Federal Reserve launches QE3

[Winehole23]

“The resilience of the open-end fund sector may again be tested, this time amid rising interest rates and high economic uncertainty. Outflows from open-end bond funds have increased in recent months, and a sudden, adverse shock like a disorderly tightening of financial conditions could trigger further outflows and amplify stress in asset markets.”


Europe-domiciled funds reported €73 billion in net outflows to August, according to Morningstar data, excluding money market funds and funds of funds. Among the hardest hit (https://www.ft.com/content/259d68a0-a535-45ed-93b2-5874fbb2c4ec) were US bond group Pimco, Italian fund house Eurizon, UK manager Baillie Gifford, Insight Investment Management and Morgan Stanley Investment Management.

[Winehole23]

1578468607612583936

[Winehole23]

the system is working as designed, for those for whom it was designed

1578317364407373824

[Winehole23]

https://pbs.twimg.com/media/Feud9ZgXwAAt2Y0?format=jpg&name=900x900

https://www.federalreserve.gov/newsevents/speech/brainard20221010a.htm

[Winehole23]

The Bank of England sought again to stem a sharp sell-off in Britain's 2.1 trillion pound ($2.3 trillion) government bond markets on Tuesday, expanding its emergency buying to inflation-linked debt.
Citing a "material risk" to financial stability after pension firms were hit by the turmoil, the BoE split its programme to buy up to 10 billion pounds of British gilts each day to include up to 5 billion pounds of index-linked bonds.

The expansion of the purchase programme was the BoE's fifth attempt to quell market turmoil in just over two weeks, including verbal interventions, and marked another embarrassment for Prime Minister Liz Truss whose economic agenda last month sent investors heading for the exit.
https://www.reuters.com/markets/europe/bank-england-buy-inflation-linked-uk-gilts-2022-10-11/

[boutons_deux]

Credit Suisse and Deuthche Bank have both been caught and paying fines

A whislteblower exposed CS for helping American, 50K? Americans, evade taxes. IIRC, none of the 50K got perp walked, like some other tax evaders.

I noted at the time the Pres candidate Romney's tax records went back only to the year that CS got caught. did not include that years or earlier years.

[Winehole23]

Fed swap lines heating up

https://cms.zerohedge.com/s3/files/inline-images/CB%20swap%20ops.jpg?itok=9MSu3Jvg

[Winehole23]

BOE emergency support grows as instability starts to cascade.

So much for free markets and the genius of creative destruction.


The Bank will now widen the emergency programme it launched on 28 September, when days after the mini-budget, investors began demanding higher rates of interest on those bonds and government borrowing costs surged to worrying levels.




The turmoil has forced pension funds to sell bonds due to concerns over their solvency, and threatened to create a downward spiral in bond prices as more were offloaded which left some funds close to collapse.




It has also fed through to the mortgage market, where hundreds of products have been suspended due to concerns about how to price these long-term loans.


https://www.bbc.com/news/business-63211743

[Winehole23]

The remarkable thing this year isn't the drop in the S&P 500, but the strikingly bigger simultaneous drawdown in risk-off assets.


For months, traders, academics, and other analysts have fretted that the $23.7 trillion Treasurys market might be the source of the next financial crisis. Then last week, U.S. Treasury Secretary Janet Yellen acknowledged concerns about a potential breakdown in the trading of government debt and expressed worry about “a loss of adequate liquidity in the market.” Now, strategists at BofA Securities have identified a list of reasons why U.S. government bonds are exposed to the risk of “large scale forced selling or an external surprise” at a time when the bond market is in need of a reliable group of big buyers.

“We believe the UST market is fragile and potentially one shock away from functioning challenges” arising from either “large scale forced selling or an external surprise,” said BofA strategists Mark Cabana, Ralph Axel and Adarsh Sinha. “A UST breakdown is not our base case, but it is a building tail risk.”

In a note released Thursday, they said “we are unsure where this forced selling might come from,” though they have some ideas. The analysts said they see risks that could arise from mutual-fund outflows, the unwinding of positions held by hedge funds, and the deleveraging of risk-parity strategies that were put in place to help investors diversify risk across assets.

In addition, the events which could surprise bond investors include acute year-end funding stresses; a Democratic sweep of the midterm elections, which is not currently a consensus expectation; and even a shift in the Bank of Japan’s yield curve control policy, according to the BofA strategists.https://www.marketwatch.com/story/fragile-treasury-market-is-at-risk-of-large-scale-forced-selling-or-surprise-that-leads-to-breakdown-bofa-says-11666290995

[Winehole23]

#Fintwit is highly entertaining lately

https://pbs.twimg.com/media/FfddQq2WYAAZBcr?format=jpg&name=medium

1583103504574316544 (https://twitter.com/leadlagreport/status/1583103504574316544?s=20&t=QilxmkjKwF5u5UUh6XqOJg)

[Winehole23]

it's seldom good news when public officials give reassurance. announcing a backstop for money-market funds and open-end bond funds sounds alarming to me.

https://pbs.twimg.com/media/Ff2HP-3XoAAfEwn?format=jpg&name=small

[Winehole23]

what do you call it when a TBTF bank fails?


