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Promises Of More QE Are No Longer Sufficient: Desperate Banks Demand Reserves, Get First Fed Repo In 4 Years

Tyler Durden's picture


While endless jawboning and threats of more free (and even paid for those close to the discount window) money can do miracles for markets, if only for a day or two, by spooking every new incremental layer of shorts into covering, there is one problem with this strategy: the "flow" pathway is about to run out of purchasing power. Recall that Goldman finally admitted that when it comes to monetary policy, it really is all about the flow, just as we have been claiming for years. What does this mean - simple: the Fed needs to constantly infuse the financial system with new, unsterilized reserves in order to provide bank traders with the dry powder needed to ramp risk higher. Logically, this makes intuitive sense: if talking the market up was all that was needed, Ben would simply say he would like to see the Dow at 36,000 and leave it at that. That's great, but unless the Fed is the one doing the actual buying, those who wish to take advantage of the Fed's jawboning need to have access to reserves, which via Shadow banking conduits, i.e., repos, can be converted to fungible cash, which can then be used to ramp up ES, SPY and other risk aggregates (just like JPM was doing by selling IG9 and becoming the market in that axe). As it turns out, today we may have just hit the limit on how much banks can do without an actual injection of new reserves by the Fed. Read: a new unsterilized QE program.

First, here is a reminder of what has been going on in the secular amount of excess reserves as indicated by the Fed.

The total amount of reserves is dropping rapidly which is to be expected: as the Fed's balance sheet contracts due to maturing FX swaps, and numerous other asset reductions, this means that liability side has to contract in parallel which then means that bank reserve levels are not only flat, they are declining. Obviously, absent "reserves" i.e., electronic fungible money created by the Fed, which courtesy of Shadow Banking can be promptly transformed into cash, banks can not buy. Period.

But not only that: there is some speculation that banks have over the past several years used reserves as a stealthy plug to fill capital shortfall at firms whose asset side is being rapidly depleted by non-performing loans and other detractors from cash flow formation. In other words forget buying assets and generating an ROE: banks need reserves to preserve their viability, or else.

All of this came to a head today.

What happened today? Well, first, here is what happened yesterday. The WSJ explains:

Starting Friday, the Federal Reserve Bank of New York will implement a series of "small value" repo operations to test its capability to temporarily boost bank reserve levels.

And there you have it: following several years of reverse repos, or liquidity extracting exercises by way of temporary reserve sequestation, the Fed has finally launched the opposite: or outright repos, or liquidity providing exercises. Which also means that at least one bank was in dire need of new reserves, all posturing by the Fed to the contrary notwithstanding. Because there simply is no reason for the Fed to launch a repo operation out of the blue following 30 "test" Reverse Repos conducted since December 2009.

The WSJ continues:

In a statement Thursday, the New York Fed said the operations are a "matter of prudent advance planning" and "have been designed to have no material impact on the availability of reserves or on market rates."


What is more, it said, "these operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future."


Operations by the Fed involving what are known as repurchase agreements, or repos, act to temporarily add bank reserves to the system by essentially borrowing bonds for a fixed period of time. Once a cornerstone of the day-to-day efforts to achieve the monetary-policy objectives set by the Federal Open Market Committee, the tool has fallen by the wayside as the central bank has moved to pursue massive purchases of bonds. The New York Fed noted that the last time it put in place a repo operation was on Dec. 30, 2008.

December 30, 2008 as a reminder, is when the financial world was collapsing, but was before the March 2009 announcement of the fully expanded QE1, which saw $300 billion in Treasurys and more MBS purchased by the Fed. As the table below shows, in the interim between December 2008 and today, the only operations the Fed conducted were Reverse Repo, which are designed to extract excess liquidity from the system, and telegraph as much.

And today: the first repo since December 2008, for a total of $210 million.

That that the Fed finally broke the mold and did a full blown Repo today speaks volumes about what is going on. Namely that banks are crying uncle and that any additional sustained rise in stocks will need a reserve infusion from either the Fed or the ECB. Everything else is merely noise. However, as the NFP report today indicated, one can kiss expectations for a LSAP-based, or unsterilized, QE in September goodbye. And as Draghi yesterday proved, absent Spain admitting it is fully broke, there will be no new bond buying via SMP or any other mechanism (ignoring for a second that the SMP as a rescue mechanism is completely worthless as the previous two instances of SMP bond buying proved).

The other problem of course is that Spain now will absolutely NOT demand a bailout as its 2 year cost of debt has plunged as the market expects it do just that and demand a rescue, in the process covering its 2 year shorts and pricing itself out of the one conclusion that makes the action logical. But why would Spain demand a bailout now that it can again finance itself at the short-end of the curve cheaply.And so the market is forced to short the 2 year again to push Spain's hand, which leads to more jawboning and repeating the rinse cycle all over again, and so on, in a massively circular argument which shows just how idiotic the conversation between the market and broke politicians is. Yes, welcome to the new normal cause and effect, where attempts to frontrun politicians are always and without exception self-destructive. This is yet another thing the market will realize eventually.

But the biggest issue is that as today's first Repo operation in 4 years proved, at least one bank needs at least $1 in excess reserves. That this is happening with $1.6 trillion in reserves already in circulation shows just how critical and how reliant on flow the US banks are.

And now check to Ben and Draghi to figure out a way to once again refill bank reserves.


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Fri, 08/03/2012 - 12:09 | 2676043 Cognitive Dissonance
Cognitive Dissonance's picture


We ain't seen nuttin' yet. There is no upper limit to insanity.

Fri, 08/03/2012 - 12:13 | 2676067 NotApplicable
NotApplicable's picture

I think the Treasury/Fed needs to outlaw the concept of "maturity" in these financial instruments.

I mean, what's the point of creating them, if they only expire at some point in the future, which causes a whole new demand cycle? Just think of how much less stressful the world would be without this ticking time-bomb.


Fri, 08/03/2012 - 12:21 | 2676077 nope-1004
nope-1004's picture

But, but.... the stress tests showed banks were fine.  Yet, actions by the FED show the opposite.  Hmmmmm.... what to believe in this farcical, fascist, banker-run market.

Everyone knows the big banks are insolvent.  Ben had to show up under the cover of night and plug the bleeding holes in the banks, lol.  Of course, he publicly lies and says the opposite.

The above article proves, WE HAVE A FED CHAIRMAN THAT'S A LIAR.


Fri, 08/03/2012 - 12:30 | 2676123 KMS
KMS's picture

I think the Fed just financed (part of) the Knight purchase for whomever.

Fri, 08/03/2012 - 13:08 | 2676223 engineertheeconomy
engineertheeconomy's picture

At no time in history has there existed a Bank that put more money into the economy than it took out, ultimately leaving the economy in a vaccuum.

The Ponzi Criminals are in a feeding frenzy, now that the economy's funeral is officially over, all they have left is printing and stealing.

