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.

Grayson Grilling Bernanke On Half A Trillion In Foreign Liquidity Swaps And The Constitutional Basis For Such

Grayson asks Bernanke about the $550B (as of 12/31/08) in liquidity swaps with foreign central banks. Who got the money? How did the Fed lend this much money without the consent of Congress? Did these loans push up the value of the dollar?

  • At minute 1:30, Bernanke can’t say which financial institutions got the money.
  • At minute 3:19, Bernanke says that the 30% rise in the dollar which took place at the same time as the Federal Reserve lent out $500B to foreign central banks was just a coincidence.
  • At minute 3:45, Bernanke and Grayson discuss the Constitutional basis for the Federal Reserve lending a half a trillion dollars to foreigners.

Are The Fed's Rapidly Disappearaning Central Bank Liquidity Swaps Crushing The Dollar?

As frequent readers know, Zero Hedge compiles an update of the Fed's balance sheet every week,
based on the most recent H.3 and H.4.1 statements. One odd trend that has caught our attention is the virtual disappearance of central bank liquidity swaps as disclosed in the weekly H.4.1 report. The historical low level for this metric was in the pre-Lehman days when it averaged about $60 billion weekly. Then in the depth of the crisis it peaked at just under $600 billion in December 2008. Yet, oddly, even though Europe's economic and monetary situation has deteriorated since then, the foreign CB swaps have plunged, and are now almost at pre-Lehman levels: the most recent reading was of $100 billion, a half a trillion decline from the peak!