This is Credit Suisse’s fourth quarterly net loss in a row. So far this year, it has posted $5.94 billion of losses. Net revenue, at $3.8 billion, was up marginally on the last quarter but down 30% from Q3-2021. The value of its asset base has also shrunk drastically (https://ycharts.com/companies/CS/assets), from $937 billion in December 2020 to $707 billion today.

To steady the ship, the bank has presented a new strategic overhaul — its third in recent years. At the core of the overhaul is a plan to raise $4 billion of fresh capital. The good news for Credit Suisse is that it has already found a major backer — Saudi Arabia’s largest commercial bank, Saudi National Bank (SNB), which has pledged up to $1.52 billion of capital. That will give the SNB 9.9% of outstanding CS shares.

Majority controlled by the House of Saud, the SNB (not to be confused with the Swiss National Bank) has also expressed an interest (https://www.finews.com/news/english-news/54010-credit-suisse-becomes-part-of-saudi-crown-prince-vision) in participating in future capital measures of Credit Suisse to support the establishment of an independent investment bank in Saudi Arabia. If nothing else, SNB’s participation will make for interesting boardroom drama given the sovereign wealth fund of Qatar, a country that is locked in a diplomatic conflict (https://en.wikipedia.org/wiki/Qatar%E2%80%93Saudi_Arabia_diplomatic_conflict#:~: text=The%20Qatar%E2%80%93Saudi%20Arabia%20diplomat ic,the%20New%20Arab%20Cold%20War.) with Saudi Arabia, has (https://www.reuters.com/article/us-credit-suisse-gp-qia-idUKKBN2681P4) a 5% stake in the Swiss lender.

The question now is whether or now CS will be able to secure the remaining $2.5 billion. The capital raise is already going to dilute existing CS shareholders, many of whom are miffed at having already poured $12.2 billion of additional capital into the lender — more than its current market value — since 2015. That was one reason why CS’s shares plunged a whopping 18.6% yesterday — their biggest daily fall ever. Those shares are now down an eye-watering 57% so far this year and over 95% since 2008.
https://www.nakedcapitalism.com/2022/10/its-time-to-worry-about-the-health-of-another-too-big-to-fail-european-bank.html

[Winehole23]

https://pbs.twimg.com/media/FiiyO_cXoAEv7Kl?format=jpg&name=medium

1596719836729835526

[ElNono]

As long as inflation is under control and back to 2%... :tu

[Winehole23]

As long as inflation is under control and back to 2%... :tuwe've got a ways to go to get there, and no guarantee of a soft landing. also, no guarantee the Fed won't chicken out if the economy starts hurting. historically, we've seen double tops in inflation for just this reason.

[ElNono]

we've got a ways to go to get there, and no guarantee of a soft landing. also, no guarantee the Fed won't chicken out if the economy starts hurting. historically, we've seen double tops in inflation for just this reason.

Soft landing is desirable, but not mandatory. I know it'll hurt some people, but inflation hurts everyone, especially those that have less.

[Winehole23]

Risk opacity of financial derivatives is still a theme. BIS sounding the alarm on Forex swaps.

https://www.bis.org/publ/qtrpdf/r_qt2212h.htm


To understand how the system works, consider a Dutch pension fund buying assets in the US. As part of the transaction, it will often use a foreign-currency swap to exchange euros for dollars. Then, when it’s closed out, the fund will repay dollars and receives euros. For the length of the trade, the payment obligation is recorded off-balance sheet, which the BIS calls a “blind spot” in the financial system.

It’s that opacity that puts policymakers at a disadvantage, according to BIS researchers Claudio Borio, Robert McCauley and Patrick McGuire.

“It is not even clear how many analysts are aware of the existence of the large off-balance sheet obligations,” they wrote. “In times of crises, policies to restore the smooth flow of short-term dollars in the financial system -- for instance, central bank swap lines -- are set in a fog.”

Central banks have found ways to manage the demand for dollars during times of stress. The Federal Reserve has tools, such as swap lines and the FIMA Repo Facility, to help prevent markets from seizing up.

For researchers at the BIS, it’s the sheer scale of the swaps that’s worrying. They estimate that banks headquartered outside the US carry $39 trillion of this debt -- more than double their on-balance sheet obligations and ten times their capital. Accounting conventions only require derivatives to be booked on a net basis, so the full extent of the cash involved isn’t recorded on a balance sheet.

“There is a staggering volume of off-balance sheet dollar debt that is partly hidden, and FX risk settlement remains stubbornly high,” said Borio, head of the monetary and economic department at the BIS

https://www.yahoo.com/now/huge-missing-growing-65-trillion-120025349.html

[Winehole23]

Fed says it wants to get rid of its MBSs, but has no plan.


George said she feels the Fed's balance sheet continues to get "too little attention" in terms of how the central bank's slow withdrawal from long-term securities markets could, for example, influence the yield curve given the fast hikes in U.S. short-term interest rates delivered last year.

The Fed hiked its benchmark overnight interest rate by 4.25 percentage points in 2022 to tame inflation that had surged to 40-year highs. It is widely expected next week to raise that rate by a quarter of a percentage point to the 4.50%-4.75% range.