As the Zombiesheepleslaves willingly submit to their daily regimen of programming, propaganda, diversion tactics, brainwashing and doses of reality denial drugs 

Fri, 08/03/2012 - 13:25 | 2676271 LawsofPhysics
LawsofPhysics's picture

Where is my money Labowski?  Show me the money motherfucker.

Fri, 08/03/2012 - 13:03 | 2676202 Brother Sebastian
Brother Sebastian's picture

This country song title seems to apply:  "How Can You Believe Me When I Say I Love You, When You Know I've Been A Liar All My Life?"  (But when it comes to Benny-boy, I prefer this one:  "Don't Believe My Heart Can Stand Another You.")

Fri, 08/03/2012 - 13:23 | 2676264 Jethro
Jethro's picture

Ha! NotApplicable, I wonder how you managed to channel MDB so accurately. That was hilarious!!!

So, am I interpreting this correctly? The banks want more, free gambling money?

Fri, 08/03/2012 - 20:07 | 2677241 El Oregonian
El Oregonian's picture

"So, am I interpreting this correctly? The banks demand more, free gambling money?"

There, fixed it.

Fri, 08/03/2012 - 12:14 | 2676072 flacon
flacon's picture

So when do we see the VXX rise? We are at supreme lows right now. Perhaps a good time to get in?

Fri, 08/03/2012 - 12:18 | 2676089 fonzannoon
fonzannoon's picture

flacon do yourself a favor and punch your self in the face. Then take five grand and throw it out your window. It's the same effect.

Fri, 08/03/2012 - 12:26 | 2676112 flacon
flacon's picture

If you read ZeroHedge they have been "pounding the table" that 2012 IS 2011. The VXX rose from 20 to 53 in the months of August and September. If you don't believe in this S&P rally, just like last year at this time, then VXX might be a good bet. 


S&P 500 VIX Short Term Futures


Fri, 08/03/2012 - 12:26 | 2676118 fonzannoon
fonzannoon's picture

Dude I hear you. I was not trying to insult you. I was looking at the skid marks left on me from the same thought you had a while back.

I politely disagree with the 2012 is 2011 idea. But I won't bore you with what I think. ZH certainly knows their shit.

Fri, 08/03/2012 - 12:42 | 2676143 flacon
flacon's picture

Thanks. I have some Sep 22nd calls on VXX... if 2012 is like 2011 then I'll make a shit load of fiat which I'll use to buy more gold. If not, then.... oh well.... it's a gamble - a roll of the dice. 

Fri, 08/03/2012 - 12:50 | 2676176 Everybodys All ...
Everybodys All American's picture

The Vix is broken ... no different than libor. It is manipulated even more than the rest of the market. I would not trade it no matter how good the idea appears from a technical view.

Fri, 08/03/2012 - 16:08 | 2676722 Panafrican Funk...
Panafrican Funktron Robot's picture

VIX is heavily manipulated, as has already been reported on ZH.

VXX is dogshit on top of horseshit, as you additionally have contago to deal with.  

Typically, people trade VIX products because they want to be short the market.  If you want to be short the market, SPX or SPY puts or bear verts make way the hell more sense, and respond much better to market action.  

Fri, 08/03/2012 - 12:42 | 2676153 Hype Alert
Hype Alert's picture

2011 was NOT, I repeat NOT an election year.

At the rate we are going, the stock racket is insuring BO's re-election.  All other indicators of a slowdown/recession are to be ignored.

Fri, 08/03/2012 - 13:13 | 2676237 ReactionToClose...
ReactionToClosedMinds's picture

fair point .... elections have consequences ... so accordingly ... domestically, internationally & economically.

We can guesstimate what Putin is doing, PRChina ... not so much.  Europe ...... France made its call ..... Germany ?, the Nords ?, the EEuros ?, as crazy as Italy seems ... there is a tremendous survivor instinct/streak  there.

Then there is the Middle East ....... not even the Israelis know for sure .. and their survival is at stake ..... Syria, Egypt, Iran, Iraq, Jordan, Saudia Arabia, Gulf States .....


Fri, 08/03/2012 - 14:38 | 2676452 Liquid Courage
Liquid Courage's picture

Heh heh ... Stock Racket ... I like that. Has a nice ring to it. Be nice if it went viral and then some bingo caller on some MSM Racket ... I mean Market Report had a Freudian moment with it.

One can only hope.

Fri, 08/03/2012 - 13:47 | 2676322 asteroids
asteroids's picture

VXX (A) decays , (B) is manipulated. Look at the chart VXX in 2008 was at 450! IF, you can time it CORRECTLY, you can make money. But, I would stay away.

Sat, 08/04/2012 - 02:19 | 2677577 SAT 800
SAT 800's picture

Hey, don't hold back, go ahead and tell him how you feel about it! LOL. Buy some Silver instead; you'll be better off.

Fri, 08/03/2012 - 12:24 | 2676113 HarryM
HarryM's picture

Try to find something that it not manipulated - good luck

Fri, 08/03/2012 - 13:39 | 2676277 Dr. Richard Head
Dr. Richard Head's picture

For some reason that reminded me of the quote from Clerks, "It's important to have a job that matters boys. That's why I manually masturbate caged animals for artificial insemination."


I guess the Fed would say to the public, "It's important to have a job that matters boys.  That's why I manually masturbate sterlized reserves for articifical cash creation."

Fri, 08/03/2012 - 12:18 | 2676087 illyia
illyia's picture

There are many reasons to read ZH first thing in the morning.

This article is one of them.

Fri, 08/03/2012 - 13:41 | 2676306 Dr. Richard Head
Dr. Richard Head's picture

Alarm goes off, grab smokes and cell phone.  Start coffee.  Sit on back porch with coffee smoke while reading ZH.  If the coffee and smoke doesn't get the bowels moving, a good dose of HOLY SHIT from ZH will do the trick.

Fri, 08/03/2012 - 13:56 | 2676342 mvsjcl
mvsjcl's picture

Sentiment good; scatological visualization, ummm, poopie.

Fri, 08/03/2012 - 13:30 | 2676281 ACP
ACP's picture

Don't forget the Fed's Other Assets!

Fri, 08/03/2012 - 16:40 | 2676797 Panafrican Funk...
Panafrican Funktron Robot's picture

Another fun chart.  Yay for the slow and steady march toward insolvency.

Fri, 08/03/2012 - 13:46 | 2676302 JeffB
JeffB's picture

Chris Martenson does a nice job of discussing exponential growth in Chapter 3 of his YouTube series The Crash Course.

The Fed is going to need Congress to revoke the mathematical "law" of exponential growth pretty soon.


Though I would interject that because of the rather drastic drop in fertility rates in many countries, population growth is levelling off and is projected to start dropping with a few years or so despite the increasing life expectancy.

Of course, even if true, that doesn't rescind the problem of compounding with respect to the need for perpetual growth in the money supply and the world economy.



Fri, 08/03/2012 - 13:39 | 2676304 HANKREARDON

Moo... mooo (sound that cow makes)

Fri, 08/03/2012 - 12:06 | 2676047 adr
adr's picture

It looks like oil is going for the one day percentage record again. Even the stocks that were going down today are all rocketing higher. At 11:30 the selling towel was thrown and Green Mountain, Netflix, and Facebook all shot up 5% or more.


