This page has been archived and commenting is disabled.
General Collateral Friendo'd As Bill Battering Finally Slams Repo
As we first pointed out, yesterday's stunning, near-failure in the 4-Week Bill auction, was the straw that broke the illusion of the market stability's back and as even Goldman pointed out, led to the first true "fear-driven" drop in stocks. Today, things are getting from bad to worse, as it is not the Halloween Bill, but the October 17 issue that is getting Friendo'ed as can be seen on the chart below - the 10/17s just hit 42 bps, a nearly 20 bps move in minutes!
But while disturbing, what is going on in cash is just the beginning of the story. It is the events shadow funding markets that could really light the fuse on fire.
Recall that in our post from Monday "With A Looming Debt Ceiling X-Date And Still No Deal, Here Is Another Trade Idea", we said:
Repo investors [will] begin to focus on the underlying collateral and start to make a distinction between debt that is most subject to payment delay and paper that is not. The result would be that as cash leaves the funding market, "the financing rate on all Treasury collateral – regardless of its maturity cycle – will rise." Indeed, during the last debt crisis in the summer of 2011, Overnight repo soared from 1 bps to 28 bps in the span of a few weeks. It is this trade that may once again generate substantial alpha for those who wish to bet on continued Congressional dysfunction because the October US Treasury repo future is currently trading at an implied yield of just over 11bp, having cheapened by more than 3bp since September 23. "Depending on how quickly the debt ceiling is raised, we expect this implied yield could move higher ahead of October 17"
In other words, in addition to another very profitable pre-debt ceiling trade (repo yields are spiking) alongside our other prior recommendation that has generated epic alpha in ten short days, it was only a matter of time before the surge in cash yields moved to the repo market. That time is today.
According to some, the main reason for the crush in 10/17 Bills is that this is the first issue to no longer be accepted as collateral by repo desks. Which means the cash contagion has finally spread to Repo. Sure enough, Stone McCarthy confirmed just that:
The Fed funds rate again opened at 0.10% this morning. Prior to today, it had traded at 0.09% early every morning since September 9th except for last Monday ahead of quarter-end. Yesterday's Fed funds effective rate was 0.08%. It was 0.06% last Monday for quarter-end, but outside of that it has held between 0.07% and 0.09% since June 18th. The overnight GC rate jumped this morning to 0.15%, which is above even where it was for quarter-end. It is the highest the early morning GC rate has been since June 28th.
And of course, unless this waterfall contagion is stopped, next up come money-markets, broader repo markets, and ultimately a Lehman-like Ice-9 freeze as contagion grasps the entire shadow funding market at precisely the worst time possible. Will this happen: we don't know. We do know, that with every day that the debt ceiling remains unresolved, the possibility of such an Ice-9 outcome becomes exponentially greater.
- 20266 reads
- Printer-friendly version
- Send to friend
- advertisements -



Wait what? According to our mark to fantasy accounting we have plenty of collateral!
Sincerely,
Jamie Dimon
Pfffttt. European banks don't need collateral, or reserves, only borrowers do.
what can we do to stop this contagion?
Don't worry about contagion. FASB, The Fed, Brian Moynihan, and his calvacade of magical bank CEOs have it all under control.
on a horse ? may be its just me, but when i see one i look for the other 3 ...
i know you try to calm me down and thanks, but it seems it made it worse :)
As long as nobody wanted to actually see the gold and silver allegedly backing the bank's notes, in the Old West, everything was fine.
CONfidence often times has nothing to do with reality. In fact a dose of reality is almost always in direct opposition to Confidence in the insane asylum.
<When the truth can no longer engender Confidence embrace the lie.>
Confidence?
For some reason, this old woman felt it necessary to have her photo taken with a metric buttload of collateral, that really isn't collateral anymore. Is it? All UK and US sovereign debt is non-recourse.
It is good to have one's debt denominated in one's own infinite fiat.
So why do the central banks hold gold?
I bet you didn't know that old lady can curl 50 lbs.
Guess what's in that black bag.
Leave FLOTUS out of this.
The Amazon of the East Wing can do 80 lbs on each arm.
but back to your last question.."So why do the central banks hold gold?
..because they know that fiat regimes are finite in time and eventually the 5,000 year store of value will return in prominence.
..but you knew that.
AMAZON.COM
"No Country for Gold Ben"
how much of other countries gold does the U.S. hold to launch its new currency?
As in curl one out? In which case it's a black colostemy bag perhaps.
Thanks for the softball question Hedgeless. The CBs hold gold so they can manipulate currency prices via the FX market.
