This page has been archived and commenting is disabled.
Record $189 Billion Injected Into Market From "Window Dressing" Reverse Repo Unwind
When we reported yesterday's record reverse-repo surge, driven entirely by collateral-strapped financial entities scrambling to "window dress" their balance sheets with rented Fed-owned Treasurys for regulatory purposes, we said "Expect total reverse repo usage tomorrow to plunge by at least $150 billion as the banks will have fooled their regulator, which also happens to be the Fed, that they are safe and sound. Rinse, repeat, until the entire financial system collapses once again and people will ask "how anyone could have possibly foreseen this." Moments ago the Fed reported the daily reverse repo use. It turns out we were optimistic: it wasn't $150 billion, it was $189 billion. Following yesterday's $339 billion allottment, today this number tumbled to just $151 billion, meaing nearly $200 billion in fungible cash had to quick find a new home away from the Fed.
Which, incidentally explains where the relentless buying in today's market is coming from: today the Fed just released liquidity for two months worth of POMO in one day - money which promptly had to find a parking spot until the next quarter end when the same window dressing exercise is repeated and which will continue to go on completely unnoticed by regulators.
»
- 12289 reads
- Printer-friendly version
- Send to friend
- advertisements -
Fuckin' magic, I tell ya!
So... how many more quarters until we get a trillion dollar reverse-repo? 8?
Volatility is a thing of the past....
Something for uncivilized societies, not ours....
Is that why I suddenly cannot short any XIV? Or is it just my shitty broker?
I am confused. I thought reverse repot operations take liquidity out of the system. In a reverse repo the Fed sells a security and takes cash. So how would this drive stock prices up? You mentioned in previous articles that POMO is starting to dry up. Can you please provide some elucidation on how the actions of yesterday would account for the large spike in the market?
Thanks,
Completely confused,
Duffminster
I am sure this is having a stabilizing effect on the markets... and no unintended consequences either...
so this is bullish yes?
sarc
isn't everything?
there is such massive demand for UST's that the fed needs to lend them out to banks before they audit them to make sure they own a sufficient amount of collateral (UST's). see...all good.
This is my take as well. The demand for and shortage of "good collateral". Same as it ever was, until it isn't.
Same as it ever was, until it isn't. Unless somehow it is, same as it ever was/is.
All I know is the you have the Nikkei, Yen, the JGB market and Crude as your canaries. Assuming we actually had time to pivot should things go the other way, which I don't think we would...I am looking at those 4 things as the indicators that something is going wrong.
Crude is what will kill it. Everything else can be manipulated through central bank coordination.
agreed. If it was any of the other 3 that means the banks turned on each other.
I do wish ZH would start putting up a death watch on this guy....even if just to pass the time...
http://finance.yahoo.com/q/bc?s=DB+Basic+Chart&t=1y
Been watching that one too. It's actually the top stock on my screen.
http://finance.yahoo.com/q/bc?s=DB&t=6m&l=on&z=l&q=l&c=spy
https://www.youtube.com/watch?v=XWkL2gcXNuY
Well not sure there is a canary..... Crude certainly isnt it. It can be manipulated rather easily by the volume (coverage) of the unrest in the world. Its artificially parked right now. Based on Geopolitics it should be north of $120 a barrel, and based on economic outlook under $95....
10 year under 2.40...... would be a sign for me, as well as the SSE breaking 2k, the wrong way. Gold getting to 1400 would also be a turning point.......
It is if you are the guy in charge of those key strokes....he has some power
but I thought the market was rocketing up because the economy was doing great?
What we are witnessing here is the death of a currency.
What we are witnessing is the death of Fiat, not a currency, big difference...... We are in the trading range against all other currencies. The RMB is much more fucked than the dollar by the way.
more fukking rigging...it's never gunna end
i never really feel like i understand the utility of this repo/reverse repo stuff which apparently dominates the financial underpinnings of the entire world. My guess is that its hard to understand because its pure BS which serves only to obfuscate the fraud further and confuse those who expect that the system is fundamentally honest.