Unbelieveable bullshit.

The I just can't take it anymore bullshit.

Fri, 08/03/2012 - 12:14 | 2676068 slaughterer
slaughterer's picture

Afternoon roomer should take S&P 500 over 1400 for the "happy weekend" with O.

Fri, 08/03/2012 - 12:45 | 2676159 Hype Alert
Hype Alert's picture

Hilsenbreath on at 3:50 today.  Tweet away, Merrill. Merrill, tweet away.

Fri, 08/03/2012 - 14:57 | 2676500 Liquid Courage
Liquid Courage's picture

You're speaking my mind, adr. Time to get away from the monitor for a few deep breaths ... deeeep breaths ... Nothing new here, just a bit more flagrantly corrupt than the last time.

Next on the script is -- of course -- how the Stock Racket ... I mean Market ... Stock Market ... is such a reliable Leading Indicator for the economy and so that elusive recovery must be right around the corner ... et cetera, ad nauseum

They'll stand their ground 'til the ground itself gives way beneath them.

Fri, 08/03/2012 - 12:09 | 2676049 Jlmadyson
Jlmadyson's picture

Shit is getting real again.

Jawboning to high heaven.

Prime dealers falling.

5 bucks on WTI.

Banks require repo.

The drums beat louder and faster....

Who is the next Dick Fuld?

It's coming.

Fri, 08/03/2012 - 13:04 | 2676207 iDealMeat
iDealMeat's picture

And Congress just took off..  Good time to start some shit in the ME.

Fri, 08/03/2012 - 12:08 | 2676051 caimen garou
caimen garou's picture

unsterilized money, sounds so dirty

Fri, 08/03/2012 - 12:50 | 2676175 Possible Impact
Possible Impact's picture

Put it through a Carbon trading filter.

Or, you could try reverse IPOsmosis filter.


Fri, 08/03/2012 - 12:08 | 2676053 LMAOLORI
LMAOLORI's picture



Can someone answer this Felix doesn't seem to know why

Why would Treasury want to issue floaters?

Fri, 08/03/2012 - 13:16 | 2676171 slewie the pi-rat
slewie the pi-rat's picture

[Paste}:>  "Namely that banks are crying uncle and that any additional sustained rise in stocks will need a reserve infusion from either the Fed or the ECB. Everything else is merely noise." <:

why not the SNB?   aren't they doing enuf fungible infusing for just abt everybody?

but i agree with the general points here and i have been making the main one right along:  one of the reasons the markets have been so "screwed down tight" is the capitalization and monetization necessary to keep any capital "risk" expansion liquid and expanding

just as declining prices destroy wealth, nominal price increases create capital wealth and the bankster cabal has been satisfied with doing neither, since growth will not supply the capital needed and the FED seems reluctant to print dollars for inflationary benocidal reasons

but for angela, i think they would still be flatlining, along with the econometrics and failures of incoming data to print as expected

however, as i said on FEDWEDnesday:  the bast thing for the banksters would be to drop the dollar to the 82.5 range and try to goose the dow30 to 13100

the EU indices are even more ape-shit today (4%?)!  this means that for angela to say "nein" she is gonna be perceived as pulling the punchbowl from one of the best fiat parties, evah!  so the bankster cabal is isolating her and germany, politically

big time!  i might add...

[... slewie is left wondering if this trial flurry of tiny liquid digits from the repoDepot is yet another chromed-out push-button on brianSack's new "edsel"...]

Fri, 08/03/2012 - 13:24 | 2676256 ReactionToClose...
ReactionToClosedMinds's picture

atta boy ..... apart from Tyler/ZH et al ... you may be outlining the rationale for the 'next phase' ........

But ...... as many have noted .... life spans are growing shorter and shorter ...... the speed is starting to overwhelm the Sorcerer's Apprentice.  So where (who will be/coudl even be) the Sorcerer be to save the Apprentice?  The US election is the best guess ... which means Team 44?<<update/correction> >>> nah .... semi-EU preservation.  The Merkels have it.  SHe is either getting boxed in or the Fed is preparing for the ECB push by laying the necessary liquidity, collateral, risk neuterization.


Fri, 08/03/2012 - 13:46 | 2676318 slewie the pi-rat
slewie the pi-rat's picture

probly, unless prez0 puts bilary in as VP just to save a few hundred million lives here & there...

but yes, the risk0n/0ff is just a-flippin awaaaay;  many chartists are seeing the "pennants & headfakes" and discounting the headfakes too much, perhaps?

this shld break eaither way sooner than later, chart-wize, but that in irself may be a head-fake since i still think staahbiiiileeetaaay is the most prized asset in the entire system, still, and from what i can see if TPTB want this in a 4-500 pt range till 2013, they gonna be able2gitit

maybe the oscillations will shake the joystick loose from their hands, but then again...  maybe they won't...  they can withdraw liquidity (and may need to do so looking at oil & wheat) but they want to punish angela politically here on the way back down if she doesn't budge (which she won't, yet)

marioECB and angela:  one black eye each?   he'd take that as a  huige W, imo

Fri, 08/03/2012 - 13:37 | 2676297 LawsofPhysics
LawsofPhysics's picture

Could someone please comment on the Bundesbank TARGET 2 going exponential?  This can't be good, can it?

Fri, 08/03/2012 - 13:59 | 2676348 slewie the pi-rat
slewie the pi-rat's picture

no, but it has been happening for a while and isn't "impact news" any more?

but it IS another shape-shift of debt-accounting;  enronesque, to me, in that it is off-BalSheet for the ECB and seems to indicate a "balance of payments" type trade accounting paper-up which can mean anything depending on whether the finiMini is up on one wheel, or completely airborne... ? ...

fiat.bullshit.IOUs. =   unGoodly can-kicking

but:  the checks are in the mail, BiCheZ!

Fri, 08/03/2012 - 14:08 | 2676365 LawsofPhysics
LawsofPhysics's picture

I guess it is fine so long as no-one has a claim on all that "wealth".

Fri, 08/03/2012 - 14:27 | 2676417 slewie the pi-rat
slewie the pi-rat's picture

in slewienomics, counterpaties are made to be vaporized

party on, BiCheZ!

Fri, 08/03/2012 - 20:45 | 2677293 JeffB
Fri, 08/03/2012 - 12:33 | 2676126 Raynja
Raynja's picture

Once helicopter ben makes trillions the new millions they will need volkner 2.0, who will jack interest rates up. Floaters will protect the wealth of insiders. Will not be surprised if floaters aren't available to everyone.

Fri, 08/03/2012 - 12:11 | 2676054 DavidC
DavidC's picture

In the meantime, it looks as though Bob Janjuah wasn't far off with his prediction of S&P 1400 before September!


