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This Is Where Today's Buying Deluge Came From

Tyler Durden's picture




 

Many are scratching their heads wondering how it is possible that with all of today's economic data misses the stock market not only ignored all the relentless bad data, as it has for the past 5 years (yes, yes, the weather, we know) but managed to surge to a new all time high. Not us: we forecast precisely what would happen yesterday when we brought our readers' attention to what was a record Fed-assisted window dressing operation in the form of some $242 billion in revere repoed Treasurys being provided to dealer banks in order to make their books look attractive for quarter end. Specifically we noted yesterday that "one should consider that tomorrow - with their books well padded for the March 31 daily security "holdings" - the banks will almost certainly unwind over $100 billion if not more of today's reverse repo, an amount that is now equal to nearly two full months of QE. Where that money will go, only the (NY) Fed and a few bank CEOs know."

Today we know not only where that money went as was implied, it went in risky assets i.e., the S&P500, but more importantly we also got the number right: today's reverse repo was amounted to just $113 billion, a $130 billion liquidity release from the Fed's reverse repo operation in one day!

So while QE may have tapered to a "measly" 55 billion per month, on just the first day of April risk assets experienced the additional benefit of over two full months of QE injected into the stock market in one single day!

And now you know where today's buying deluge came from.

The flipside, the easy money for the month of April, which as we also noted previously has historically been the best performing month of the year, has now been used up.

 

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Tue, 04/01/2014 - 16:33 | 4614957 Major Major Major
Major Major Major's picture

What happens when they reallocate?

Tue, 04/01/2014 - 17:15 | 4615110 gmrpeabody
gmrpeabody's picture

The phoney phuckers...

Tue, 04/01/2014 - 17:25 | 4615139 flacon
flacon's picture

Maybe some of the money will flow into silver now that it's grossly oversold...

Tue, 04/01/2014 - 17:34 | 4615164 derek_vineyard
derek_vineyard's picture

ZH---Tell us this shit yesterday so we can trade it.....like your constant correct pumping of stocks and blocking out the noise of the debbie downers

 

Tue, 04/01/2014 - 17:40 | 4615183 IndicaTive
IndicaTive's picture

They did.

 

Specifically we noted yesterday that "one should consider that tomorrow - with their books well padded for the March 31 daily security "holdings" -the banks will almost certainly unwind over $100 billion if not more of today's reverse repo, an amount that is now equal to nearly two full months of QE. Where that money will go, only the (NY) Fed and a few bank CEOs know."

Tue, 04/01/2014 - 18:36 | 4615314 NoDebt
NoDebt's picture

And the best part is, we will keep having it the first day of every quarter from now to infinity.  THis is the new reverse repo program, separate and apart from QE.

Tue, 04/01/2014 - 19:04 | 4615367 Slave
Slave's picture

Who needs QE when you have this?

Tue, 04/01/2014 - 22:29 | 4615944 TheReplacement
TheReplacement's picture

.gov needs it.

The good news is that pretty soon the Fed and the Chinese will own everything except south Florida which will be shared by the Russians and Cubans.  Oh, and the southwest, let the Mexicans have the desert.

The communists are buying the rope from us with which they mean to hang us. 

Tue, 04/01/2014 - 19:40 | 4615477 SAT 800
SAT 800's picture

And having asked yourself this question; and noted that the ES now forms a perfect triple top; wouldn't you like to go short right now ? If not now, when? Yes, folks, it's short time again. NOt for me; I;m already busy in Oil, and British Pounds and Silver; no gottee monies in the accounts. but really; does anyone believe this is anything but a spike hanging in mid air?

Tue, 04/01/2014 - 16:33 | 4614958 Kaiser Sousa
Kaiser Sousa's picture

buy the dip!

Tue, 04/01/2014 - 16:49 | 4615034 Soul Glow
Soul Glow's picture

Sell the avalanche.  

Tue, 04/01/2014 - 16:33 | 4614959 gjp
gjp's picture

I'm afraid I don't understand something here.  Wasn't the reverse repo yesterday of $242b noted as a reason for the market's advance for quarter-end?  And now unwinding that is reason for advance again?