Think of it this way. The fed is buying up the bulk of the treasury issuance creating a shortage of collateral. At the end of the quarter entities in need of collateral 'borrow' them from the fed in order to meet those collateral obligations and then once they report their numbers they return them to the fed. In other words... It's pure BS to obfuscate the fraud.
heres what I dont understand, to borrow Tbills, what do they post as collateral, or ar the lines unsecured?
Thanks. Yeah, but how does this correlate with the pump in the market today if at all? I'm arguing with people over at CNBC and their saying that reverse repo's remove liquidity, which should make stocks go down?
The "repo" market has been around since 1917. The reverse repo is somewhat newer, but the question still stands, what will actually stop this or cause it to blow up?
Seriously, what's the god damn trade here?
http://finance.yahoo.com/q/bc?s=SPY+Basic+Chart&t=5y
LOL, well yes, aside from the "obvious".
But isn't that the most amazing thing about all this LOP? That we are all looking for the trade other than the obvious? I swear at some point Yellen is going to cause a disruption because she is going to lose it and start screaming "JFC just get in the fucking SPY already and stop scratching your heads and balls in confusion! I'm looking at you pension funds!!!"
You can go long Gopro, and if the trade goes wrong you can always snap a photo of your screen when it drops to zero. Should be a good keepsake.
At least people actually pay for their GoPro, unlike their Facebook accounts. GoPro is up, time to sell.
Need to ask the trading desk of the NY FED - the largest trading desk ever assembled by any central bank, the largest team of "research analysts, the largest number of economists ever assembled...
WTF do they need all this? just guarantee 10% annual return to all risk (bag) holders and close shop.
That is the plan.
http://www.pmbull.com/silver-price/
what a corrupt, shyster organization
I thought some would get a kick out of this:
Security Detail for Fed Chairwoman Irks NeighborsResidents in Gated Community Say Commotion Surrounding Yellen Is Disrupting Neighborhood
"Neighbors seem especially put off by the aesthetics of the security detail, in particular their blue uniforms and—in the words of one resident—"doughnut bellies.""
http://online.wsj.com/articles/yellen-s-security-detail-irks-neighbors-1...
Q2 Balance Sheet fix is in. Kick the can down the road. Q3 should easily exceed $220b (seasonally adjusted of course)
Fuckwids
Does anyone have longer term chart of repo volume to post here?
No, the reverse repo window just opened last year.
Yes, facilitating the ability of the TBTF banks to purchase equities.
And what are the Majors doing with the cash? Buying equities.
Ain't life grand, Janet?
Something that confuses me. If the Fed is lending treasuries to the banks to window dress for the end of quarter, surely that pulls OUT money/liquidity. So how was the market up yesterday for the month end?
I can sort of understand it today if money/liquidity has been given back to the banks et al.
DavidC
I have the same question. When you make a claim like this, it would be helpful to explain it in some detail. So far the claim is counter-intuitive to me.
Related...ignoring that reverse repo is relatively new, what were banks using to window dress in 2007-2008, and what do those figures look like consolidated with reverse repo volume?
I'm sure others can explain this a lot better, but I think it's been done as an intentionally confusing gimmick to try to kick the can a while longer. The closer the wheels get to coming off, the more creative they have to get. Just like every time inflation starts to hear up a little, they just change the way it's calculated. And when unemployment numbers aren't dropping like their predictions say they should, they find new ways to not count jobless people as 'unemployed'. Same sort of con job, this one just makes insolvent banks appear solvent. It works until it doesn't.
The Tylers called it. You guys are getting way too good at this. In fact, you're getting so good, that you all may want to think about staying away from flying, the tops of tall buildings, bridges, and nail guns. Just sayin'...
This is an interesting subject.
After studying the link in yesterday's post of the IMF whitepaper and then to the link of the orignal Gagnon/Sack proposal to bastardize the fedfunds rate by allowing for the RRP rate to become a target Federal Reserve rate that sets all others, then it becomes clear that the aim is to collateralize the excess reserves from QE as RRPs. Collateralizing them would then enable them to rehypothecated by Hedge Funds. The other variable involved is to see more RRPs being done as term instead of overnight.