More broadly, George said, after twice launching bond purchases to support the economy, once following the 2007-2009 financial crisis and recession, and again at the onset of the COVID-19 pandemic after interest rates were cut to the near-zero level, she said the central bank should develop clearer guidelines for when the purchases are to be used, and what impact on the economy they are seen to have.

During the pandemic, for example, the Fed was buying MBS and, in theory, pushing down mortgage rates, even though house prices were skyrocketing.

Given that the Fed now uses its balance sheet to manage the short-term policy rate of interest, George feels it would be difficult, at the least, to return to the limited holdings the Fed had prior to the 2007 housing market meltdown.

But she said her time on the central bank's policy-setting Federal Open Market Committee has not convinced her that bond purchases have much influence beyond inflating asset values - something future policymakers should confront.

Quantitative easing "is out of the box and now future committees will have to think about how to manage it," George said. "I think economists have a lot more work to do on understanding this instrument. I think a lot of time was spent defending what its benefits were. I think too little attention has been paid to its consequences."
https://www.reuters.com/markets/us/fed-needs-mortgage-backed-securities-exit-plan-earlier-than-later-george-says-2023-01-23/



https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:s teep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F143f0db e-fedf-4dcb-bb78-32c4693a9f37_1320x758.pnghttps://www.reuters.com/markets/us/fed-needs-mortgage-backed-securities-exit-plan-earlier-than-later-george-says-2023-01-23/

[spurraider21]

raised rates another 0.25% today

range now up to 4.75-5

[Winehole23]

raised rates another 0.25% today

range now up to 4.75-5was there any forward guidance?

[spurraider21]

was there any forward guidance?
powell's giving a press conference

[Winehole23]

https://mishtalk.com/economics/fed-says-banking-system-is-sound-hikes-base-interest-rate-by-a-quarter-point

[Winehole23]

1638226207673311232

[boutons_deux]

Fed Hikes by 25 Basis Points,

to 5.0% at Top of Range,

Pencils in One More Rate Hike,

No Rate Cut in 2023,

QT Continues:

New Regime of Tightening while Providing Liquidity for Banks

Stepping on the brake with one foot while putting an arm around the baby to keep her from hitting the dashboard.

QT will continue on track, with the Treasury roll-off capped at $60 billion per month, and the MBS roll-off capped at $35 billion a month, same as in the prior months.

No rate cut in 2023, same as the December dot plot.

But seven of the 18 participants saw a rate of 5.375% or higher at the end of 2023, with four of them seeing 5.625% or higher.

By hiking rates and continuing QT while simultaneously providing liquidity support for the banks,

the Fed made a clear distinction between monetary policy (rate hikes and QT) and liquidity support.

And the Fed will be doing both at the same time.

https://wolfstreet.com/2023/03/22/fed-hikes-by-25-basis-points-to-5-0-at-top-of-range-pencils-in-one-more-rate-hike-no-rate-cut-in-2023-qt-continues-new-regime-of-tightening-while-providing-liquidity-for-banks/

Meanwhile, 100+ mid-size SVB-type banks at risk of failing, 100Ks of jobs lost, and 1000s of companies to fail. The Fed will not let the oligarchy or BigCorp (profiteers driving inflation) or Capitalists suffer.

Labor will be fucked

[Winehole23]

Labor will be fuckedthat's the plan, to break inflation on the backs of working people.

[ducks]

Musk wanted then to lower the rate
That would have been better
Fools

[Winehole23]

Ignores the pandemic induced supply shock, but the greedflation hypothesis has legs imo.


https://i0.wp.com/heisenbergreport.com/wp-content/uploads/2023/03/RealWageGrowthQ42022.png?resize=640%2C390&ssl=1

https://i0.wp.com/heisenbergreport.com/wp-content/uploads/2023/02/SPXFwdMarginFeb2023.png?resize=640%2C392&ssl=1

https://i0.wp.com/heisenbergreport.com/wp-content/uploads/2023/03/AEMar2320231.png?resize=640%2C319&ssl=1
https://heisenbergreport.com/2023/03/23/its-not-a-wage-price-spiral-its-greedflation/

[Winehole23]

Fed started posting weekly losses last September, this week it has reached operating losses of ~$40b.The reason why is the same asst liability-maturity mismatch that sunk SVB. Technically, the losses are booked as deferred assets and don't affect the Fed's ongoing operations, but Fed remittances (~$100b a year) to the US Treasury will cease until the shortfall is made up for.

It's the first operating loss in the Fed's history


Political pressure will be applied to monetary policy.

I posted an article about a taper tantrum that didn't happen in 2016 because it has no contemporary political axe to grind, most of the articles I could find that came out this week do. AEI dudes, Mises Institute flacks, crypto bros, goldbugs and Catholic fascists.



The crisis comes when Congress realizes the Fed is paying the government nothing (or next to nothing) while shelling out billions to the banks. Several members of Congress have already been critical of Fed payments to banks, but they’ve largely missed the mark. When the next budget crisis arises without the Fed paying it’s perceived “fair share,” all it would take is a few impassioned speeches to stir the masses and make monetary policy a de facto political animal.