I get that no matter what, no matter when, it's bullish, but both directions on reverse repo can't both be equivalent to injecting money into risk assets, can they?

Tue, 04/01/2014 - 16:35 | 4614969 Tyler Durden
Tyler Durden's picture

Yesterday's reverse repo was noted as the reason for dealer bank window dressing and nothing more. And as cited here, it also noted that the unwind of said reverse repo would provide an implicit liquidity injection of over $100 billion. It turned out to be $130 billion.

Tue, 04/01/2014 - 16:36 | 4614971 gjp
gjp's picture

Thanks

Tue, 04/01/2014 - 18:27 | 4615273 hobopants
hobopants's picture

So let me get this straight... banks give fed cash in exchange for treasuries, then banks trade treasuries back for cash? I get the part where the additional collateral makes them look good (or at least not as shitty) on the books but the part that baffles me is how this translates into higher stock prices? Are they levering up the new collateral? If not how does exchanging two things of supposed equal value make for a liquidity injection? The Jargon and nomenclature surrounding finance often seems like so much smoke and mirrors to distract from the simple bullshit it usually amounts to. If you can't dazzle them with brilliance...

 

Tue, 04/01/2014 - 18:47 | 4615330 NoDebt
NoDebt's picture

You can't buy stocks with Treasuries.  You need cash.  

Banks get cash to reverse repo Treasuries to make their quarter end books (which are a snapshot of quarter end, not an average over the quarter) look good.  Holding Treasuries looks a lot better than holding stocks (or cash) as far as collateral and other financial ratios go.  Next day, they go get the cash back to spend on the coke and hookers... I mean stocks.

But.. but.. but... didn't they have that cash 2 days before in order to reverse-repo those Treasuries in the first place??  Maybe.  Maybe NOT.

You don't know how long they were accumulating that cash over the course of the quarter to do that reverse repo, or what assets they were tapping to build that cash pile.

But come the first day of the new quarter, they don't need the reverse repo Treasuries clogging up their balance sheet any more- it's window dressing purpose has been served and they don't need them on the balance sheet any more.  Off to the races.

Tue, 04/01/2014 - 18:58 | 4615355 hobopants
hobopants's picture

God what a mess huh? The way these assholes dance around the rules and requirements is enough to make you dizzy. I still don't fully get the methods of madness but that clears it up a bit Thanks.

Tue, 04/01/2014 - 20:27 | 4615598 NoDebt
NoDebt's picture

Putting lipstick on the pig is what banks do.  Always have.  They tap dance around their quarterly statements like walking between the rain drops without getting wet.  They just have a lot more tools to do it than they used to.  This latest one- a guaranteed, no-risk reverse-repo counterparty facility from their good buddies (The Fed) is just the latest gizmo to be added to the bag of tricks.

It makes one wonder just how seriously jammed up things must have gotten in late 2008 when the wheels came off that even these incredible sleight-of-hand tricks couldn't stem the tide.  Fortunately, there is an answer to that:

There is one and ONLY one thing that will topple a TBTF bank- when the rehypothecation chain collapses (the promises the bank has made to counterparties, based on the promises they have been given by others).  When the things that they are owed, especially short-term stuff like this changes from 'money-good' to 'money-not-available', things break.  It's the institutional-level equivalent of a "bank run".  Not on deposits (which is slow by comparison), but by other counter-parties that are relying on getting their money back in a short timeframe, but can't, even if only for a few days.  One good sized broken promise breaks 5 more downstream and so on until it becomes a cascade of failure throughout the entire banking system, worldwide.

That's what happened when Lehman went bust.  That's what, one day, will happen again.

 

Tue, 04/01/2014 - 16:40 | 4614993 101 years and c...
101 years and counting's picture

$130B for a whopping 13 spx points?  not much "bang for the buck".  

Tue, 04/01/2014 - 16:47 | 4615024 TheRideNeverEnds
TheRideNeverEnds's picture

Guess you were not watching the NDX gap up 20 and run another 40 higher....

Tue, 04/01/2014 - 16:55 | 4615059 Soul Glow
Soul Glow's picture

Go long, sell the top, short the downside.  Easy to do when the insiders know when to buy and sell.

Remember LIBOR.

