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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Major Major Major's picture

What happens when they reallocate?

flacon's picture

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

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

 

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."

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.

Slave's picture

Who needs QE when you have this?

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. 

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?

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?

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.

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...

 

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.

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.

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.

 

101 years and counting's picture

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

TheRideNeverEnds's picture

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

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.

ZippyBananaPants's picture

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

TheReplacement's picture

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

Soul Glow's picture

In reply to comment:

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

Diminishing returns.

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.  

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.

BTCTalks's picture

Efficient markets FTW!!!

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.

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.

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.

Cangaroo.TNT's picture

Echoes of Paul Harvey....

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! 

101 years and counting's picture

"Fuck The FED's Queen! "

i'm not touching that fucking pig.

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.

fockewulf190's picture

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

Rainman's picture

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

economessed's picture

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

SheepDog-One's picture

Ahem....your winnings, sir.

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.

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.

Rainman's picture

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

shanearthur's picture

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

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...

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.

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.

yogibear's picture

"Fuck The FED's Queen!"

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

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???? 

 

NaiLib's picture

It's a price fixing table.

ParkAveFlasher's picture

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