The worst possible outcome would be for a fickle and indecisive Congress to assert its authority over monetary policy. Unfortunately, by waiting seven years to raise rates—and into an economy growing at best modestly—the Fed has backed itself into a corner. The Fed has clearly chosen the banks over the best interests of the taxpayers, and this will eventually come back to bite Chair Yellen.https://www.businessinsider.com/wall-street-is-talking-about-another-taper-tantrum-2016-9

[Winehole23]

Fed started posting weekly losses last September, this week it has reached operating losses of ~$40b.The reason why is the same asset liability-maturity mismatch that sunk SVB. Technically, the losses are booked as deferred assets and don't affect the Fed's ongoing operations, but Fed remittances (~$100b a year) to the US Treasury will cease until the shortfall is made up for.

It's the first operating loss in the Fed's history


Political pressure will be applied to monetary policy.

I posted an article about a taper tantrum over rate hikes that didn't happen in 2016 because it has no contemporary political axe to grind, most of the articles I could find that came out this week do. AEI dudes, Mises Institute flacks, crypto bros, goldbugs and Catholic fascists.



The crisis comes when Congress realizes the Fed is paying the government nothing (or next to nothing) while shelling out billions to the banks. Several members of Congress have already been critical of Fed payments to banks, but they’ve largely missed the mark. When the next budget crisis arises without the Fed paying it’s perceived “fair share,” all it would take is a few impassioned speeches to stir the masses and make monetary policy a de facto political animal.

The worst possible outcome would be for a fickle and indecisive Congress to assert its authority over monetary policy. Unfortunately, by waiting seven years to raise rates—and into an economy growing at best modestly—the Fed has backed itself into a corner. The Fed has clearly chosen the banks over the best interests of the taxpayers, and this will eventually come back to bite Chair Yellen.https://www.businessinsider.com/wall-street-is-talking-about-another-taper-tantrum-2016-9

[Winehole23]

Ignores the pandemic induced supply shock, but the greedflation hypothesis has legs imo.

https://heisenbergreport.com/2023/03/23/its-not-a-wage-price-spiral-its-greedflation/

1649457985427570711

[Winehole23]

1650836226444754946

[Winehole23]

Red diaper babies at WSJ

1653406556241932288

[Winehole23]

the commies at Business Insider

https://i.insider.com/64497f82b81bcf0018373cd6?width=700


But a new paper (https://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1348&context=econ_workingpaper) from the University of Massachusetts Amherst economists Isabella Weber and Evan Wasner argues that our current bout of inflation is what they call sellers' inflation. Bottlenecks — like those rampant supply-chain shortages — give firms what the economists call "temporary monopoly" status. Competition between firms in the industry, as well as the possibility of new companies trying to edge in on their territory, dwindles. And because many of these industries are so concentrated, with just a handful of companies dominating the market in any given area, it's easier for firms to reach an implicit agreement that, yes, they're all going to raise their prices.

Companies that don't fall in line and try to undercut their rivals to attract deal-conscious customers face discipline for not following the status quo. Wasner and Weber use the examples of Target (https://www.businessinsider.com/target-bucks-trend-of-companies-padding-profits-raising-prices-2021-11) and Walmart (https://www.businessinsider.com/walmart-private-white-label-brand-sales-growing-economic-uncertainty-retail-2023-2), which both tried to weather some costs without raising prices in an attempt to hold onto customer loyalty. This effort to keep prices low was greeted with disdain. Investors saw the price-hike-driven profits being made by competitors and sold off their Walmart and Target stock, in effect "penalizing their pricing strategy," according to Wasner and Weber.

Researchers at the Federal Reserve Bank of Boston similarly found in a 2022 study of inflation patterns (https://www.businessinsider.com/inflation-outlook-monopolies-industry-concentration-boosting-prices-boston-federal-reserve-2022-5) that monopolistic concentrations in some sectors made price increases worse than they had to be. If there's no one challenging you with better deals or cheaper goods, you have free rein to hike prices as you wish.
https://www.businessinsider.com/why-prices-inflation-soaring-corporate-greed-profits-margins-wages-jobs-2023-4

[Winehole23]

we've been doing this for 14 years, basically paying banks tens of billions of dollars a year to sit on their treasure hoard, doing nothing with it.


One legacy of quantitative easing (QE) is that banks have accumulated huge amounts of bank reserves. As a result, the bank reserves market is characterised by a large excess supply. This has kept the money market (interbank) rate stuck at the zero lower bound for many years, until the central banks felt compelled, from early 2022 on, to raise interest rates to fight inflation. Given the excess supply of bank reserves central banks could only perform this feat by raising the rate of remuneration of bank reserves. As a result, this rate of remuneration became the new (not zero) lower bound in the money market (De Grauwe and Ji 2023a, 2023b).
This policy now has created a lot of ‘collateral damage’. Since the stock of bank reserves is extremely high, the central banks now pay out large amounts of interest rate remunerations to banks, which increase with every interest rate hike. We show this in Table 1. This presents the outstanding bank reserves in the euro area, the US, and the UK in May 2023. We also show the interest rates prevailing at that time (second column). The third column presents the total interest payments made by the respective central banks to their domestic banks. The last column expresses these as a percent of GDP.