Tue, 04/01/2014 - 16:49 | 4615036 ZippyBananaPants
ZippyBananaPants's picture

They were skimmed by the HFT's, it is rigged you know!

Tue, 04/01/2014 - 22:36 | 4615959 TheReplacement
TheReplacement's picture

Yes and you as a taxpayer were just skimmed by the banks, again.  It is rigged.

Tue, 04/01/2014 - 16:58 | 4615053 Soul Glow
Soul Glow's picture

In reply to comment:

$130B for a whopping 13 spx points?  not much "bang for the buck". 

Diminishing returns.

Tue, 04/01/2014 - 20:19 | 4615583 steelhead23
steelhead23's picture

Dear Lord Tyler, I need a Fed primer.  I think I understand a repo - a kind of collateralized overnight loan to a bank at a tiny interest rate.  The bank gives the Fed some AAA securities (I suspect they also take lesser quality securities) as collateral for overnight liquidity.  The bank then buys back its collateral the next day, plus a few shekels of interest.  OK, so is a reverse repo the PDs selling Treasuries back to the Fed, or what?  If I have this right, the Fed is choking down U.S. debt even faster than it did at the height of QE, which makes the taper a huge joke.  I assume most folks here are traders and understand the lingo.  I struggle - in part because we've entered the theater of the absurd.  Its all Jaberwocky to me.  

Tue, 04/01/2014 - 22:43 | 4615979 TheReplacement
TheReplacement's picture

I'm not the one to answer your question being a learner on this topic myself but this much seems evident.  The FED is paying a tiny bit of interest which means it is probably just printing it so it is inflation by definition.  The FED does not benefit.  The taxpayer does not benefit.  So why do they do it?  The banks are the only party getting something out of this and they are the ones who actually need these transactions to begin with.

Imagine if you could go to the bank and get a currency loan and have the bank pay you interest in currency when you get your collateral back while you keep the currency that was loaned to you in the first place.  Reverse repo is a fancy term for screw the people.

Tue, 04/01/2014 - 16:35 | 4614970 BTCTalks
BTCTalks's picture

Efficient markets FTW!!!

Tue, 04/01/2014 - 16:40 | 4614992 SheepDog-One
SheepDog-One's picture

As near as I can tell, it's basically like wiping your ass with a $1,000 bill, then flipping it over and using the other side too. I don't know.

Tue, 04/01/2014 - 19:30 | 4615453 KingFiat
KingFiat's picture

It makes great economic sense. By using both sides of the $1,000 bill you save $1,000, or get a free ass wiping.

Personally I prefer to wipe my ass with Euros. Euro is the softer currency.

Tue, 04/01/2014 - 21:06 | 4615735 Osmium
Osmium's picture

I think it's more like wiping your ass with the bill and then telling the FED your bill is no good anymore and they replace all your shitty bills with new bills.

Tue, 04/01/2014 - 16:34 | 4614963 Cangaroo.TNT
Cangaroo.TNT's picture

Echoes of Paul Harvey....

Tue, 04/01/2014 - 16:34 | 4614966 TrustWho
TrustWho's picture

How can any bank be investigated, and more importantly prosecuted, when the USA central bank is pulling all the strings?

Fuck The FED's Queen! 

Tue, 04/01/2014 - 16:39 | 4614985 101 years and c...
101 years and counting's picture

"Fuck The FED's Queen! "

i'm not touching that fucking pig.

Wed, 04/02/2014 - 19:57 | 4619258 TrustWho
TrustWho's picture

There are plenty of S&M tools to use without any skin to skin involvement, so I agree with you about my personal tool.

Tue, 04/01/2014 - 16:36 | 4614974 fockewulf190
fockewulf190's picture

April Fools Day!  Right?   right?   ....righ....oh fucking no.

Tue, 04/01/2014 - 16:37 | 4614975 Rainman
Rainman's picture

USS Rigged Casino Damage control ... fire up the pumps and prop the bulkheads.

Tue, 04/01/2014 - 16:41 | 4614997 economessed
economessed's picture

...and one more time for exhaustive clarity:  THE MARKET IS RIGGED.

