Liquidity Swaps

Frontrunning: September 3

  • Confusion as Ukraine and Russia announce progress towards peace (Reuters)... but not for stock buying algos, they know everything
  • Obama Expresses Skepticism About Possible Ukraine Cease-Fire (WSJ)
  • Fighters Unwind in Russia Where Beer Doesn’t Spell Death (BBG)
  • Despite dangers, U.S. journalist Sotloff was determined to record Arab Spring's human toll (Reuters)
  • New Beheading Video Spurs Calls for Global Response (BBG)
  • Christie’s Spending on Outside Lawyers Passes $50 Million (BBG)
  • IEX to Apply for Exchange Status (WSJ)
  • UK says not ruling out airstrikes against Islamic State, says hostage video genuine (Reuters)

If You Own A Kalashnikov Rifle, Obama Just Sanctioned You

If you thought the latest round of US sanctions against some largely unknown Russians and a few new companies listed here, most notably Rosneft and Gazprombank - but not Gazprom, never Gazprom - that would cut off Russian gas to Europe and Merkel doesn't want that - would be largely a non-event, you are right. Unless you own a Kalashnikov, aka AK-47 rifle. In which case read on.

Fed's Fisher Says "Investors Have Beer Goggles From Liquidity", Joins Goldman In Stock Correction Warning

"Continuing large-scale asset purchases risks placing us in an untenable position, both from the standpoint of unreasonably inflating the stock, bond and other tradable asset markets and from the perspective of complicating the future conduct of monetary policy," warns the admittedly-hawkish Dallas Fed head. Fisher goes on to confirm Peter Boockvar's "QE puts beer goggles on investors," analogy adding that while he is "not among those who think we are presently in a 'bubble' mode for stocks or bonds; he is reminded of William McChesney Martin comments - the longest-serving Fed chair - "markets for anything tradable overshoot and one must be prepared for adjustments that bring markets back to normal valuations."

The eye of the needle of pulling off a clean exit is narrow; the camel is already too fat. As soon as feasible, we should change tack. We should stop digging. I plan to cast my votes at FOMC meetings accordingly.

CalibratedConfidence's picture

Infotainment channels and slide-show CPM websites could easily mistake the data in the following charts as balance sheet stress, economic pressures, and financial industry health in Europe is improving.  To contrary, it's so bad that the vehicle used to transfer the worlds reserve currency to those sovereign regions reaching out for help that the FED is now hopelessly handing cash right over.

Fed Announces $1.2 Billion In Foreign CB Liquidity Swaps For Week Ended May 26

The Fed has announced that the most recent total amount in 84 Day Central Bank liquidity swaps at a 1.24% rate, was $1.242 billion, down from $9.2 billion the week before. The bulk of the swaps, or $1 billion, were executed with the ECB, with the BOJ taking the balance. Also, for those who like to know ahead of time how much money the Fed has lent out to prop up Europe during any given week, this can easily be seen up to 6 days in advance of the Fed's reporting on its FX swaps each Thursday at 4PM on the ECB website. To be sure, while the Fed funds the 84 day repo, we are a little confused where the ECB gets the capital to fund the 7 Day USD operations, which as can be seen below, was for 5.4 billion in the past week.

Fed Discloses No New Liquidity Swaps, Lies About Value Of Maiden Lane I-III

Yesterday, the Fed disclosed that liquidity swaps have remained at 0 for the eleventh week in a row. This is not unexpected, as it is in line with the Fed's statement of eliminating emergency liquidity facilities (and the CB liquidity swap lines are among these). Of course, there is no way to truly verify whether or not the Fed is syphoning off US money to once again bail out foreign central banks as the Fed is shrouded in secrecy, and while we have to figure out just what exchange Bernie Sanders concluded with Chris Dodd, on the surface we are disappointed that the socialist is not sticking with his initial much stronger language for Fed transparency. Furthermore, we know all too well that the Fed would never lie to the US population, right - just look at the chart below, which discloses the Fed-determined values of Maiden Lane I-III. Somehow, the combined value of these three Bear/AIG rescue facilities have surged to one year highs in the last week. This is somewhat stunning as we reported a week ago that the Fed is about to be crammed down on its Red Roof portfolio holdings due to initiatied foreclosure proceedings. We have no figured out why REITs have been defying gravity for the past year - according to the Fed and the FASB, foreclosures are now a valuation enhancing process. How could we be so blind not to realize this.

Federal Reserve Balance Sheet Update: Week Of September 23

Total Federal Reserve balance sheet assets for the week of September 23 of $2,133 billion ($44.5 billion higher compared to the prior week's $2,088 bn), and this time just $41 billion shy of the all time high of $2,174 billion recorded on April 22

Federal Reserve Balance Sheet Update: Week Of September 16

Total Federal Reserve balance sheet assets for the week of September 16 of $2,101 billion ($30.7 billion higher compared to the prior week's $2,071 bn), just $73 billion shy of the all time high of $2,174 billion recorded on April 22.

Federal Reserve Balance Sheet Update: Week Of September 9

  • Securities held outright: $1,501 billion
    (an increase of $128.7 billion MoM, resulting from $32.6 billion in new
    Treasury purchases,
    $82.4 billion increase in MBS and $13.7 billion in Agency Debt), or $10.7 billion increase sequentially
  • Net borrowings: $320.3 billion, a decline of $5 billion compared to two weeks prior
  • Float, liquidity swaps, Maiden Lane and other assets: $248.9 billion, an $2 billion decrease on ongoing $1 billion reduction in CPFF (an issue discussed repeatedly by Zero Hedge) while liquidity swaps, after bottoming out recently and gradually reversing, have again declined by $2 billion sequentially.

Game Theory Trading

The Federal Reserve's and Treasury's actions have become the new catalysts for market movement, as they flood and drain the system with liquidity. An analysis of their options looking forward, particularly in the realm of the high interest rates that QE and the constant equity market bid have left us with, may be a better indicator than any in regards to future market direction.