These are substantial numbers. To give some perspective, these interest payments exceed the seigniorage gains (profits) of modern central banks. For the US, for example, it has been estimated that seigniorage gains are less than 0.5% of GDP (Barro 1982, Cutsinger and Luther 2022). 1 (https://cepr.org/voxeu/columns/extraordinary-generosity-central-banks-towards-banks-some-reflexions-its-origin#footnote1_jwxd1nx) Thus, as a result of their anti-inflationary policies, central banks transfer more than the total seigniorage gains to private banks. An extraordinary outcome of the fight against inflation. This is all the more spectacular as the seigniorage gains of central banks find their origin in the monopoly power granted by governments to central bankers. One would expect that these monopoly profits would then be returned to the government. Instead, they are returned more than fully to private agents.


Table 1
https://cepr.org/sites/default/files/styles/flexible_wysiwyg/public/2023-05/degrauwe15%2Caytable1.png?itok=mbU1wGQJ

https://cepr.org/sites/default/files/styles/popup_small/public/2023-05/degrauwe15%2Caytable1.png?itok=z55h_4rY





Source: De Grauwe and Ji (2023b), Board of Governors of the Federal Reserve, and ECB.https://cepr.org/voxeu/columns/extraordinary-generosity-central-banks-towards-banks-some-reflexions-its-origin

[Winehole23]

Fed remittances (~$100b a year) to the US Treasury will cease until the shortfall is made up for.

[Winehole23]

Credit Swisse appears to be circling the drain. Deutsche Bank isn't doing so great either. BOE and the Fed have warned of systemic risks, the next year or two could be interesting.




UBS admitted the pressured nature of the deal limited its ability to “thoroughly evaluate” its national rival and fully plan for a potential takeover, adding that it may have “agreed to a rescue that is considerably more difficult and risky” than anticipated.
The deal, orchestrated and backed by the Swiss government, was also much more costly than UBS initially bargained for, the filing showed.
Over the course of the brief negotiations, the sum trebled from around $1.1 billion (1 billion Swiss francs) to roughly $3.3 billion (3 billion Swiss francs).

https://www.forbes.com/sites/roberthart/2023/05/17/ubs-braces-to-lose-billions-after-rushed-credit-suisse-rescue/

[Winehole23]

after a lost decade, the hangover.

in retrospect, the Fed's unexplained repo ops in 2019 were a sign of something badly awry. Why shovel $Ts out the to the banks in just a few months?

https://upload.wikimedia.org/wikipedia/commons/5/55/Cfl423-fig1.png

https://wallstreetonparade.com/wp-content/uploads/2021/12/The-Feds-Repo-Loan-Operations-2005-through-2019.jpg

1576248886246526980

SOFR is the new LIBOR, FT sees a possible repeat of the 2019 "reverse repo ructions"


https://www.ft.com/content/b7597b71-8764-4093-bf0f-b6df6ad3c307


Indeed, Bank of America’s Mark Cabana estimates that this was the single-biggest SOFR spike since Covid-19 wracked markets in early 2020, and points out it happened on record trading volumes.Cabana says he was initially too hasty in dismissing the spike as driven by a short-term collateral shortage and unusually large amounts of window-dressing by banks. In a note published yesterday, he admits to overlooking something potentially more ominous: reserves seeping out of the banking system.

We have long believed funding markets are determined by 3 key fundamentals: cash, collateral, & dealer sheet capacity. We attributed last week’s funding spike to the latter 2 factors. We overlooked extent of cash drain in contributing to the pressure.The increased sensitivity of cash to SOFR hints of LCLOR.LCLOR stands for “lowest comfortable level of reserves”, and might require a bit more explanation.

Back in ye olde times (pre 2008), the Fed set rates by managing the amount of reserves sloshing around the US monetary system. But since 2008 that has been impossible due to the amount of money pumped in through various quantitative easing programmes. That has forced the Fed to use new tools — like interest on overnight reserves — to manage rates in what economists call the “abundant reserve regime”.

But the Fed has now been engaging in reverse-QE — or “quantitative tightening” — by shrinking its balance sheet sharply since 2022.The goal is not to get the balance sheet back to pre-2008 levels. The US economy and financial system is far larger than it was then, and the new monetary tools have worked well.The Fed just wants to get from an “abundant” reserve regime to an “ample” or “comfortable” one. The problem is that no one really knows exactly when that happens.

As Cabana writes (with FT Alphaville’s emphasis in bold below):Like the macro neutral rate, LCLOR is only observed near to or after it is reached. We have long believed LCLOR is around $3-3.25tn given (1) bank willingness to compete for large time deposits (2) reserve / GDP metrics. Recent funding vol supports this.A similar dynamic was seen in ‘19. At that time, the correlation of changes in reserves to SOFR-IORB turned similarly negative. The sensitivity of SOFR to reserves correlation signalled nearing LCLOR. We sense a similar dynamic is present today.

