So other than seeing the headlines and glancing over the stuff when it started happening back in September, I didn't think much of it. Then I read an article on WolfStreet, and in the comments section, someone stated that Powell had to recapture the repo market because the higher rates might have meant that all the bonds were actually mispriced. This seemed like an interesting point. Then just yesterday, @comagnum made a post with a link to a video about a recession in 2020, but as a result of watching that video, I watched a few more by the author who talked in great detail about the repo market. Here are two videos that were particularly interesting. So my mind is now a bit blown. The fact that this repo issue isn't isolated to just a few days makes you really wonder what is going on. Furthermore, the fact that they are throwing huge sums of money at it is yet another red flag. As George outlines, if what's behind all this is a bad bank, this could very well have major ramifications going forward. I'd of course love to read different opinions on this, because it seems like this can easily be a trigger for a major problem. All the facts George presents seem solid enough, so his conclusion is certainly within the realm of possibility. And I think we can all agree that if one one those big banks go down, the fear and lack of trust can easily lead to a major problem.
The Repo market illiquidity issues are entirely of the Fed’s own construction. Over years of QE they took massive amounts of liquidity OUT of the market - and now they’re finally playing catch-up, and only when there was a problem. Plus they’ve been rolling coupons to take advantage of the current rate environment. Federal Government bureaucrats at their finest.
But how does this explain the spike in rates that lasted for a couple of days? And why is there no cash available all of a sudden? This story goes back to September and as George points out, its not getting better. Either they are trying to paper over something, or they have stealthily had to start another round of QE.
So there really is a problem then? You don't tell a guy on the brink of a heart attack that everything is fine with his heart as long as he doesn't exert himself, or frankly even move, and just lays in bed all day. I think at this stage, nobody is going to believe that the authorities have it under control once a problem is actually identified.
I used to trade the Treasury Basis Spread - and we would occasionally see Repo Rate spikes in the 90’s and early 2000’s before there was a housing crisis or QE. Was not unheard of and easy enough to hedge against.
But I'm sure the market fixed the problem itself. Here, the FED had to inject cash and continues to do. I'm sure you know more about this than I do, so is this case not different? Once again, as George point out, first the FED said it was going to provide overnight cash, then it went out to a few days, then a few weeks, and now some of this money is being lent into January. A spike is something that goes up quickly, and back down quickly. If they need to keep pumping in money, its not a spike.
%% And another way to measure a good trend; is markets reaction to bad news, so this uptrend is even better than we thought. But with people buying trash like TSLA-they may buy anything LOL.Im not laughing much @ TSLA bears=they slammed TSLA down again+ they should have......................................
no... at this point it's a game of chicken... and it always has been. the market is saying no problem... but sure it's scary to look at these 'potential problems'.... that's what I mean by game of chicken.... the wall of worry... are you gonna have the guts to get on that wall before the other guys.. Justin Mamas 'The Nature of Risk' says it all... the less information risk you take (i.e. make sure there is no problem anywhere), the more price risk you take (you buy late near if not at the top).