American Reality Check

pmbug

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<analysis, charts, rants>
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You’re staring at a massive asset price distortion with indices and individual stocks dancing at an 80’s RSI party, while yields and growth not confirming any of this.
I maintain the Fed has set in motion perhaps the most dangerous and reckless asset bubble since the year 2000. Nobody will believe it until something bad happens.

Will Powell be confronted with any of this next week?
Will he get challenged on the obvious effects his not QE lie has on asset prices?
Will he get challenged on the claim that the Fed does not target asset prices when it in effect does?
...
https://northmantrader.com/2020/01/24/80s-party/
 

pmbug

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Opinion piece by Jim Bianco:
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Unfortunately, the Fed made a critical design error in its daily interventions. They are offering to supply repo to the dealers at prevailing market rates. In other words, they are giving the dealers every incentive to take repo from the Fed as opposed to the market. In essence, the Fed has become the lender of first resort when it should be the lender of last resort and offer repo at a penalty rate. The Fed should be willing to help a dealer in need, but it should come at a price.

So, after four months of these Fed repo operations, new problems are emerging. More specifically, the Fed might be going too far and oversupplying this market. The effective federal funds rate is signaling there are enough reserves in the banking system. This month it traded at 1.54%, breaking below the interest on excess reserves (IOER) floor of 1.55% for the first time in 14 months. This is happening as the Fed announces it will continue to plow ahead with Treasury bill purchases and supplying hundreds of billions of dollars of repo supply until April, if not later.

What should the Fed do? It has already telegraphed it will raise the IOER rate by five basis points to 1.60% at the Federal Open Market Committee meeting next week. Presumably, it will also raise the repo offered rate by five basis points to 1.60%. Policy makers should raise the repo rate even higher. Stand ready to offer liquidity, but at a penalty rate.

This won’t fix the problems in the repo market; only rule changes can do that. But at least this will allow the Fed to identify how much supply is needed to get the market back in balance rather than risking a loss of control of the federal funds rate altogether.
...
https://www.bloomberg.com/opinion/a...eral-reserve-repo-market-fix-is-no-fix-at-all
 

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January 16, 2020

WASHINGTON — The U.S. Department of the Treasury today announced it plans to issue a 20-year nominal coupon bond in the first half of calendar year 2020.

Over the past several years, Treasury has explored a range of potential new debt products, including 20-year, 50-year, and 100-year bonds, as well as floating-rate notes linked to the Secured Overnight Financing Rate—all with the goal of expanding borrowing capacity to finance the federal government at the least cost over time.
...
https://home.treasury.gov/news/press-releases/sm878

I don't pretend to understand the full significance of this event. But they wouldn't be doing it if they weren't feeling pressure to expand borrowing.
 

rblong2us

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Perhaps its time to print that $trillion dollar note ............

you can get RSI if you spend too much time pressing Ctrl+Print
 

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... the Fed also conducted its overnight repo which saw a whopping $64.45BN in liquidity injected...

... and which together with the massively oversubscribed $30BN term repo discussed below, means the Fed has injected $94.45BN in liquidity for today's market needs.

After several relatively uneventful reverse-repos to close off the month of January, which saw a gradual decline in submission, February has started off with a bang.

Even ahead of the results of today's reverse repo, some traders were already closely watching to see how it would play out for one main reason: as we reported on Jan 14, this was the first "tapered" reverse repo, whose aggregate operation limit was shrunk modestly from $35BN to $30BN.
...
https://www.zerohedge.com/markets/liquidity-panic-term-repo-most-oversubscribed-start-repo-crisis
 

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Two days after dealers unexpectedly flooded the first reduced term-repo (from $35BN previously to $30BN) offered by the Fed, the liquidity shortage in the repo market ... persists, and today the Fed announced that in its latest 2-week term repo (maturing Feb 20), it was $57.25BN in submissions ($35.75BN in TSYs, $21.5BN in MBS) for a maximum $30BN in available reserves.