Tue, 04/01/2014 - 16:37 | 4614976 SheepDog-One
SheepDog-One's picture

Ahem....your winnings, sir.

Tue, 04/01/2014 - 16:38 | 4614978 shanearthur
shanearthur's picture

Tyler, this may be a stupid question, but why didn't these banks use this infused money to write down some of their bad debt? Isn't clearing some of the trash out as important to their financial wellbeing as the propped up value of the stock market? I fail to see why they don't just truly fix their books with all this money flodding in.

Tue, 04/01/2014 - 16:43 | 4615007 BandGap
BandGap's picture

I would bet they get the money along with their marching orders. Paying down debt would look too much like they are controlled by the payouts. My guess. It looks like shit regardless, I think it would look even shittier if they used the money for internal needs.

Tue, 04/01/2014 - 16:46 | 4615020 Rainman
Rainman's picture

Why fix books that are already fixed ? I don't get it.

Tue, 04/01/2014 - 17:11 | 4615104 shanearthur
shanearthur's picture

Didn't think of that, but that a damn fine point!

Tue, 04/01/2014 - 16:52 | 4615047 James_Cole
James_Cole's picture

Isn't clearing some of the trash out as important to their financial wellbeing as the propped up value of the stock market? 

No, no way these guys can square their books just gotta keep the dance going. 

http://www.zerohedge.com/news/2012-12-24/1000x-systemic-leverage-600-tri...

Tue, 04/01/2014 - 20:12 | 4615567 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

The FED has already bought most of their crap MBS and all other stuff from their TBTF family and friends.

Reverse Repo is the way the FED keeps on giving. See how nice it would have been if your mother had magical blood? You could be a primary dealer.

Wed, 04/02/2014 - 05:37 | 4616462 olenumbersix
olenumbersix's picture

Even bad investments can be leveraged 10x ?  In part thats how my sister is able to be a squatter in her former now forclosed home for 3 plus years ? just a guess.

Tue, 04/01/2014 - 16:39 | 4614981 yogibear
yogibear's picture

"Fuck The FED's Queen!"

You go ahead.  Catch some disease from that money whore.

Tue, 04/01/2014 - 16:42 | 4615003 taraxias
taraxias's picture

the market is a policy tool now and nothing more

the market is a policy tool now and nothing more

the market is a policy tool now and nothing more

the market is a policy tool now and nothing more

the market is a policy tool now and nothing more

the market is a policy tool now and nothing more

the market is a policy tool now and nothing more

the market is a policy tool now and nothing more

the market is a policy tool now and nothing more

the market is a policy tool now and nothing more

the market is a policy tool now and nothing more

the market is a policy tool now and nothing more

the market is a policy tool now and nothing more

the market is a policy tool now and nothing more

the market is a policy tool now and nothing more

the market is a policy tool now and nothing more

Any questions???? 

 

Tue, 04/01/2014 - 16:46 | 4615019 NaiLib
NaiLib's picture

It's a price fixing table.

Tue, 04/01/2014 - 16:52 | 4615044 ParkAveFlasher
ParkAveFlasher's picture

+1 ... A price processor of sorts.  If this, then that.  Who do we blame, after HFT?

Tue, 04/01/2014 - 18:46 | 4615331 Two-bits
Two-bits's picture

Look------> Syria!

Tue, 04/01/2014 - 16:59 | 4615072 buzzsaw99
buzzsaw99's picture

yes, the no billionaire left behind policy

Tue, 04/01/2014 - 17:50 | 4615217 Deacon Frost
Deacon Frost's picture

Subliminal sublimation for the masses, we are now fully programmed 'taraxias'.

Tue, 04/01/2014 - 18:16 | 4615276 Blue Horshoe Lo...
Blue Horshoe Loves Annacott Steel's picture

Exactly what are U trying to say?

Tue, 04/01/2014 - 20:12 | 4615568 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

No doubt they are TOOLS.

Tue, 04/01/2014 - 16:44 | 4615011 Hindenburg...Oh Man
Hindenburg...Oh Man's picture

Thanks for the explanation. I was watching the e mini NASDAQ 100 futures, and there seemed to be more going on than the normal post-bad-news pop. Those have actually not had much in the way of legs lately. There was high volume, systematic buying that hit throughout the day (time off for lunch).