Fri, 08/03/2012 - 12:10 | 2676059 francis_sawyer
francis_sawyer's picture


Fri, 08/03/2012 - 12:19 | 2676094 slaughterer
slaughterer's picture

Forget 1450.  I hear the Fed will only launch QE3 above 1550. 

Fri, 08/03/2012 - 12:48 | 2676168 Hype Alert
Hype Alert's picture

Lift assist rockets.

Fri, 08/03/2012 - 12:12 | 2676064 fonzannoon
fonzannoon's picture

When the fed does these repo's is that money created? Is that in essence QE? Because what is being missed by the WSJ is the fact that Dr. Engali and Kito have a ham sandwich bet. Up till this article I was sure Kito would be enjoying that sandwich but if the ruling is that this money is being created then Dr. Engali at least has the right to ask for a ruling here.


Fri, 08/03/2012 - 12:47 | 2676165 Dr. Engali
Dr. Engali's picture

That is a means in which I might lose my bet. A back door QE without an outright announcement. Something is levitating these markets, and it can't be new money because there isn't any. Part time employees don't get 401ks, and full time employees are shrinking. My guess is that the shorts are getting creamed again because they are too quick to jump on every down tick thinking " this is the big one" only to have Ben rape them again. Sooner or later they will catch on.

Fri, 08/03/2012 - 13:06 | 2676214 Assetman
Assetman's picture

I see what you mean, but I don't quite interpret the Fed's repo action that way.

I think what it does mean is that the Fed is preparing to take QE totally off the table-- at least until after the elections.

The difference between pure QE and a repo operation is duration. A repo operation will provide a boost of liquidity when needed, but is intended to be there for a short period of time... say 30-days.

If one were planning to shelve QE for a longer period, you would want some temporary form of liquidity to replace it, hence the repo operation.  It's actually prudent planning by the Fed.

I see the repo program being used on an "as only urgently needed" basis... but it will probably be used if things go haywire in the markets.


Fri, 08/03/2012 - 13:11 | 2676233 fonzannoon
fonzannoon's picture

I have been feeding this article to a buddy of mine who is in the biz. His response was "if anything this is a positive" I asked him why it's positive and he said "because it shows the fed is helping to resolve the issue (collateral and counter party risk) and not letting it fester".

I did not reply. He wrote back "this market is so dysfunctional you have no idea.

That's that.

Fri, 08/03/2012 - 13:26 | 2676275 viahj
viahj's picture

What happens in 30 days when they need to reverse it?

Fri, 08/03/2012 - 13:38 | 2676303 LawsofPhysics
LawsofPhysics's picture

Your 401k is rehypothicated.

Fri, 08/03/2012 - 13:45 | 2676317 Derp2012
Derp2012's picture

3 days.  the repo matures on monday

Fri, 08/03/2012 - 15:47 | 2676633 emersonreturn
emersonreturn's picture

assestman, is it possible 'as only urgently needed' could be daily?  it seems a small edge nearer to allowing the banks to do away with bother of middleman ben?

Fri, 08/03/2012 - 16:23 | 2676766 Assetman
Assetman's picture

Well... anything is possible. 

But if it came to that, the banks are going to lean so heavily on Middleman Ben that their whole existence rests on it.  You know, like 2008.

Fri, 08/03/2012 - 19:07 | 2677147 Excursionist
Excursionist's picture

I don't get something that ZH posits as a given:  Fed creates excess reserves => banks monetize excess reserves => banks use money to buy risk assets like ES and SPX, allegedly "levitating" the indices.

It's the last step in this chain that doesn't make sense.  Though banks have repeatedly validated the old addage about stupidity being infinite, I can't fathom why a bank would monolithically plow newly created money into something like SPX only to incur equity market volatility and basically take on the risk of a long-only mutual fund.  Doesn't add up.

Fri, 08/03/2012 - 14:09 | 2676368 kito
kito's picture

However, as the NFP report today indicated, one can kiss expectations for a LSAP-based, or unsterilized, QE in September goodbye.

doc, i hope you are honorable enough to pony up.....................

Fri, 08/03/2012 - 14:22 | 2676398 kito
kito's picture

ha ha ha, there is no way that repos are qes.... repos are not lsaps......there was no fine print to this bet..........

Fri, 08/03/2012 - 14:27 | 2676418 fonzannoon
fonzannoon's picture

Yeah I think Dr. Engali would agree with that.

Fri, 08/03/2012 - 12:14 | 2676066 mammoth mo
mammoth mo's picture


So what you are saying is the banker of the Monopoly game called the market - ran out of 500 dollar bills and has just started writing notes on pieces of paper to purchase stocks and so far it's up 250.

Fri, 08/03/2012 - 12:14 | 2676073 rumblefish
rumblefish's picture

what is driving this market up? eff me.

Fri, 08/03/2012 - 13:38 | 2676301 Brother Sebastian
Brother Sebastian's picture

Don't worry, market is like a virgin.  And virginity is like a bubble.  One prick, all gone.

Fri, 08/03/2012 - 12:14 | 2676075 fonzannoon
fonzannoon's picture

Not as important as the sandwich but if QE is not happening and banks have no fresh capital to keep buying treasuries then rates have to rise right? This is what Gross was talking about at the end of QE2 (and then got abused).

Fri, 08/03/2012 - 17:21 | 2676887 Panafrican Funk...
Panafrican Funktron Robot's picture

"Not as important as the sandwich but if QE is not happening and banks have no fresh capital to keep buying treasuries then rates have to rise right?"

That seems to be a reasonable conclusion, but there's just no way of really knowing what the fuck the Fed is going to do here.  They can increase their balance sheet at will.  Or crush it mercilessly.  If a trade is absolutely necessary here, I'd probably do a short condor on the TLT October 119/120/130/131, pays 70/risk 30 per 1 trade.

Fri, 08/03/2012 - 12:15 | 2676078 khakuda
khakuda's picture

I'm Ben Bernanke and I have a problem.  I'm addicted to blowing bubbles by creating excess credit.

Like an alcoholic or sexoholic, I just can't stop myself.  My goal is to get the stock market back to bubble prices so it can collapse on the next guy's watch because I don't give a fuck. I've never know a price that shouldn't be higher.

l'll force everyone out of cash and bonds and into stocks and commodities until we're all stupid giddy again and take a bow cause I'm a frreakin' genius.

Fri, 08/03/2012 - 12:16 | 2676080 HD
HD's picture

So exactly how much does the Fed have to print just to stop the banks from imploding - let alone fuel another leg higher?

Fri, 08/03/2012 - 12:21 | 2676102 illyia
illyia's picture

Over time, infinity. And, that is the point of owning gold.

Fri, 08/03/2012 - 12:26 | 2676116 mammoth mo
mammoth mo's picture


That number keeps changing to the high side.  What it was yesteday is not what it will be today and tomorrow it will be more.

It's not only equities that must be bought but high bonds in Spain and Italy just to keep the systems teether tooter from crashing.

Lucky for them they have been able to garner a ton of slush from ETF investors that keep wondering what the hell is happening to the VIX - market goes down they lose - market goes up they lose - market stays sideways they lose.