This means that for the second time in three days, the term repo operation saw a massive oversubscription ...
https://www.zerohedge.com/markets/a...-term-repo-confirms-persisting-liquidity-woes
 

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Starting around the 2:30 mark, former Dallas Fed President Richard Fisher talks about the markets being dependent upon the Fed:

 

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Today, Vice President Mike Pence and Health and Human Services Secretary Alex Azar announced the addition of the following individuals to the President’s Coronavirus Task Force:

Steven Mnuchin, Secretary of the Treasury

Dr. Jerome Adams, Surgeon General of the United States

Larry Kudlow, Director of the National Economic Council
...
https://www.whitehouse.gov/briefing...inistration-officials-coronavirus-task-force/

Because the Secretary of the Treasury and Director of the Economic Council know best about disease control.
 

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Oversubscribed repo madness continues...

... Dealers submitted a record $108.6BN in overnight repo, resulting in the first oversubscribed overnight repo operation since October (recall the total size of the overnight repo was reduced from $125BN to $100BN).

This means that, if going solely by the amount of securities submitted between the term and overnight repo, the overall liquidity shortage today was nearly $180BN, the highest since the start of the repo crisis, ...
https://www.zerohedge.com/health/li...-massively-oversubscribed-amid-market-turmoil
 

rblong2us

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Interesting to learn that those pesky Russians might be helping the $ downfall by letting oil prices freefall -

https://www.zerohedge.com/markets/oil-plunges-4-after-russia-rejects-additional-opec-cut

Not many years ago the US tried to destroy the Russian economy by ramping up ( non profitible ) production in the 'tight' deposits and it seemed as though there was an instruction to the banks to keep the loans going regardless.

Russia responded by de-dollarising, reducing its dependance on the oil economy and encouraging more in house production of goods formerly imported. This seems to have been successful as Russia now has minimal borrowings ( and a lot more gold)

Is the boot now on the other foot and its Russia's chance for payback ?

Or could there be other reasons for Russia wanting low oil prices ?
 

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Russia might be more dependent upon oil sales than you think. They may not be willing to cut production because they need oil sales to keep the wheels turning. It's usually one of the Gulf states that are in that predicament.
 

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Hmmm

Tom Luongo seems to agree with my initial thoughts -

https://www.zerohedge.com/geopolitical/russia-just-told-world-no

And from Bloomberg -
Bloomberg quotes Russian state-run think tank Institute of World Economy and International Relations president Alexander Dynkin as saying, "The Kremlin has decided to sacrifice OPEC+ to stop U.S. shale producers and punish the U.S. for messing with Nord Stream 2."
But if MBS thinks he can beat Putin into submission by upping the ante, I reckon he will learn the hard way that Putin has all possible responses covered ..........
 