This is going to be a very hot topic for the gods of counterfeit as it enables them to widen their smoke screen.
Here's a very simple 2.5 minute tutorial on reverse repo's for anyone that doesn't understand how they work.
A Fed explainer: What's Reverse Repo? | Marketplace.org
I am confused. I thought reverse repot operations take liquidity out of the system. In a reverse repo the Fed sells a security and takes cash. So how would this drive stock prices up? You mentioned in previous articles that POMO is starting to dry up. Can you please provide some elucidation on how the actions of yesterday would account for the large spike in the market?
Thanks,
Completely confused,
Duffminster
Reverse REPOs do take liquidity out of the banking side of the system. Banks borrow bonds from the Fed. s/t and the Fed. pays them interest, or buys them back at a higher price.
The banks have capital requirements that liquid cash doesn't qualify for, so they borrow the cash equivalent in bonds to meet those requirements. When the banks didn't sell all the collateral(bonds/treasuries) back to the Fed. today the excess cash went into the markets.
A pretty smart guy posting in comments on CNBC said this:
"...Repo has nothing to do with reporting requirements. read the NYFed link I gave you. reverse repo is currently just being tested; it's purpose ultimately is to suck up liquidity. cash is an asset which can be used to meet capital requirement; trading cash for bonds does not improve a capital requirements showing.
Since the holder of cash hands the cash to the Fed it is not an injection of cash into any market; it is effectively taken out of circulation because the Fed can take it out of circulation. This is a way the Fed can unwind its balance sheet...."
Can someone tell me if he is correct or are he and I both missing something?
Thanks for posting that, I think that explanation is as direct as it will get! A pawnshop for financial institutions which discourages said institutions from lending at lower rates as a means of reducing inflation, if that is desired by TPTB.
so these entities on the other side are window dressing for one day to appear more collateralized than they truly are. which means most of the time they are far more leveraged than they want anyone to know.
a little at first, then all at once; as they say.
all holiday weeks are up weeks. plus 401k 'buys' are done thursday for a large swath of the 'investing' public. the milking will begin monday.
I am confused. I thought reverse repot operations take liquidity out of the system. In a reverse repo the Fed sells a security and takes cash. So how would this drive stock prices up? You mentioned in previous articles that POMO is starting to dry up. Can you please provide some elucidation on how the actions of yesterday would account for the large spike in the market?
Thanks,
Completely confused,
Duffminster
A pretty smart guy posting in comments on CNBC said this:
"...Repo has nothing to do with reporting requirements. read the NYFed link I gave you. reverse repo is currently just being tested; it's purpose ultimately is to suck up liquidity. cash is an asset which can be used to meet capital requirement; trading cash for bonds does not improve a capital requirements showing.
Since the holder of cash hands the cash to the Fed it is not an injection of cash into any market; it is effectively taken out of circulation because the Fed can take it out of circulation. This is a way the Fed can unwind its balance sheet...."
Can someone tell me if he is correct or are he and I both missing something?
Yencross is correct.
The collateral on the books is more desirable than the er and therefore the quarterly spikes.
Viewed another way, the collateral of the rrp can be used to cover shorts and thus you see treasury rise yesterday and then you get today's decline in treas.
Per ZH post yesterday this is best expose on repos I can find:
http://www.imf.org/external/pubs/ft/wp/2014/wp14111.pdf by Manmohan Singh for the IMF
Pay close attention to how the excess reserves may be collateralized so the hedgies can leverage them and how the Fed will attempt to control which lapdogs can or cannot have that privledge.
Thanks for the link to the Manmohan Singh paper.
Per the paper, RRP shrinks Fed's balance sheet but does it with the involvement of all system participants versus simply one seller (Fed) and the relatively few dealer banks as buyers, so balance sheets system-wide are reduced as the Fed unwinds...so goes the theory.
Gross oversimplification - uniformly letting the air out of all four tires (versus only two...) on a car while speeding down the interstate, or perhaps deflating the tires on an airplane as it is landing.
Brilliant again.