But that is literally barely .03% of what is needed.  So I would start with about 1/2 trillion and keep adding.

No evidence at all that this number is correct - I am sort of like the BLS.



Fri, 08/03/2012 - 12:16 | 2676084 SheepDog-One
SheepDog-One's picture

Double secret QE free monies, for banks only.

Fri, 08/03/2012 - 12:18 | 2676086 csmith
csmith's picture

One could look at this another way. They've put away the "bazooka" (QE) for now, because all they feel they need to stabilize the system is the "tommy gun" (repo).

Fri, 08/03/2012 - 12:23 | 2676098 Jlmadyson
Jlmadyson's picture

September 3rd 2007

Richard S. Fuld( in response to hopefully the Fed will be accommodating and helpful):

"The Bros Always Win".

We haven't been here before have we......

Fri, 08/03/2012 - 12:21 | 2676099 fonzannoon
fonzannoon's picture

Look at the bank stocks today. They are obviously suffering with this news that...wait....what?

Fri, 08/03/2012 - 12:22 | 2676104 Caviar Emptor
Caviar Emptor's picture

Once again, as the real economy sags at home and all over the world, the paper economy gets a shot in the arm.

Cronies will rejoice. Meanwhile the very real ongoing decline in the economic engine of growth will forge ahead.

We will wake up one day soon to find all places of business closed, with the Dow at record levels. That would spell total success through the eyes of those who, well, want to owne you

Fri, 08/03/2012 - 12:24 | 2676109 fonzannoon
fonzannoon's picture

Caviar then why don't we borrow as much money as we can and leverage ourselves out the ass and buy the market? It seems that would be the only way to hold on.

Fri, 08/03/2012 - 12:36 | 2676136 Ned Zeppelin
Ned Zeppelin's picture

That is how the street 3 card monte game is played, you're standing outside the circle watching the players win and lose, and you know where that $20 bill is, now don't you? Don't You Want To Play Too, Mister?

Fri, 08/03/2012 - 17:14 | 2676869 mammoth mo
mammoth mo's picture


Oddly enough,

You notice that the police only stop the game if someone other than the dealer or one of his shills wins more than once.



Fri, 08/03/2012 - 21:57 | 2677403 Hulk
Hulk's picture

So true dat...

Sat, 08/04/2012 - 12:35 | 2678084 MrSteve
MrSteve's picture

The Weimar reichmark and German stock market peaked together and then both went down together. Inflated currency inflates assets denominated in that currency (see current price of gold in dollars). It is when every asset has no buyers that gold becomes the last man standing, the only asset with enduring value even if it has to be bartered in trade. All currency revaluations are done in light of their value to gold. That is the history of civilization.

John Keegan, famous war historian died yesterday. He commented that war is part of civilization. So is the development of the alphabet and a currency system. The earliest written records were accounting for taxes and loans. Good as gold has been true forever and is as old as the hills, literally. Of course, past performance of 6000 years is no guarantee of future performance, or is it?

Fri, 08/03/2012 - 12:23 | 2676107 illyia
illyia's picture

I guess this is what Ty Andros meant by a "crack up boom"...

It is just slow motion... but in geologic time - poof!

Fri, 08/03/2012 - 12:24 | 2676111 DavidC
DavidC's picture

Why do I remain convinced that these are becoming the acts of more and more desperate people?


Fri, 08/03/2012 - 12:25 | 2676114 Hype Alert
Hype Alert's picture

What is more, it said, "these operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future."


Say one thing, do another.  Where have we seen this before?

Fri, 08/03/2012 - 12:29 | 2676121 Shizzmoney
Shizzmoney's picture

The bankers’ business plan is to create credit up to the point where all “free” disposable revenue is pledged to pay interest. The aim is not to help economies grow or fund new capital formation. That is incidental to the aim of capitalizing rent, profit and disposable personal income into bank loans. The problem is that this is destructive of the economy at large, and hence of the banking system’s own viability. Financially siphoning-off of the surplus leads to foreclosures on property, including privatization of public enterprises and infrastructure on credit, enabling their purchasers to avoid paying taxes, thanks to the tax-deductibility of interest payments noted above. Hitherto free or subsidized services are to be saddled with rent-extracting tollbooths.

Fri, 08/03/2012 - 13:49 | 2676326 RichardP
RichardP's picture

From here:

Hudson states "quantitative easing" and "restoring stability" are euphemisms for the U.S. finance sector using the Federal Reserve and dollar dominance to engage in financial aggression to a degree that previously required military conquest.

Fri, 08/03/2012 - 12:29 | 2676122 DavidC
DavidC's picture

Max has a lovely two minute clip here!


Fri, 08/03/2012 - 12:30 | 2676124 Milton Waddams
Milton Waddams's picture

I interpret this as a signal that any additional QE in the form of LSAP is probably not gonna happen.  At Jackson Hole Ben will probably start chirping about the Fed's goal of returning to 'normal' / traditional monetary policy BUT in the event of a systemic shock etc., the Fed is prepared to flood banks with as much cash as they can take in order to acquire assets at distressed prices, er, stabalize the market.

Fri, 08/03/2012 - 12:33 | 2676128 fonzannoon
fonzannoon's picture

Twist seems to be extremely underrated to QE. Twist allows them to keep the long end manipulated low. The minute they stop buying the long end we will see that no one will. Especially with the S&P at 1450.

Fri, 08/03/2012 - 12:34 | 2676130 RobotTrader
RobotTrader's picture

Morgan Stanley now up 7%.

Bears must be baffled and bewildered

Fri, 08/03/2012 - 12:46 | 2676137 fonzannoon
fonzannoon's picture

Yeah good day for Draghi's kid. I was pulling for him this week with everything that his family has been through.

Fri, 08/03/2012 - 13:17 | 2676250 DavidC
DavidC's picture



Fri, 08/03/2012 - 12:38 | 2676141 Ned Zeppelin
Ned Zeppelin's picture

I was wondering when you'd show up to revel in this Bullishness in the market!

I know, I know, don't fight the Fed. 

Fri, 08/03/2012 - 12:39 | 2676144 Jlmadyson
Jlmadyson's picture

Oh certain of that. Not so much when it cracks however.

Fri, 08/03/2012 - 12:40 | 2676146 adr
adr's picture

No, there is actually no such thing as a bear. There is la la fantasy unicorns that think they are bulls and realists that actually live in the real world.

La la fantasy unicorns think a being can live without a functioning brain, and somehow you don't need to eat to survive. You can somehow live off fairy farts or something similar.

You can ignore reality for as long as you want. But at some point reality bites back. The longer you ignore it, the harder it hits you in the face.

The unicorns are ignoring reality to the point that the hit will obliterate them. There won't be anything left and the sad part is the realists who were telling the truth aren't going to survive either, thanks to the bomb the unicorns built.

Fri, 08/03/2012 - 12:35 | 2676131 adr
adr's picture

So this is bullish for Facebook? Really, a 10% move up just because the stock market is going up. Is there any actual news of business at Facebook that warrants a 10% increase in a few hours?

