id")
    private PointOfSale defaultPOS;

    @OneToMany(cascade = CascadeType.ALL, fetch = FetchType.LAZY, mappedBy = "merchant")
    private List<PointOfSale> POSList = new ArrayList<PointOfSale>();
...

and

PointOfSale:

...
    @ManyToOne(cascade = CascadeType.ALL, optional=false)
    @JoinColumn(name = "merchant_id")
    @ForeignKey(name = "FK_POS_TO_MERCHANT")
    private Merchant merchant;

Test:

@RunWith(Arquillian.class)
public class MerchantPersistenceTestCase {

    @PersistenceContext
    EntityManager em;

    @Inject
    UserTransaction utx;

    @Before
    public void preparePersistenceTest() throws Exception {
        utx.begin();
        em.joinTransaction();
    }

    @After
    public void commitTransaction() throws Exception {
        utx.commit();
    }

    @Test
    @TargetsContainer("maximilien:DigicashPayment")
    public void create_merchant() {

        PointOfSale pos=new PointOfSale();
        Merchant merchant = new Merchant();
        pos.setMerchant(merchant);
        merchant.setDefaultPOS(pos);

        em.persist(merchant);
    }
}