Oh and siphon off as much as they can to other crony beneficiaries when a war needs starting or an election fixed. My question is where did all of Yamshita's gold end up?
http://www.amazon.com/Gold-Warriors-Americas-Recovery-Yamashitas/dp/1844675319/ref=sr_1_1?ie=UTF8&qid=1381329985&sr=8-1&keywords=Gold+Warriors
At least you don't sell regulatory and exchange compliance software. The Honorable Jon Corzine obviated that market.
For the Mr. Science tour of that place
http://www.periodicvideos.com/videos/079.htm
Does unihorse crap Skittles?
Fucking great H.
Add rainbows from diamond eyes and the unicorn shitting skittles...
tyler's picture helps me to recall <NO Country for Old Man>
Yep. Waiting for the crash.
All sellers and no buyers? How many elephants can fit through a doorway at once - there may be a new nobel prize winner in there for a new theoretical physics theory - as this might outclass the weight class of economic theory:
You got a alligator mouth an' a hummingbird ass
Your mouth writin' checks that ya ass can't cash
One forty five an' I'm outta ya weight class
Wanna survive? You better scramble like eggs an' break fast
Read more: T.I. - Stand Up - Lyrics | MetroLyrics
"An impasse over the federal budget reaches a stalemate. The president and Congress both refuse to back down, triggering a near-total government shutdown. The president declares emergency powers. Congress rescinds his authority. Dollar and bond prices plummet. The president threatens to stop Social Security checks. Congress refuses to raise the debt ceiling. Default looms. Wall Street panics."
"History is seasonal, and winter is coming. Like nature's winter, the saecular winter can come early or late. A Fourth Turning can be long and difficult, brief but severe, or (perhaps) mild. But, like winter, it cannot be averted. It must come in its turn."
"The next Fourth Turning is due to begin shortly after the new millennium midway through the Oh-Oh decade. Around the year 2005, a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation and empire. Yet this time of trouble will bring seeds of social rebirth. Americans will share a regret about recent mistakes - and a resolute consensus about what to do. The very survival of the nation will feel at stake. Sometime before the year 2025, America will pass through a great gate of history, commensurate with the American Revolution, Civil war, and twin emergencies of the Great Depression and World War II."
- The Fourth Turning by William Strauss and Neil Howe published in 1997
I like this theory and have read some chapters in the book actually, but I question a few things, like;
"It will feel like the very survival of the Nation is at stake", implies it isn't and somehow everything will be reborn bigger and brighter? Sounds a little like religious faith in "American Exceptionalism", and what happens when there is a complete severing with the past, that can't be "reborn"?
Is this theory of the "turnings" thing a European thing, or does it apply to humanity, because Countries are born and die quit often outside of this cyclical generational nature the Author describes?
..way older than that .. like Biblical
http://www.biblegateway.com/passage/?search=Ecclesiastes+3&version=NIV
Maybe the next generation will be more like this.. anything but rap.
http://www.youtube.com/watch?v=W4ga_M5Zdn4
"To every thing there is a season, and a time to every purpose under the heaven:"
Also, (one might add) "A time to repent of the wicked and evil thoughts and ways"
We must not just repudiate the wickedness of the 'other guys', we must each take responsibility for our own actions and understand that moral evil eventually will be judged by God whether in individuals, religions that bear His name, corporations, or governments.
The state of affairs is far beyond tinkering with a couple things here or there in order to repair. It's kind of like bringing in an old jalopy that's rusted through, windows broken out, seats ripped and springs sticking out, tires rotted off - in fact the wheels are missing, transmission gone, and the engine seized, and then telling the mechanic you want a headlight replaced so you can see your way better in the dark.
Putting a new 'headlight' on our problems (the old jalopy) will not enable us to see better in the dark situation we are facing. We need a 'new car'.
Pladizow
Yeah all the mysterious cyclical prediction thing is cool and all, but it never addresses causation.
It's about debt saturation in a fiat world, with collapse in available repo collateral as an avalanche of IOU's are defaulted upon.
It takes a while I guess. The USA is (was) a big ship. It has taken them a while but she's finally sinking.
Yet the DOW is positive. Move along
Burn baby burn
+1. Bring it, mofo's.
Point - Disco Inferno!
Counter-point - This ain't no party! This ain't no Disco! This ain't no foolin' around!
Indeed.
If I was China and Japan I would be selling and fast.....the writing is on the wall...trillions more for years...and less money to buy crap...
i would advise against it (not that anyone listen to my advise anyway) ... the reason is simple, if they sell the market will crash and the rest of their securities will be worthless.
i know damn if you, damn if you dont but they are big boys
You are fucking kidding me. They should have been selling for the past few years. Though I'd bet China is fully aware of the UST nuke they have in their arsenal and will play it accordingly at the right time. Their preverbial ace in the hole.