Individual stocks don't matter I guess, only "THE MARKET". A fucking jumble of symbols with prices attached to them has somehow gained consciousness.


Pull the god damned plug already.

Fri, 08/03/2012 - 13:19 | 2676255 DavidC
DavidC's picture

I'm more intrigued by the way Apple has moved up since its disappointing results, now nearly back at $620.


Fri, 08/03/2012 - 12:40 | 2676145 JR
JR's picture

The collapse of economies is going to collapse the financial sectors.

Fri, 08/03/2012 - 12:40 | 2676147 CheapBastard
CheapBastard's picture

Shiller identifies new housing Bubble formation in SF and Phoenix even as other areas continue to deflate:


The RE mess will never end it seems.

Fri, 08/03/2012 - 12:40 | 2676148 fonzannoon
fonzannoon's picture

Someone who knows more than I do just told me the problem is that there is not enough repo counterparts. What the hell does all this mean?

Fri, 08/03/2012 - 12:44 | 2676158 Jlmadyson
Jlmadyson's picture

Nothing good bro I can tell you that!

As you were!

Fri, 08/03/2012 - 14:47 | 2676470 davepowers
davepowers's picture

To get the Fed's cash via repo, described in this article as more 'reserves', the bank must put up some asset which it agrees to 'repo' or repurchase at the end of the repo period.

What do they have that they can put up?

I recently ran across an article about Goldman Sach's participation in the repo market (shadow banking system, not Fed repo operations). The gist was that Goldman overengages in the repo market beyond their cash needs, so that if liquidity problems cause repo operations to freeze up, Goldman will have a margin for error in accessing cash. Also, and this was ominous, Goldman also think they can simply swap out assets backing up their own repos. In other words, they plan to use 'bait and switch' for the assets they swap for cash via repos, substituting safer US agency/treasury paper for example with something else, likely lesser quality. This, of course, sounds exactly the sort of scam one would expect from Goldman, so it's yet another risk of engaging in repos with these guys.

Presumably, the FED's own repo operations will be more tightly controlled in order to protect the FED, but running a tight repo ship like that makes it harder to engage in liquidity enhancement via repo since the truly insolvent banks lack viable assets to repo out for cash.


Fri, 08/03/2012 - 17:45 | 2676925 Panafrican Funk...
Panafrican Funktron Robot's picture

"Presumably, the FED's own repo operations will be more tightly controlled in order to protect the FED"

That is a probably inaccurate presumption.  Think through all the absurd garbage on the Fed balance sheet that's marked2fantasy, in exchange for the most liquid and safe non-gold asset that they could give, that being the USD?  Why wouldn't they accept more garbage in exchange for high quality assets?  It would make "the system" safer, because the Fed can't actually go BK.

Sat, 08/04/2012 - 01:07 | 2677559 davepowers
davepowers's picture

Well, we, or at least me, doesn't know what the quality is of the vast hoard of assets the Fed bought up. They won't tell us. Maybe you have better info.

Maybe there is a fair degree of garbage, but the FED can't be immune from a health sense of self-preservation. So i'm guessing they took advantage of their ultimate insider position to make sure that they sucked in the best assets available back when they were QE'ing. 

But to continue that course requires accepting the lower level of crud remaining on the banks' balance sheets. 

This may be one of the reasons Bernanke has been so slow to engage in more asset buys. Self-preservation is trumping the thrill of playing master of the universe.

And whatever happens, the FED will no doubt be better prepared to protect itself in repo operations than the countless pension funds, state investment pools and private investors' funds that serve as counterparties to the banks' private repo deals. Those will be the patsies at the poker table.

Fri, 08/03/2012 - 12:41 | 2676151 Derp2012
Derp2012's picture

I like how they can't wait until monday to get their 210mm "test" repo $.  Nothing to see here, carry on!


Fri, 08/03/2012 - 12:42 | 2676152 Winston Churchill
Winston Churchill's picture

Or does it mean the shadow banking system no longer trusts the

banks collateral in the repo market , and will not lend into it.

That would be the same as 2008/9.

Happy days are here again.

Fri, 08/03/2012 - 13:01 | 2676163 Jlmadyson
Jlmadyson's picture

Ding! Ding! Ding! Ding!

Winna of a chicken dinner!

Now the question of the day if it were a real indicator anymore where should this show up first?

Ok I'll give ya hint it starts with Lie(s).

Fri, 08/03/2012 - 13:01 | 2676193 Winston Churchill
Winston Churchill's picture

Combine the other story on Swissie bond yields,and I think you have it.

Fri, 08/03/2012 - 13:05 | 2676211 Haager
Haager's picture

Me. me. me...

Its Liebor, sir, rate needs to be much higher.

Fri, 08/03/2012 - 13:15 | 2676243 Jlmadyson
Jlmadyson's picture

Yes Sir!

The needle that nearly broke the camels back in 08 except they changed the game.

Fast learner you are.

Fri, 08/03/2012 - 17:51 | 2676936 hyper-critical
hyper-critical's picture

I think that's exactly what's going on.

ICAP announced today that it is discontinuing its daily survey of NY unsecured funding rates (New York Funding Rate) because of insufficient submissions. This is the survey they launched in 2008 as an alternative to LIBOR when it really started to act like bullshit. Curious...

Fri, 08/03/2012 - 19:49 | 2677217 Jlmadyson
Jlmadyson's picture

Deeper into the rabbit hole we go. Curious indeed.

Fri, 08/03/2012 - 12:44 | 2676157 SgtShaftoe
SgtShaftoe's picture

Is this QE3??? bitchez...

Fri, 08/03/2012 - 13:34 | 2676292 viahj
viahj's picture

think of it as a morphine drip to banks.  keeps the "pain" away.

Fri, 08/03/2012 - 12:47 | 2676164 Yen Cross
Yen Cross's picture

 The dow gives 1/2 back before the close.

Vote up!

Vote down!

Fri, 08/03/2012 - 12:47 | 2676166 chistletoe
chistletoe's picture

Why would treassury want to issue floaters?


For a couple of years now, the doubters and the rebels and the other social misfits of the investing world

have dutifully read every word of zero hedge and

dilligently followed their advice to short the shit out of every opportunity.


These days, some of them are running just a little low on nerve.


So, just for variety, the Fed is offering a new way for them to lose the shirts off their backs .....

scratch that, a new way for them to invest and hope for the best .....

Fri, 08/03/2012 - 12:50 | 2676178 ExhiledInMass
ExhiledInMass's picture

WTFFFF... while I can't uderstand a good portion of the technical language it's not too tough to get the jist of this article.

It makes me think I'm living in an alternate universe. Nothing good will seem to come from this yet the market is screaming higher.

And to think of all the ignorant (I don't mean that in a negative manner) masses.

Fri, 08/03/2012 - 12:53 | 2676183 mewenz
mewenz's picture

great site, honest question, not trying to get into flame war...