 

I thought that it had to be more than just the usual "bad is good" reaction. 

Tue, 04/01/2014 - 16:44 | 4615014 buzzsaw99
buzzsaw99's picture

So then the fed is perpetrating yet another fraud upon investors.

Tue, 04/01/2014 - 16:48 | 4615026 yogibear
yogibear's picture

Yep, using QE money to buy stocks.  It''s a no-loss for long buyers.

A command economy trying to boost inflation.

Tue, 04/01/2014 - 16:53 | 4615045 buzzsaw99
buzzsaw99's picture

isn't it really a shell game to get garbage off the banks books? so then financial firms earnings are a farce and their books are a fraud? also it reeks of non compliance of some of the laws enacted by congress of late. great system we have.

Tue, 04/01/2014 - 17:21 | 4615127 Soul Glow
Soul Glow's picture

By George they are doing God's work!

Purposes and Functions of the President's Working Group on Financial Markets - to maintain investor confidence....

President's Working Group on Financial Markets:

http://www.archives.gov/federal-register/codification/executive-order/12...

Tue, 04/01/2014 - 18:44 | 4615323 hobopants
hobopants's picture

I think you nailed it, at least they're still pretending like the books matter...pretty soon they won't even bother as the Fed and the market become even more synonymous. No risk or investor backlash to worry about when buyer and seller are the same.

Tue, 04/01/2014 - 16:49 | 4615032 NaiLib
NaiLib's picture

Soon even the so called small retail investors will fully realise that the "market" is the FEDs Price Fixing table and go all in with fully leveraged portfolios. That's the moment when USA goes FULL ALBANIA, we're already there of course but it might be even worse

Tue, 04/01/2014 - 16:52 | 4615043 medium giraffe
medium giraffe's picture

Beware the Calends of April.

Tue, 04/01/2014 - 17:13 | 4615052 ebworthen
ebworthen's picture

So I wonder what crap they bought; Chipotle, Tesla, Apple, Farcebook?

BTW, sell Darden (Olive Garden/Red Lobster), it's being set up for a short.

Tue, 04/01/2014 - 16:55 | 4615056 Skin666
Skin666's picture

This is just brilliant work Tyler(s)!

 

We are truly entering the Twilight Zone

 

 

Tue, 04/01/2014 - 16:58 | 4615066 syntaxterror
syntaxterror's picture

I'm thinking stocks will still be cheap with a forward P/E of 673.00. No?

Tue, 04/01/2014 - 16:58 | 4615068 Kirk2NCC1701
Kirk2NCC1701's picture

When EVERYTHING is rigged, you'd better play real strong Defense:

Hold a mix of Cash and PM Bullion, and real assets for Troubled Times.

Treat the market the same way you'd treat a trip to Vegas or Macau: bet only what you can afford to lose. And make sure your losses (of liquid assets) involve a happy ending.

Tue, 04/01/2014 - 17:32 | 4615160 Latitude25
Latitude25's picture

I liked one arm bandits when coins poured out of them.  The new system with paper certificates is a real bore and I don't gamble now.  The same thing applies to the rigged economy.

Tue, 04/01/2014 - 17:05 | 4615090 Amish Hacker
Amish Hacker's picture

I'm wondering where tomorrow's buying deluge will come from.

Tue, 04/01/2014 - 17:08 | 4615097 Latitude25
Latitude25's picture

And PMs taking in a steady down trend.  FED helicopter money -> PM price suppression.  After all what's a few 1000 gold contracts when you're creating $100 billion?

Tue, 04/01/2014 - 17:11 | 4615103 nakki
nakki's picture

New highs on anemic volume!! This market reminds me of the SNL skit or parody of 60 Minutes, with Martin Short as Nathan Thurm. Every bobble head at the FED is channeling him. "Bubbles?? What Bubbles?? I don't see any bubbles, I mean what is a bubble?? We won't know a bubble till a bubble pops, so until then I don't see any BUBBLES!! What's that old saying Da Nile is more than just a river.