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That's an interesting quote r2u. Wonder if Putin expect MbS to go scorched earth. Wonder if Putin wanted MbS to go scorched earth.

~~~

The Federal Reserve Bank of New York said today it will increase the amount of very short-term loans it has been offering to money markets amid a widening market rout.

The Fed had been slowly reducing its lending in a key short-term financing market for repurchase, or repo, agreements, in which the Fed lends cash overnight or for two weeks, accepting government bonds or mortgage-backed securities as collateral.

Today's announcement, however, reflects how growing funding strains resulting from the spreading coronavirus epidemic and increased demand for short-term lending have put any reduction in repo lending on hold for now.

Today's adjustments were designed to ensure that the supply of bank deposits held at the Fed, called reserves, "remains ample and to mitigate the risk of money market pressures that could adversely affect policy implementation," the New York Fed said. "They should help support smooth functioning of funding markets as market participants implement business resiliency plans in response to the coronavirus."

The New York Fed said it would increase to $150 billion from $100 billion the amount of repo lending it conducts on an overnight basis through Thursday, when the Fed is set to update its monthly funding schedule. On two days last week, the Fed saw demand for those overnight repo operations exceed the $100 billion limit, though rates didn't rise significantly. ...
https://www.wsj.com/articles/fed-in...ng-to-keep-lending-markets-stable-11583756069
 

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Wonder if Putin expect MbS to go scorched earth. Wonder if Putin wanted MbS to go scorched earth.
Suspect he has both options covered and will sit quietly watching as it plays out, always ready to explore any angle that will improve things for Russia long term or short.

If Saudi Arabia implodes it would seem that Russia could benefit more than USA ?

Its kinda the art of the deal at its best ..........

Wonder if Trump will be able to call Putin for a quiet chat about the situation ?
Its a fascinating situation.
 

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The New York Federal Reserve on Wednesday accepted all of $132.38 billion in bids from primary dealers at an overnight repurchase agreement (repo) operation.

It was the largest amount of repo loans since the Fed began the liquidity operations in September.

The New York Fed on Monday increased its daily cash injections to ensure an ample supply of bank reserves. The daily overnight repo operations increased to $150 billion from $100 billion.
https://uk.reuters.com/article/usa-...bln-at-overnight-repo-operation-idUKL1N2B40GU
 

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The New York Federal Reserve announced for the second time this week that it will substantially increase the amount of liquidity it provides to overnight lending markets, signaling to financial firms that the central bank will do what it can to keep money markets running smoothly amid fears tied to the coronavirus.

The central bank will raise the maximum offering of its daily operations in the market for repurchase agreements, or repo, to $175 billion through mid-April. That is up from the limit of $150 billion announced Monday and above the previous cap of $100 billion.

The Fed also said it will introduce three one-month term repo operations of at least $50 billion each, with the first one being offered on Thursday. That will be in addition to two-week term operations of $45 billion each that will be offered twice a week.
...
https://www.reuters.com/article/us-...o-keep-markets-running-smoothly-idUSKBN20Y33X

The New York Federal Reserve on Thursday accepted $50 billion from $82.6 billion in bids from primary dealers at a 25-day repurchase agreement (repo) operation.
...
https://in.reuters.com/article/usa-repo-month-idUSL1N2B50IO

It certainly looks like liquidity issues in the (presumably US, but possibly this is a stealth bailout for a foreign agent) banking system are getting worse.
 

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The Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York has released a new monthly schedule of Treasury securities operations and has updated the current monthly schedule of repurchase agreement (repo) operations. Pursuant to instruction from the Chair in consultation with the FOMC, adjustments have been made to these schedules to address temporary disruptions in Treasury financing markets. The Treasury securities operation schedule includes a change in the maturity composition of purchases to support functioning in the market for U.S. Treasury securities. Term repo operations in large size have been added to enhance functioning of secured U.S. dollar funding markets.
  • As a part of its $60 billion reserve management purchases for the monthly period beginning March 13, 2020 and continuing through April 13, 2020, the Desk will conduct purchases across a range of maturities to roughly match the maturity composition of Treasury securities outstanding. Specifically, the Desk plans to distribute reserve management purchases across eleven sectors, including nominal coupons, bills, Treasury Inflation-Protected Securities, and Floating Rate Notes. The distribution of purchases across sectors will be the same distribution as the Desk uses to reinvest principal payments from the Federal Reserve’s holdings of agency debt and agency MBS in Treasury securities. The first such purchases will begin tomorrow, March 13, 2020.
  • Today, March 12, 2020, the Desk will offer $500 billion in a three-month repo operation at 1:30 pm ET that will settle on March 13, 2020. Tomorrow, the Desk will further offer $500 billion in a three-month repo operation and $500 billion in a one-month repo operation for same day settlement. Three-month and one-month repo operations for $500 billion will be offered on a weekly basis for the remainder of the monthly schedule. The Desk will continue to offer at least $175 billion in daily overnight repo operations and at least $45 billion in two-week term repo operations twice per week over this period.
...
https://www.newyorkfed.org/markets/opolicy/operating_policy_200312a
 
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