Fed Withdraws $1.5 Billion In Liquidity Via Reverse Repo, Stocks Predictably Turn Negative

Tyler Durden's picture

In confirmation that the market is nothing more than Fed liquidity game, the sudden drop in the S&P back to the red is driven by the just completed reverse repo. As this is the opposite of a liquidity ramp, the amount withdrawn is apparently directly impacting stocks. And today's amount was a doozy (at least by historical standards): the $1.5 billion withdrawn may well be a record for recent reverse repo operations. The $1.5 billion was roughly equally split between USTs, MBS and Agencies. The weighted rate was 0.215% on USTs, 0.226% on Agencies, and 0.237% on MBS. Total amount submitted was $3.64 billion, implying a 41% hit rate. The only thing that matters is that the Fed actively withdrew liquidity today. Should the market close red today it will be pretty clear what is going on: Monday and Wednesday: POMO days, and huge gain, Tuesday - no POMO, today: Reverser Repo (negative liquidity): market down. It is all so transparent at this point. And yes, there is a POMO tomorrow. We can't wait for the Fed to extract as much liquidity via reverse repos as it injects via POMOs - then the confusion will be total and complete as the Fed becomes a pulsating neutron star of liquidity.

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arm50's picture

operation twist!

John McCloy's picture


Dow looks like Space Mountain. The entire market now is 100% grafted to the Federal Reserve.

Ben..you can never exit the markets and the further in you push the more impossible it becomes.

DB Cooper's picture

My thoughts exactly - exit strategy impossible - circling the whirlpool faster and faster.

hedgeless_horseman's picture

Less circling, more like in-and-out...

We can't wait for the Fed to extract as much liquidity via reverse repos as it injects via POMOs.

mikla's picture

While I agree with both of you, everyone should *also* take this as an explicit warning by the Fed:  "Don't mess with us, we can take it out any time we want."

When Correlation is *perfect*, there's no debate about what your action will cause.  (IMHO, the Fed is probing to try to understand the amplitude of the "market" response.)

John McCloy's picture

True but players become more reluctant to enter the game the more they realize how nationalized the stock market has become.Then the next thought of someone being skeptical is.."What if the Federal Reserve encounters an event that prevents them from stemming the bleeding regardless of the actions taken"

DB Cooper's picture

Agree.  But now that they have broken an real market the amplitude is going to increase - maybe that's what they seek.

Oso's picture

my thought as well, testing the water.  Sufficed to say, they have proof positive.


think about what just happened though.  SP lost 1.6% hi/lo off a roughly $10.6 Tril market cap.  with a $1.5bl reverse repo, the market lost 100x the extraction (controlling for some stops and such that went off) safe to say market is leveraging over 50x, no sweat.



Oso's picture

they also extracted on Monday, same day of the massive POMO - wtf is going on??



John McCloy's picture

Just another 999 Billion left to repo out. So Ben when is the last time you landed a Modified Supersonic 777 on a runway like this in the middle of the ocean without even being able to slow down?


   I think they are nervous about how much garbage they bought that is losing even more value daily and the ass kicking that MBS will get when housing takes a cliff dive again because of fraudclosure.

Spirit Of Truth's picture

From a contrarian stand point, if that even works anymore, almost all market participants are on one side of the trade.  In fact, this is historically unprecedented in that there has never been a situation where returns have been guaranteed by the Fed through printing money to prop up asset prices in a desperate reflation strategy.  Nevertheless, any unexpected countertrend movement will be amplified massively, a point reinforced by the leveraged positioning used by hedge funds like Goldman Sachs that are causing a 50X response to pomos and repos.  

The critical question IMHO, is what could take control from the hands of Helicopter Ben?  How could there be a sentiment shift that can't be manipulated by Fed policy?


mikla's picture

The critical question IMHO, is what could take control from the hands of Helicopter Ben?  How could there be a sentiment shift that can't be manipulated by Fed policy?

IMHO, you're asking the right question.

IMHO, there is no possible solution.

I completely agree with your comment -- everybody is on the same side of the trade, that's why we see such an amplified reponse.  However, there's no way out of this.  Even if we got half-and-half on each side of some "big trade", the reality is that we will unwind this worldwide derivatives market (measured in the $ quadrillions), that Greece will default, that nation-states will be unable to deliver to their boomers what was promised.

It's like saying, "What's the solution to keep the ponzi going?"  I seriously doubt their ability to put it off day-by-day, but fundamentally, it's still a ponzi.  That's why there's no solution.

There is No Spoon's picture

what could take control from the hands of Helicopter Ben?

The currency market and sovereign debt market. Debt buyers will demand higher yield for U.S. Treasurys which will result in a spike in the dollar as shorts cover like crazy. Short dollar trade is way too overcrowded and can cause a massive selloff in the stock market since, as you said, almost all market participants are on one side of the trade.

SheepDog-One's picture

Excellent thread, exit strategy DOES NOT EXIST! Pump and dump to retail is a total fail. Theyre trapped with no way out so next up is massive false flag diversions that will make stock markets and FED asset list the last thing on anyones mind. Prepare yourself.

unwashedmass's picture

whats fascinating is the "overlooking" of the gold/silver stocks on the POMO days, and on a day like today, the nuking of the sector. this has been going on for months......everything is allowed to participate EXCEPT those naughty, naughty stocks that can possibly show even the dimmest retail investor what Ben and his boys are doing.......

i mean, they aren't just manipulating the market...they are manipulating sectors and selecting "marquee" names to try and get retail in....

which has not worked, so now what? now what?