Oh China has been selling. And buying any real asset that isn't nailed down, such as foreign mines, roads, foreign manufacturing plants, joint equity, etc. China, unlike the US, is run by patriotic criminals. We're being run by 7-11 stickup artists.
Don't know about the logic "the Chnese will never sell"
At some point it is beter to get 50% back than 0%
And as a side benefit you get to bury your only competition on the world market.
Sounds like a win-win on the big picture.
China is being compensated with cheap gold thanks to the Western banking Cabal. When the gold stops flowing to China they will trade their $1.2 T in Treasuries for natural resources in the U.S.
cro-maat, i've read this idea many times (china is being compensated with cheap gold thanks to the western banking cabal) and while i certainly can't dispute that gold is cheap thanks to the wbc or that china is gobbling it up...what puzzles me is why jamie and gs and london are giving gold to china at such a great price? the only explanation i can conceive is they (the wbc) have already arranged with china to move headquarters and sift NA and Europe to colony status.
Mark more garbage to fantasy! I really don't see what the problem is here, get crackin Ol' Yellen!
Nonsense. Present Øbama has nominated Janet Yellin. She will be great! You may not have read this, but she will be the first woman to head the Fed! Wait, that didn't come out right.
Why is it that all women in a position of power are fugly as sin?
That chick in Australia looks pretty hot. NO ????
Gag ... choke.... spose if you put a bag over her face and unnaturally red (a color that is not found in nature) hair.
Wait now, lest we forget, me likee evil but HOT Blythe Masters the silver goddess!
No, that CAME out exactly right
Does Yellen have a siblilng we can nominate for a job cause Janet ain't cutting it today (aside from the daily gold smackdown)?
No, but she has a Mini Me she calls Tripod.
Starbucks is offering a free coffee to anyone who buys someone else a coffee; to foster cooperation and "helping each other out" spirit.
Wow - with "compassion" like that I'm sure everything will be just fine.
Maybe Treasury needs a "buy a bond for a friend" program?
1/2 price coffee from starbucks? I'm in
I am schizophrenic...I´ll take two
.....i can't walk in a starbucks....too many zombies staring in their icrap......creeps me out
And Bernenake quit.
Don't let him get away.
Is Twitter down or something? Sure is awfully quiet out there.
we will soon be bone and ashes
Only those that rely on the government will meet that fate. The rest of us will use them as fertilizer.
Stack em like cord wood barriers.
We have been bone and ashes for over four years.
Everyone just bought into the fantasy that we were not.
Imagine that! The day Yellin is announced as next Fed Chairmonster may be used to date the beginning of MM cracks.
No Country For Awkward Men: http://www.youtube.com/watch?v=VZ6N1sXUZZU
Shit is getting more real every day.
Get the bitch dog Yellen over here and make her do tricks for the camera!
Cant the treasury selectivily default on debt owned by Fed (if it isnt doing that by some mechanism already ) ?
They can even pay all debt and not pay for say welfare.
But look at Obama and try to guess what he'll do - probably whatever is worst.
Well they are bound by the 14th to pay debt. "shall not be questioned"
The other stuff, not so much. SS, Medicare, etc are all just promises. Debt is a legal term. They will speak about default, but until the cost of servicing/rolling over debt exceeds taxes, it will be paid.
Just more scaremongering by the fucking worthless scumbags that are in charge of the empire.
Coming soon to a city near you, the FSAA.
Free Shit Army of the Apocalypse.
pods
Pods, you see this?
http://westernrifleshooters.wordpress.com/2013/10/09/bracken-will-obama-...
Rig for storm.
Certainly could happen. I doubt it though. I don't follow the "Obama is a marxist and wants to be king" meme though. And I have thought about it since the days when people said old W wanted to cancel elections and wear a crown.
The feds certainly do want to maximize the pain for common folk, while not really doing much damage to their debt spending. They need cover to keep up the debt issuance. This fight will give it to them. Eventually some sort of workout will be done where both sides can strut and say they got what they wanted. But in reality, nothing will change.
The Feds know that their system is one based on confidence. What would happen to the millions of disaffected serfs if there was no next election to look forward to? It would push their hands because they could not "throw the bums out" at the next election. That is exceedingly dangerous to try. And I also see the president as more of a figurehead than anything.
I have contingencies pertaining to societal breakdown, but I don't lose sleep over the thought.
pods
if you read the rest of the 14th, you'll see it is one amendment they will not fuck with, for it's the one that ties everyone to the DC teat.