Tue, 04/01/2014 - 18:25 | 4615298 Hindenburg...Oh Man
Hindenburg...Oh Man's picture

in between the frantic buying sessions the market barely had a pulse. 

Tue, 04/01/2014 - 17:26 | 4615146 NDXTrader
NDXTrader's picture

I've thought ever since we broke every technical pattern known that a perfect top would be 1888. Exactly 1222 from the bottom. That's the kind of parlor game these clowns like to play

Tue, 04/01/2014 - 17:38 | 4615175 Carl Popper
Carl Popper's picture

Whats scaring me with all this stealth inflation is that pipefitters wielders and anybody with any mechanical or electrical skills is making some big bucks now, especially if they work in am energy related or ancillary field.

My income as a doctor is flat with high chance of dropping.

It is a new era. Revenge of the votech kids. There are just too many of us college boys nowdays and demand is flat.

Stealth inflation rebalances things with the least people noticing.

I AM NOTICING! bitchez

Tue, 04/01/2014 - 17:51 | 4615211 highwaytoserfdom
highwaytoserfdom's picture

Basel Tier-1 Basel Tier-1 Tier-1 Tier-1 Tier-1 Tier-1 Tier-1 Tier-1 Tier-1 Tier-1

While half world refuses the dollar...  Lets see if the fascist corps are going to keep the country poor for the soldiers to defend offense IMF hegemony.....   Bow to the order of Queen FED Queen of the IMF.  princes of the  World bank All hail the literally going Greek on the world without Vaseline.

Sorry to the heros in Greece going Greek is an indium for jamming something up your a$$..  

Notice  POTUS  goes right to Saudi Arabia because it is about freedom...

LIBOR FX equities, Bonds austerity austerity austerity austerity

USA USA USA....  democracy as long as austerity democracy as long as austerity

USA USA USA coming home to all our neighborhoods....

USA USA USA USA USA USA USA USA USA

terror terror terror terror

Tue, 04/01/2014 - 18:15 | 4615270 I Write Code
I Write Code's picture

Exsqueeze me, but who exactly admitted that even one femto-cent of this fed money went into equities?  As the prophet said, "but that would be wrong".  Investing repo money in equities in general, would be wrong.  It would have to be other money with capital support via repos and the fed, if at all.  Or something like that.

Tue, 04/01/2014 - 18:55 | 4615349 dutchTender
dutchTender's picture

its funny, all my friends working at investment houses are telling ppl to max out their contributions ... remember when the fed took skewed the risk in housing securities, just as now they skewed the risk in equities ...i am sure that will end really well.  the inevitable crash, when it happens. will affect more ppl, as there are more 401k accounts then ppl buying houses back in 07.    also a sneak peak on #obama 's plans:

top #2 problems:

problem 1: unfunded social secruity:

solution: pass immigration, then pass min wage (both wil produce higher earning tax payers who will not collect aid), then make the path to citizen ship extremely difficult (therefore you get a bunch of ppl pay in, but never collect ..i.e the new slavery)

 

problem 2: high unemployment rate among young ppl

solution: why not fight a world war and have a draft ... (age cap at 35 ..)also decrease the number of ppl to collect social security in the future .. see problem #1

 

Tue, 04/01/2014 - 20:14 | 4615572 LooseLee
LooseLee's picture

This is precisely why the LOSS OF LIFE on Wall St. will be EPIC...

Tue, 04/01/2014 - 20:09 | 4615562 SweetDoug
SweetDoug's picture

'

'

'

After 3-4 years of reading your web site, with lots of treks into investment dictionaries, I have a basic understanding of what this crap means.

 

(A nice piece would be a breakdown/step through of the above article, how this process works, for the layman.)

 

This is why I come here: For the analysis. Not the crap from places like MarketWatch or Bizyness Insideher.

 

Thanks Tyler!

 

•J•
V-V

 

PS. You scare the bat-snot out of me, that I understand what all this means and where we're heading.

Wed, 04/02/2014 - 07:31 | 4616538 El Hosel
El Hosel's picture

??/WTF,  You are not saying there will be no MOAR "wood" to Bang the Market with for all of April? This "Market" needs MOAR banging MOAR often than most realize. Say it ain't so, No way this "Market" can go a month with no training wheels...

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