Randall Cabot's picture

Lighten up, dude, the fed can string this along for years, they're just backdooring a bit of a pullback to counter the strong earnings so QEII can be pushed through with minimum pushback.

Other than that:


RaymondKHessel's picture

If only pension funds were smart enough to buy gold after mr irrational exuberance made his proclamation !!!!

RaymondKHessel's picture

The answer is quite obvious remember "what is the purpose of POMO?" to pump.

Eventually every pump leads to...

A dump.

And like a military exercise we have ourselves a test dump (mainly for statistical purposes).

This data will be used for impact analysis over a series of dumps.

The news is all bad. QE2 is happening as congress is inept and FED is all-powerful.

My suggestion.. Hold your gold and silver buy more under 1250 and 21.50 respectively. Prepare to move to an ideal location after maxxing out all debt for cash. And ultimately move to Helsinki for a few years or Canada.

LongShortSally's picture

This must be the grand experiment Ben referred to in his speech.  Unbelievable.

the not so mighty maximiza's picture

They can create or distroy at will.  Man what a free market.   O what a feeling. 

IdiotInvestor2's picture

"a pulsating neutron star of liquidity" !!?!! :-) Beautiful.

Where do you get these similes ? Are you one of those Physics Ph.D turned into a quants ?

homersimpson's picture


Wow. Let's hope for a few more days like this. Or months.

firstdivision's picture

It will making profiting from the Fed as easy as turning on a light switch.  Go long at EOD for days when they withdraw liquidity (day before POMO), and go short at EOD on POMO days.   

Iam Rich's picture

Heh...first read through the topic saw..."pustulating neutron star of liquidity".

Ivanovich's picture

Can someone tell me why they would do a reverse repo when they're doing pomo and yapping incessantly on QE2?  Is there a technical reason they would do this?

hedgeless_horseman's picture

At first, orgasm may be achieved simply by insertion.  As time passes, an in-and-out cycle is required.

Ivanovich's picture

Cute, but I'm genuinely serious.  Why would they do this?

hedgeless_horseman's picture

I don't know.  Maybe they are playing with the average duration of the portfolio?  Maybe they had to get some real shit off the books before someone sees it?  Maybe the counter-party has figured out the value of the MBS, and they want them back in exchange for crappy FRNs?  And they threw in some USTs for cover?

Maybe it is only, "...part of our operational readiness program," and they just want to make sure the joystick still works when they pull back on it?  Lord knows their game controller has been getting a work out.

Ivanovich's picture

Appreciate the response.  I was just curious, because it smells of inconsistancy.

cdude's picture

Controlled ejaculation. Late next week would be the PERFECT time for the "DOW HITS HIGH FOR THE YEAR!" HL to cum out. That way the story would still be fresh enough for a weekend media blitz just befor the elections

unununium's picture

Depends on who you think is really in control.  Personally, I still expect an epic crash before the election.  You know, to show how badly Obummer has ruined the economy.

Phat Stax's picture

It was a test.  They have been testing "tools" all year for when they will be needed.  Earlier they paid 1% to certain banks for parking their deposits with the Fed.  This was seen as a possible alternative to trying to influence (raise) the lending rate which will be harder since their balance sheet is so large.

barliman's picture


What will the evil overlord Bur Naki do next? How will peasant traders respond as he pulls the strings behind the scenes?

(deep sinister laugh from offstage)

Suddenly a figure steps into the spotlight center stage ...


barliman's picture

... a large conference table of "bankers" (dressed in expensive suits where all pockets are overflowing with bonus cash - there is so much it makes them look like puffer fish) turn all eyes to the figure that just stepped into the spotlight.

BUR NAKI!!!!! (played by Robert Deniro in a tuxedo)

He holds a maple baseball bat in his hands and begins to take practice swings as he paces around the table and speaks:

"You know this business of ours is all about teamwork. Everybody on the team has a role to play. Some of us are coaches, some of us are fielders or playing the bases. Somebody is supposed to be giving all they got pitching (eyes the GS representative across the table). And occasionally, one of us has to take one for the team."

He stops behind the BAC representative and raises the bat over his head ....


barliman's picture

... am I being too subtle so far????

StychoKiller's picture

And it's going, going...pop fly!  Caught by the right fielder.  We now go to extra innings.  The sacrifice fly failed to bring home the winning run.

barliman's picture

Or maybe the Ministry of Truth is your preference:

Adami: Weakness In BofA Is Telling You Something



John McCloy's picture

     Now that I am thinking about it does anyone else think that the Fed is more concerned with Fraudclosure than they are letting on? Maybe Ben now that he realizes he failed to reflate housing and the danger imposed by a halt in foreclosures wants to get some of that Toxic garbage he sopped up with taxpayer money. Maybe he is cleaning up the crime scene before the hearings and reknewed calls for a Fed audit as surely the politicians must take a peek at what he is holding eventually.

Good luck Ben..

snarkolepsy's picture

"Maybe Ben now that he realizes he failed to reflate housing and the danger imposed by a halt in foreclosures wants to get some of that Toxic garbage he sopped up with taxpayer money."

It should be obvious to everyone right about now that he failed. All the housing numbers for September are coming in Dismal. Roughly 30% drop from last Sept. Even in Austin at 27% drop.

September was before the halt.

Phat Stax's picture

A most excellent avatar dude!

prophet's picture

Thank you, benji Phat Stax.

StychoKiller's picture

Ever check out "Dysfunctional Family Circle?"

Iam Rich's picture

By the way...where is the schedule for these operations?

Gimp's picture

Welcome to the United Socialist States of America.

Free Market my cornhole. Let's see how they  unwind this mess.