If the fed, treasury and the banks have been able to float the market pretty much since 87 up until 2008, with a definite few hiccups, but ultimately back onward and upward, using less then 100b or 0.1 trillion in reserves, and they now have over 1.6 trillion to play with, albeit down from an early 2010 peak of over 1.7 trillion, then is it not possible that the extra 1.5 trillion + added in stock, can be manipulated in some way to be a source of future flow?  For example, perhaps the Fed just continues to accept lower and lower forms of junk as a form of collateral in it's various and perhaps future shell game operations over time?  Could that then free up reserves to enter the ponzi sausage factory of shadow banking for more endless hypothecation and the like?

Fri, 08/03/2012 - 13:25 | 2676267 1Inthebeginning
1Inthebeginning's picture

Off the cuff.  The USA had a stronger manufacturing base.  Now we have a service economy, whatever that means.  The production in the USA is now high tech and weapons.  The Greenspan put, funneled money into real estate through cheap loans.  This supported our economy.  The mortgages were bundled and sold as AAA all over the world.  Workers are losing competitiveness because of increases in technology and outsourcing.  Therefore USA businesses are not able to support this bubble.  The purpose of a loan is to be able to go out and start a profitable business and then pay off the loan.  What is happening now is money is being printed to simply inflate the market so that the American people don't realize that their retirement savings are effectively gone.  I suspect that this inflationary printing is follow an exponential curve.  Flat, gentle curve, take off on the asymptote.  

How long can this go on.  I don't know.  I do know that I don't want to be playing this silly game when it blows up, and that a lot of people are going to be very financially harmed when it does.  From what I have read exponential functions can fool people because of their gentle rise and then catch people very unaware when they explode upward.  

Constructive analysis always welcome.

Fri, 08/03/2012 - 13:38 | 2676300 1Inthebeginning
1Inthebeginning's picture

Btw Ken Fisher in his book the only three questions that count makes that point that historically markets have moved higher.  He cites that markets have moved higher through wars, famines, plagues, financial disasters...ect.  Looks like Fisher has been correct so far.

Fri, 08/03/2012 - 14:21 | 2676395 mewenz
mewenz's picture

Interesting 1,

I guess if the continued expansion of the exponential function is / was required just to maintain the bludgeoned credit system, then continued flow would be necessary. 

I'm just struggling if the needs are that extreme yet.  One (of multiple) of my thoughts is that this overwhelming, over the top beyond massive monetization by bernanke, which has increased reserves by 1500%+ over their long term averages was perhaps just his way of "refiliing the gas tank" so to speak.

Volker left Ben's hero Greenspan with plenty in the tank to plunder over time in terms of high interest rates, which could be lowered to juice asset prices amongst other things.  Now perhaps Ben feels the tank is refilled, as he can only do so much w/ interest rates.  Now over time, he just has to slowly but surely find ways to baffle w/ bs while behind the scenes he comes up with ways to hoover up bad assets and / or bloat their carcass valuations, in some way to actually enable reserve drain, not prevent it.  Drained reserves then are levered and then etc.

Fri, 08/03/2012 - 15:01 | 2676514 1Inthebeginning
1Inthebeginning's picture

I think that the largest banks get the money first so they get to invest it in what they want first in contrast to having a job.  If you look to the left you will see "Zero Hedge Reads."  Chris Martenson's blog he discussed the exponential expansion of the money supply and debt.  

The larger you become the harder it is to make money because you become the market.  In order to make money you need a big event like a war or a government in your pocket.  So yeah, their desperate.

Volker raised interest rates and drove businesses off shore.  Not sure why he did that.  Inflation would have taken care of itself.

The more money they print and therefore the more inflation (different from general rise in prices) the more productive the working class needs to be to maintain the same standard of  living.  This is great if you are the ownership class because it means cheaper labor. (I'm still a capitalist.)  Printing money benefits the owners as long as people don't figure it out.  This is not a random big picture.  It is a very smart big picture that funnels wealth to the top. 

However, if I provide for my own needs and the needs of my community then I become the ownership class.  The negative would be loss of the advantages of the division of labor.  However, the system that I am putting in place is similar to a passive income and is stable.

Fri, 08/03/2012 - 15:30 | 2676588 mewenz
mewenz's picture

see your point, hard part is just figuring out how far down the curve we are and if we really actually require exponential growth now just to maintain.

The point on "larget banks get it first" to me is one of the largest poisons to the real economy, of which I don't think is the true primary target of central bank policy anyways (of course the host can't die as so will the parasite, but the health of the parasite, whatever the intentions, is the primary target of central bank policy)

Not that large is in itself evil, although as you point out, it actually can make it much more difficult then the parasite realizes.

btw, don't believe that all large banks are inherently evil either, although I do call them parasites.  It's just in their current incarnation, coupled with an effectively entirely captured legislative branch, the end result of "the largest banks get it" is overwhelming and ultimately destructive misallocation of captial.

Fri, 08/03/2012 - 16:00 | 2676689 mewenz
mewenz's picture

sorry to double post, but lot of interesting stuff there 1 and can't help myself.  My sort of summarized thoughts, overusing an "overwhelming" theme...

1)  CB's are overwhelmingly the most powerful entity in the current world environment (various reasons discussed on this site elsewhere)

2)  CB's primary mission is "health of banking system", and even secondarily, in many respects actually believe that the health of the real, productive, value-added economy requires a heavy handed “banking system” to orchestrate it.

3)  Banking system overwhelmingly choked and dominated by large banks

4)  Large banks in current incarnation are on net overwhelmingly harmful to the function of effective capital allocation

so what is net result of that though.  As we've been this way at least since 1999 (and in many respects well before that as Greenspan began his dirty work back in the 1980’s and ultimately found the right partners to get him over the top on the other side of the aisle in the 1990’s).

...Are we in the parabolic phase of destruction?

...or are we just somewhere well midstream in the path of destruction, with the ability to change / correct course to at least avert a complete generational disaster

Way, way back to the original issue (with some interesting points on the way by you 1)  on reserve drain vs. accumulation as an indicator of where we are, I’m just asking is it possible that rather then being a key flash point telling us we have reached a certain critical point, perhaps an alternate / additional explanation is that reserves are just another dirty tool in the CB playbook, to be used to replace a tool all used up (interest rates).

Fri, 08/03/2012 - 17:57 | 2676954 Panafrican Funk...
Panafrican Funktron Robot's picture

"perhaps an alternate / additional explanation is that reserves are just another dirty tool in the CB playbook"

Yes.  It was used last go around and will continue to be used as needed.  This latest "test" repo was simply a reminder that the system, at least in aggregate, nominally indestructible, even if it does seem to always swallow the lessers within it's body structure.

The only real threat?  The loss of confidence.  I'm not holding my breath just yet.

Fri, 08/03/2012 - 12:56 | 2676186 orangedrinkandchips
orangedrinkandchips's picture

Much like a shark....has to move to live...flow of water in and out....

