Last week we explained [4]why while endless promises of Fed intervention may be enough to confuse the market and force endless rounds of short covering as weak hands are flushed out of positions under threat (but never action) of central planning, banks are no longer in a position to delay indefinitely the moment they have all been waiting for: a $500+ billion reserve injection which will allow them to go hog wild in investing in risk assets or plug capital shortfalls (off the books of course), and otherwise continue their lives in a ZIRP environment which makes net interest margin existence impossible. We also showed that for the first time after nearly 4 years, the Fed conducted a regular (not reverse) repo last Friday. As we explained, regular repos are liquidity injecting, and while the Fed may promise these are merely test runs, everyone knows they are anything but, and are merely a telegraphing to the banks of what is in store. Today, the day after the last repo expired, we just got a new 3 day repo, only not for $210 million this time, but one for $600 million, including not only Treasury, but also Agency and MBS securities. The result: S&P above 1400 for the first time in months.
From the NY Fed: [5]
[6]
And this is how the history of the Fed's various repo operations has looked like in the past 4 years.
[7]
Sure enough, the S&P just went above 1400 like clockwork.
[8]