If the Fed says "nah, don't worry about it" does the debt still need to be paid? Just wondering.
What happens when the day arrives that this CANNOT be resolved with political theater and is simply the result a natural tick up in yields regardless of QE Infinity.
All cash feels good right now, even though my dollars will become worthless. Waiting to get back into miners. Patience all, patience.
And the Ponzi goes on.
WASHINGTON — The families of four soldiers killed in Afghanistan last weekend will not receive death benefits or the money to pay for their funerals because of the government shutdown. The bodies of Sgt. Patrick C. Hawkins, 25; Pfc. Cody J. Patterson, 24; Sgt. Joseph M. Peters, 24; and First Lt. Jennifer M. Moreno, 25, will arrive at Dover Air Force Base in Delaware on Wednesday.
http://www.nytimes.com/2013/10/09/us/politics/shutdown-holds-up-death-benefits-for-military-families.html?_r=0
I'd suggest crowd funding for 4 hearses that can drive the bodies around and around Washington, DC to shame the democrats.
I'd suggest that they drive around your house until you wake up to the fact that it is the system that is broken, and that blaming either one of the corrupt parties is counter-productive.
dont tell freddie....
I am confliced because I know that the system is beyond broken, that it is being controlled by forces of evil and yet I am compelled to tell you to fuck off because you don't know me.
Yes, but Obama's golf course is open and the Park Rangers/Gestapo are still on staff harrassing people. Makes one think that the evil asshole in the Whitehouse should never have been elected... or was he really elected by the people ... or just proclaimed by the press?
Perhaps it's time for the soldiers to take their oath seriously - including the part about foreign and domestic.
who is that a picture of for this post listing?
Looks like a dev from XDA
now we are at 5% off of all time highs............
But obama and the 535 idiot inmates are getting paid?
Wait a minute... Cant the treasury selectivily default on debt owned by just the Fed (if it isnt doing that by some mechanism already ) ?
And if yes- isnt that a big plus for the (ratings of the) treasuries that are left undefaulted ?
Yes, but only when they are ready to kill the dollar and replace the Fed with an internation central bank. Are they ready for that at this time? I do not think they will be ready until they create the NEXT crisis.
You are right but dollar could weaken but Isnt the whole point of this money printing by Fed, to counter deflation by steady inflation ? Fed doesnt like the system to fall to its knees by outright deflation, instead they like the dollar to get little weaker (but not too much) every passing day which could also mean that treasury can selectively default on little by little debt owned by Fed every passing day, not at once !
And also- whats the other currency or economy in the world that can replace US/ its dollar? EOD, isnt the Forex all relative ?
No. 14th ammendment.
The UNLIMITED selling of VIX by the FED-PPT commenced at: 10:22 a.m.!!
2 for 1 sale
http://www.weeklystandard.com/blogs/us-adds-two-times-more-debt-economic-output-last-2-years_762311.html
But, but, the dudes on twitter said we were saved. German industrial production take off at the zero bound et al.
Germany is completely alone in Europe. All the rest is down. Even the so called strong ones, Holland and Finland. France is a disaster.
You are soooo not telling the right story! Like the dude said above, Europe has been saved. Just ask Soros.
So, if the rate on 10 year Treasuries hits 4%, how many interest rate derivatives will get triggered and will it be enough to start the domino effect?
More like 3% from my research.
Did you notice the flurry of meeting between Obozo and the bankers
as it neared it recently ?
Its ticking up again.Can you say Canute ?
Collateral is for poor people.
Serious goosing of the S&P!.. They've been at it since Asia's open last night. Will it work? Again? Stay tuned :/
rates rise, the dollar soars, through global investment, and money comes out of hiding, to buy treasury paper. the government is shutdown, saving money, while money pours into treasury. the deficit narrows. the higher dollar kills the import trade, so jobs come back to america. business picks up, so who gets the blame for all this dammit??
20%-30% more cash in the ATMs will not be enough.
"If you don't hold it, surely it will be Corzined."
This fake panic is becoming too chicken licken the sky is falling in for me. They will never default because after they've extracted all the real wealth they need they'll just monetize the debt and forgive the key borrowers. Fake panic yawn.
This popcorn tastes good.
Can't wait for the main feature.
What's the most you ever lost on a coin toss
Is that you Fredo? Is this me
http://www.youtube.com/watch?v=2X9E9n6GHC8
Starbucks is run by hopey-changey children, who actually think gestures such as this make a difference. It's a coffee shop, albeit with 5,000 branches. But it's still a fucking coffee shop.