Fri, 08/03/2012 - 12:57 | 2676188 RichardENixon
RichardENixon's picture

Cue elderly Dick Cavett era Groucho: Back in my day we had what was called a circle jerk. What we would do is, we would sit in a circle, and then we would jerk off. And we called this a circle jerk.

Fri, 08/03/2012 - 12:58 | 2676189 Meesohaawnee
Meesohaawnee's picture

on a funny note. if anyone ever wondered why YHOO has become a clownshow of a company and totally irrelevant. They actual have on their main page "former porn star Jenna Jamison supports romney" now really marrisa missy.. if dont want your joke of a company to go thru a total death spiral id get rid of headlines that cater to IQs of 2. They dont have the ad dollars you so desire. What a complete embarrasment YHOO has become. shocking.

Fri, 08/03/2012 - 13:27 | 2676244 the not so migh...
the not so mighty maximiza's picture

Drugged up sex feind


She has talent though, 5 guys all at once, she did not even break a sweat.

Fri, 08/03/2012 - 13:36 | 2676295 haskelslocal
haskelslocal's picture

Only on your Yahoo main page buddy. You do know your internet activity is used to create personalized content, right? Maybe you're working for the SEC.



Fri, 08/03/2012 - 12:59 | 2676191 dragoneyes74
dragoneyes74's picture

I agree with everything you've said, ZH.  Fundamentally weak jobs report, even if the headline reads BUY.  Good chance of no QE3 until after the election or next year IF Europe can hang in there.  We'll see about that Greek deadline the 22nd(ish?) and the German Constitutional Court ruling and pretty much anytime Merkel opens her mouth.  I'm thinking this isn't a trend reveral, but another irrational short-covering spike, although, seemingly with the potential for some strength until the realization that Germany is not going all-in and QE3 is not coming unless the markets tank.  

If the dollar doesn't rally late it's looking to lose its 50-day (based on what exactly?  Jawboning and weak reports?).  I suppose it's possible for the Euro to make it all the way up to 1.28 if it can clear 1.2420.  We'll see.   Probably needs to at least pull back some first, though.  Someone beam the Merkel light into the sky.   

Fri, 08/03/2012 - 13:04 | 2676206 Centurion9.41
Centurion9.41's picture

$KCG ?

Fri, 08/03/2012 - 13:39 | 2676215 Goldfinger
Goldfinger's picture

Makes one wonder where did Knight get their credit line overnight..

It's all fun and games, untill you realize TDAmeritrade is using them for forex/futures. Where's your $CASH


KCG - Knight Capital Group Inc. (NYSE)

3.24 +0.66‎ (25.58%‎)
Fri, 08/03/2012 - 13:14 | 2676240 Sigep0612
Sigep0612's picture

"I expect there will be some failure but....I don't anticipate any serious problems of that sort among large international banks."   -Ben Bernanke, Fed Chairman, Feb 2008.

In Sept 2008, Washington Mutual became the largest financial institution in US history to fail.  Citigroup also needed an additional $30B rescue in Nov 2008. 

Fri, 08/03/2012 - 13:19 | 2676257 ObungaBoy
ObungaBoy's picture



Fri, 08/03/2012 - 13:25 | 2676270 ginunn
ginunn's picture

The author seems to have a poor grasp of open market operations (OMOs). Of the 30 RRPs in the last 3+ years, ony 8 had a term of more than 3 days. The longest were 2 at 8 days. The only one currently in place will expire Monday. The largest was for 2.91 billion. Most were for a couple of hundred million. These are TEMPORARY operations which the Fed has been conducting for decades. Temporary operations are for day to day adjustments that have to be made in the money supply. It's the PERMANENT OMOs that get added to the Fed's bsalance sheet.

The whole premise of constant (cumulative) infusion via TOMOS is a false premise. After Monday, the cash that those 30 RRPs removed from the system has been put back in. The same for all those RP of the past. The money they temporarily added to the system has all been removed.

A repurchase agreement is what it says. One party puts up collateral and the other party advances cash. At the end of the agreed upon term, the operation is reversed. Incidently, I seem to recall that the maximum term allowed for a temporary RP is 62 days.

Where the action on the Fed's balance sheet is seems to be between the Treasury's account and the dealers reserve accounts. In principal, a dealer simply has to withdraw money from his reserve account as cash. The rreserve amount which is a liability on the Fed's balance sheet would simply move to the cash in circulation line under liabilties.

Fri, 08/03/2012 - 13:33 | 2676289 haskelslocal
haskelslocal's picture

I made a post and you answered 80% of my question concurrently. Thanks!

Fri, 08/03/2012 - 16:45 | 2676805 mewenz
mewenz's picture

Maybe the duration issue (how long is it out there) is perhaps a misplaced area of focus?

I think one of the perhaps less advertised, uses of OMO's thru the years has been to serve as a catalyst for asset price manipulation (I'm aware there are other purposes).  The Fed can't lift / fix markets all by themselves.  Once the fire is lit or the fall is arrested, the idea is to let momentum / the lemons / the pd's / the minions do the leg work.

So bringing it back in as early as possible in this case is helpful to the cause.  Kind of like reusable bait!

btw gin, interesting point on the treasury / reserve dealer account as a place to look for action.

Fri, 08/03/2012 - 13:29 | 2676273 haskelslocal
haskelslocal's picture

From 12/12/08 to today, how much liquidity was "Re-reaped" (removed) from the banks and put back to The Fed?

Being The Fed is now puchasing T-bills or mortgages from banks and has offered up $221M, what % is that of the total removed since 12/12/08?

The underlying question is there is record amounts of M2 and apparant liquidity outstanding. If The Fed has been removing some of it over the past 3 years, than the whole RRP must have been insignificant at best. Seems like billions was dumped in, millions were removed and now it's back to putting millions to maybe billions (depending on the schedule) back in.

What am I missing?


Fri, 08/03/2012 - 13:28 | 2676278 Quinvarius
Quinvarius's picture

One way or the other qe in all but name along with printing will continur. Deflationists just do not understand the printing is never voluntary anywhere.

Fri, 08/03/2012 - 13:31 | 2676284 bugs_
bugs_'s picture

and defaulting is not voluntary either

Fri, 08/03/2012 - 13:46 | 2676320 orangegeek
orangegeek's picture

Dow weekly shows severe drops followed by incremental moves up that are painful to watch/trade - this has been occuring since 2010.


Not a sign of strength.

Fri, 08/03/2012 - 13:51 | 2676328 bankonthebust
bankonthebust's picture

Articles like this make me so happy. One step closer...

Fri, 08/03/2012 - 13:54 | 2676339 j8h9
j8h9's picture

Right and the US market is up hundreds of points today on this bad news. The sky is falling but apparently Wall St didn't get the memo. SPanish bond yields are back down below 7%... why? Spain is about to go bankrupt every day for the last three months. It never happens.

Fri, 08/03/2012 - 15:30 | 2676589 1Inthebeginning
1Inthebeginning's picture

funny vid

Do NOT follow this link or you will be banned from the site!