[Winehole23]

as to whether the president can fire the Chairman of the Fed, I think the answer is yes

1858964507181412400https://x.com/RudyHavenstein/status/1858964507181412400

[Winehole23]

Trump with monetary clout would be an awesome power for good and for ill

[Winehole23]

https://www.forbes.com/sites/roberthart/2023/05/17/ubs-braces-to-lose-billions-after-rushed-credit-suisse-rescue/Switzerland screwed bondholders, allegedly

https://www.ft.com/content/31801bcd-69e8-43db-a736-b3087ab9627e


US asset manager AllianceBernstein is preparing to sue Switzerland for $225mn over the decision to wipe out $17bn of debt when the country’s government orchestrated the takeover of Credit Suisse by rival UBS last year.The group, which manages about $800bn in assets, is set to be added next month as a plaintiff in a case brought by law firm Quinn Emanuel Urquhart & Sullivan on behalf of Credit Suisse bondholders, according to people familiar with the details.AllianceBernstein will be the first large institutional investor to join the claim and is expected to seek about $225mn in damages from the Swiss state, taking the total value of the lawsuit to $375mn, the people said.

The case, which was first filed in the Southern District of New York in June, relates to the writedown of Credit Suisse’s AT1 bonds when the scandal-hit lender was forced into a rescue merger with UBS in March last year.Quinn Emanuel has argued that the deal was brokered by the Swiss government and was an unlawful encroachment on investors’ property rights.AT1 bonds are a form of bank capital that converts into equity or is written down when a lender runs into trouble. However, the UBS Credit Suisse deal upended the traditional hierarchy among bank creditors by imposing losses on bondholders while allowing equity investors to recover $3.3bn.

[Winehole23]

at current rates of interest, savers are fools

779092490796142592I never heard a suitable explanation for this. Capitalism crushing traditional savers is a relative novelty.

[Winehole23]

one-month SOFR spread indicates liquidity tightening and market volatility


*US SOFR SURGED 18 BASIS POINTS TO 4.22%, MOST IN A YEAR




Market liquidity has dried up, with no immediate relief expected, leading to significant stress across risk assets and funding markets.
The government shutdown pushed the Treasury General Account (TGA) above $1 trillion, draining Fed reserves and intensifying overnight funding pressures.
Elevated SOFR and repo rates signal persistent volatility, with upcoming Treasury refunding announcements key to future liquidity direction.
Low reserve balances and ongoing volatility suggest markets may face turbulence similar to late 2018, despite brief, limited relief ahead.

https://seekingalpha.com/article/4836729-markets-face-a-2018-shock-as-liquidity-evaporates


The one-month SOFR-fed funds futures spread is a key liquidity stress indicator: the more negative it is, the tighter repo funding conditions are perceived to be.

Following the Fed's policy decision this week, that spread hit minus 11.5 basis points (bps) for the November contract, a record gap. For December, the spread dropped to minus 12.5 bps, also an all-time low.
The numbers suggested that investors in the futures market expect SOFR to trade 11.5 bps and 12.5 bps higher, respectively, than the fed funds rate by the end of November and December.
https://www.msn.com/en-ca/money/topstories/feds-t-bill-pivot-expected-to-ease-supply-but-rate-futures-flag-tight-funding/ar-AA1PIa2N

(2018 was the worst year on Wall Street since 2008: https://www.cnbc.com/2018/12/31/stock-market-wall-street-stocks-eye-us-china-trade-talks.html)

[Winehole23]

SOFR is the new LIBOR, FT sees a possible repeat of the 2019 "reverse repo ructions"


https://www.ft.com/content/b7597b71-8764-4093-bf0f-b6df6ad3c307stealth QE to stem a liquidity crunch, like 2019

led to a melt up then, could be a bullish sign short term

could push valuations further away from fundamentals, worsening the inevitable correction


In September 2019, a critical but obscure part of the financial system broke. Overnight borrowing rates in the repo market suddenly spiked from around 2% to over 10% in a matter of hours. Banks and dealers couldn’t get the short-term funding they needed to finance Treasury holdings or settle trades. Liquidity froze. Wall Street was caught off guard. The Federal Reserve quickly intervened, launching emergency repo operations to inject cash into the system. Within days, funding markets stabilized. Over the next few months, the Fed expanded its balance sheet again, but not for QE, they insisted, but to keep repo markets functioning. That quiet intervention helped fuel the final leg of the market’s rally into early 2020.


Currently, we are seeing cracks reemerge in this previously unknown part of the financial system. In today’s commentary, we will discuss what it is and why it matters.


The “repo” market, short for “repurchase agreement,” sits at the heart of the financial system. Critically, and why it matters to the financial markets, is that it allows banks, hedge funds, and dealers to borrow cash by using high-quality securities, typically U.S. Treasuries, as collateral. (This is also how money winds up in the financial markets when the Federal Reserve is doing “Quantitative Easing.”)


