NECRO'd: FED having to put money into the overnight repo market?

[NWPilgrim]

There certainly is something rotten at the core if world economies. Because the Petro Dollar forces everyone else to buy dollars eventually, any weakness in our economy gets ripples out to everyone else buying oil. With that and collusion from the Fed our give has been able to run $300 billion to $1.5 trillion DEFICITS EVERY YEAR for over a decade!! And that was after the mortgage and derivatives debacle that really was not fixed, just shuffled around. Risky mortgages, loans, and derivatives are still in play. The rot got plastered over only to fester into a worse condition but now spread throughout most countries (who are forced to follow our debt lead).

There will be reckoning and it will be much worse than 2007-2008 and it will be worldwide. How long they can keep kicking the debt down the road? No idea. This is unchartered waters and as the Fed pretty much admits, the controls no longer respond the way they used to and there is no clear path to a “fix”, not that any politician wants s fix. That would require limiting spending to revenues!!!! Or worse, paying down the debt!!!!

The elephant in the room no one wants commoners to consider is outright default on the total debt to central banks, and start over with blank slate and forced balanced budgets. Either the banks get wiped out by general defaults, or the commoners will be drained into serfs. No other way out that I see in the long term (next 50 years).

[FromMyColdDeadHand]

https://www.realclearmarkets.com/vid...ff_snider.html

I’ve only listen to it once, so I’m not sure exactly what it all means. But this is one of the most cohesive and coherent discussions of why the federal overnight rate has gone goofy. My rough interpretation is that nobody wants to be left holding a bag of dog crap if on the overnight something happens and all the economy collapses. So that means to me that we are one key stroke or one in the rouge trader away from somebody starting a chain reaction that makes 2008 look like a milk run.

If the Armageddon that these bankers are trying to avoid being involved in is as large as it probably will be, I frankly don’t understand their push towards getting in on a lifeboat. If this goes the way it probably will it’s a complete collapse and the ocean around your lifesboat is on fire.

[6933]

https://www.realclearmarkets.com/vid...ff_snider.html why the federal overnight rate has gone goofy. The repo rate has been decreasing steadily. IOW banks are buying instruments again.

My rough interpretation is that nobody wants to be left holding a bag of dog crap if on the overnight something happens and all the economy collapses.Sort of. Collateral, which can mean things like mortgage backed securities, has "improved" in quality. In could also be that banks are more comfortable having larger cash reserves, and not leveraging them; which is why the rate went so high so as to induce banks to put those reserves to work.

This isn't the first time this has happened.

[FromMyColdDeadHand]

This isn't the first time this has happened.

That source goes over that this is not the first time it’s happened since 2008. 2011 and 2014 I believe also where times when this phenomenon happened. Why was May 29 of this year an inflection point?

[6933]

The problem is there are a LOT of large financial transactions that take place out of the purview of the Fed and market watchers. We don't always have a clear picture of "behind the scenes" goings on. So, what we see happen in the repo market isn't always clear.

However, May 29th could be a reflection of the increasing national debt. We have to finance that debt through treasury collateral sales. Banks were hesitant to buy so repo rates jumped. Something behind the scenes spooked people. Repo rates have been decreasing so the cause of the "spook" seems to have abated. Probably never have a clear idea of what happened.

[FromMyColdDeadHand]

Over $100,000,000,000 as we speak, like right now, tonight.

https://www.wsj.com/articles/new-yor...ts-11574864855
argh, paywall

While I remember that sales of Treasuries was soft, that isn't really the issue as I see it- this is an overnight thing, like an overnight risk thing. The rates are in line now because the FED is dumping a metric ass-load of money into the market.

So are you saying that there is or isn't an issue here?

[6933]

In the short term, not a problem.

Could be as simple as the financial institutions were used to the easy money; QE. Now that Quantitative Tightening is occurring, there may be a correlation between the Tightening and the banks being hesitant to buy the collateral(assets) being sold by the FED. Most of this collateral was .gov debt, i.e. U.S. Treasuries and Mortgage Backed Securities. Possibly some of these debt instruments such as the MBS' were sub-prime in nature and therefore no one wanted to purchase. Never understood why anyone would take a chance on bad paper. Anyway, U.S. Treasuries are also included in the QT which are generally considered safe. Maybe the banks learned from 2008 and like the cushion large cash reserves provide. Reserves are at an all-time high.

I can't see an overnight event wrecking the economy short of an EMP, solar flare etc. A bad decline jump started by a couple of very bad days; possibly. A sideways market could happen anytime. A 1000pt. drop is just an approx. 3.6% drop. Servicing the interest on an ever increasing debt will eventually cause ripples. Something will have to be done or to happen, but I don't see it in the foreseeable future.

[FromMyColdDeadHand]

Thanks for that. What had me concerned was the reverse of your argument that there isn't an overnight event that bad- the market seems to think there is, and perhaps even odder is that no one will talk about it. You agree that one explanation is that they act like it is musical chairs with an overnight timeframe for the music stopping?

I agree the US debt has to have an effect eventually, but I've spent 30 years saying it is right around the bend... and... and. It is (or isn't) till it ain't (or is) a problem.

[6933]

You agree that one explanation is that they act like it is musical chairs with an overnight timeframe for the music stopping?

Possibly, but I see a higher probability the music stops over a couple of days followed by a slow, steady erosion.

In the immediate future I see the market at +5% to +10% to -5-10%. The bull still has room to run. I think the -5% to -10% is less likely.

[rjacobs]

In the immediate future I see the market at +5% to +10% to -5-10%. The bull still has room to run. I think the -5% to -10% is less likely.

Tomorrow(Dec 2) will be a test IMO to see where the market is going to go based on what went on in Hong Kong and China and Trump signing the bill supporting Hong Kong. Friday(the 29th) isnt a great indicator as the trading is relatively light, but the market didnt drop much...I expected it to drop more than it did. China trade(and our overall relationship with them) is what is going to drive the market with maybe some other odds and ends thrown in(USMCA, holiday retail sales, etc...) barring any other huge global issues. That is, until the election. If Trump wins I see the market going higher. If a Democrat wins(and the likely top 3, save for probably Biden, are ALL rabidly anti big money, big bank, hypocrites), I see the markets tanking. Just my un-educated opinion.