The transaction is straightforward and is an overnight transaction. During this process, one party sells a security with a commitment to repurchase it the next day at a slightly higher price. That price difference represents the cost of borrowing. Typically, the difference between the Secured Overnight Financing Rate (SOFR) and the Interest Rate on Reserves (IOR) is slightly negative. Currently, that is not the case. Notably, this is not some niche corner of finance. It’s the lifeblood of overnight funding.



https://static.seekingalpha.com/uploads/2025/11/9/saupload_image-48.png?io=w640
Why is this so important? Because trillions flow through this market every day, and most people have never heard about it.


However, without it, Wall Street doesn’t open.




Dealers need it to fund their balance sheets.
Hedge funds rely on it for leverage.
Money market funds use it to park cash overnight.
It’s also how the Federal Reserve transmits monetary policy.


When the repo market functions smoothly, short-term interest rates stay in line with the Fed’s targets. When it breaks, liquidity dries up fast. That creates ripple effects in credit, equities, and even Treasury markets.


If repo transactions grind to a halt, it’s not because there’s a lack of collateral or cash, but because of fear. When institutions stop trusting each other, they stop lending to one another. That’s when the financial plumbing clogs, and the consequence of that “clogged plumbing” is rising volatility, strained liquidity, and falling asset prices. The repo market isn’t just important. It’s foundational.


A Redux of 2019? What Does It Mean for the Markets?
Currently, cracks are reappearing. The overnight repo rate is climbing as the use of the Fed’s Standing Repo Facility is increasing, and treasury bill issuance is ballooning.



https://static.seekingalpha.com/uploads/2025/11/9/saupload_image-49.png?io=w640
Most notably, what the Fed once deemed “abundant liquidity” has now fallen below the levels it considers “ample.” The chart shows that the Fed Reserve’s plus Reverse Repos (which, for the past three years, have served as an excess liquidity storage facility used primarily to fund purchases of T-Bills) is now at the lowest level since late 2020.



https://static.seekingalpha.com/uploads/2025/11/9/saupload_reverses_20plus_20reserves.jpg?io=w640
Sound familiar? It should. The current environment bears a striking resemblance to the lead-up to the September 2019 repo crisis. Back then, the repo rate suddenly spiked from around 2% to over 10% in a single day as Wall Street’s funding machine seized up. Here is an example of what happened.


You have a brand new, fully paid-for Mercedes. You go to your neighbor and ask for an overnight loan of just $10,000, offering him the title to your car as collateral. Your interest rate should be close to the Federal Reserve’s overnight rate, but instead, your neighbor says he wants 10%. That difference is a “risk premium” that is undeserved because the loan is backed by guaranteed collateral, in this case, the car.


But that is what happened in 2019, and the Fed had to intervene with emergency liquidity operations to restore stability.


Why did it happen? In 2019, a combination of tax payments and Treasury auctions drained reserves from the banking system. At the same time, dealers were loaded with collateral they couldn’t finance. Cash lenders didn’t want to step in, even at higher rates, because they were either constrained by regulation or unwilling to take the risk. The repo market, which had always been taken for granted, suddenly became the problem no one was watching.


Today, we’re seeing many of the same ingredients. Heavy Treasury issuance is forcing dealers to take on more collateral, and liquidity is being withdrawn from the system due to the Fed’s quantitative tightening. The problem with the repo market is why the Fed announced it would end the shrinkage of its balance sheet at the end of November. Meanwhile, bank reserve levels have dropped sharply, adding to concerns about overall liquidity.



https://static.seekingalpha.com/uploads/2025/11/9/saupload_image-50.png?io=w640
When stress rises in the repo market, it’s not a technical glitch, but rather a signal that the financial system is under pressure. If this stress deepens, it could lead to a broad tightening of financial conditions that will spill over into the equity and credit markets. Given the Fed’s concern about the “wealth effect” the financial markets provide to economic growth, this has become the third, and unspoken, mandate of Fed policy.


While that may sound frightening, there is a twist. If the Fed steps in to relieve repo pressure, like it did in 2019, it might trigger the opposite of a crash. In other words, the Fed’s actions to stabilize the repo market may lead to a “melt-up” in equities, where risk assets surge, not because fundamentals improve, but because liquidity returns in force. Such a conclusion is not far-fetched, as the Government shutdown has drained over $700 billion from the market, as shown by the sharp increase in the Treasury General Account.



https://static.seekingalpha.com/uploads/2025/11/9/saupload_image-51.png?io=w640Stealth QE on the Horizon
However, once the Government is reopened, that $700 billion increase in the Treasury General Account will flow back into the economy. That reopening will create a flood of effective stimulus as furloughed workers receive back pay, departments are reopened, and Government contract work resumes. Those dollars wind up deposited into the banking system, increasing bank liquidity. In effect, it is a “stealth QE” that could create a massive scramble for risk assets.


As such, both the end of the Government shutdown and a stabilization of the repo market could have an immediate impact on risk assets. Once dealers can fund collateral without paying punitive rates, liquidity will return, which “greases the wheels” of the entire financial system. Trading flows improve as Hedge funds can effectively re-leverage their portfolios, and credit spreads are expected to tighten.


You will notice in the chart below that this is precisely what happened after the 2019 repo scare. Once the Fed began daily operations to supply liquidity, the S&P 500 rallied to new highs. Then, of course, that liquidity went into overdrive following the onset of the pandemic. While it has since reversed somewhat, there remains, as noted above, “ample” liquidity in the financial system currently.



https://static.seekingalpha.com/uploads/2025/11/9/saupload_Fed-Liquidity-Index-vs-Market.png?io=w640
Just as it was in 2019, the move was not about fundamental improvements; it was simply about “too much money chasing too few assets.”


It is important to note that fixing the repo market isn’t about bailing out Wall Street. It’s about restoring the basic mechanics of financial intermediation. When overnight funding is cheap and available, institutions are willing to trade, lend, and invest. That confidence feeds through to markets. Although most investors don’t track repo rates daily, they feel the effects, as more liquidity means less volatility, tighter spreads, and rising asset prices. At least that is what we should expect in the short term.


However, the resolution needs to be more than a temporary patch. If the Fed signals it’s ready to backstop the market, investors will likely view that as a green light to increase equity risk and change the risk calculus to some degree. The problem is that stocks are already grossly detached from underlying fundamentals, and a resolution to either the Government shutdown or resolving the current repo stress will likely see investors pushing asset prices further away from those fundamentals. But that is how liquidity drives markets, especially when fundamentals look stretched.


For investors, it is worth noting that if the Fed steps in again, the upside could come quickly and substantially. For now, the repo market is the canary in the coal mine. What comes next depends on whether policymakers decide to move soon or wait until stress forces their hand.
https://seekingalpha.com/article/4841016-repo-market-critical-warning-or-bullish-signal

[Millennial_Messiah]

Just bring back ZIRP for a year or so.

[Winehole23]

Just bring back ZIRP for a year or so.not gonna happen

that was an extreme measure to help us muddle through capitalism falling on its face in 2008

[Winehole23]

system of payment was imminently failing, so Obama saved the insolvent banks and nonbanks, the Fed ate the toxic derivatives and the American people ate shit

ZIRP was the muddle through, it lasted about a decade

[SnakeBoy]

stealth QE to stem a liquidity crunch, like 2019

led to a melt up then, could be a bullish sign short term

could push valuations further away from fundamentals, worsening the inevitable correction

https://seekingalpha.com/article/4841016-repo-market-critical-warning-or-bullish-signal

The Fed can do reverse repo if the gubmint reopening injects too much liquidity

[Winehole23]

The Fed can do reverse repo if the gubmint reopening injects too much liquidityTrump will not allow the punch bowl to be taken away, most likely

who's your daddy?

[SnakeBoy]

Trump is your Daddy

[Winehole23]

Trump is your Daddyhe owns your ass for sure

[ChumpDumper]

Trump is your Daddy
:lol your daddy issues

[Winehole23]

part of this is year-end reporting pressure, but the comparison is made to 2018-2019

(some Fintwit nerds consider 2019 to be a financial coup comparable to 2008-9 and the Trump 2020 super dole)

https://www.ft.com/content/395f92e2-85f2-45f7-b140-5ee9ac689bc3

[Winehole23]

propping up equities and lending with zero-bound interest rates for a decade sure did a number on us



https://cdn.bsky.app/img/feed_thumbnail/plain/did:plc:gftip5r3dmyojn5lat333pp5/bafkreic7jxdpqidc2cekpbdq57wi27gql74gi2mwtmu72neg4 qwfu3aoh4@jpeg

[Winehole23]

1650836226444754946Trump's dropped Lina Khan's FTC lawsuit against Pepsico as being "too political"

The lawsuit has been unsealed



Pepsi favors large distributors over others


https://cdn.bsky.app/img/feed_fullsize/plain/did:plc:pno43u2bymd5hzp375j2tvpi/bafkreies3oxsdeeio6i4fvv5gqjqqraelr6cuwqqbuyag4xft 7mgsbuaue@jpeg

Monitors and protects Walmart's pricing


https://cdn.bsky.app/img/feed_fullsize/plain/did:plc:pno43u2bymd5hzp375j2tvpi/bafkreichsawpojm3ye2mcpn4orisdty2qi474herkqwf5ws45 6cr23wamu@jpeg

Punishes price competitors


https://cdn.bsky.app/img/feed_thumbnail/plain/did:plc:pno43u2bymd5hzp375j2tvpi/bafkreic7jkes3mhjxn24dnehoyuzovrzcemvy7eurl25kzzxt pfvtta5vy@jpeg

Why?


https://cdn.bsky.app/img/feed_fullsize/plain/did:plc:pno43u2bymd5hzp375j2tvpi/bafkreicy42sixxs2r67v35bugkvtezhxkycsughxdu3cgcbyi zpjfiy46u@jpeg

Walmart requests illegal discounts


https://cdn.bsky.app/img/feed_fullsize/plain/did:plc:pno43u2bymd5hzp375j2tvpi/bafkreiga5rjrmgadatiel5lszwals7djhsykngatwr3rhfz7s m4f7xcjie@jpeghttps://bsky.app/profile/stacyfmitchell.bsky.social/post/3m7smjjkrw227

[Winehole23]

(wanton violations of the Robinson-Patman Act)