Repo Madness Yet Again!

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Repo Madness Yet Again!

To be completely honest, I was thinking of titling this post “Repo Madness 2.0”  as a follow up to my original repo madness post…but then I realized it is very likely I will be making 3.0 and much much more as we go forward.

Repo has now hit over 300 Billion dollars a day. 302 Billion to be exact.

Remember, this began with 45 Billion, then 80-95 Billion, then 120 Billion, and then 190 Billion, and now topping just over 300 Billion.

Repo will NOT stop. Repo CANNOT stop!

This will be perpetual and likely with ever increasing amounts.

The chart above is from Jim Bianco and Bianco Research, who follows the Repo market very attentively and is work one must keep up to date with.

His LinkedIn post can be found here:

https://www.linkedin.com/posts/james-bianco-117619152_today-marked-the-first-term-repo-operation-activity-6604917716350570496-f-1s

Remember, this is not Quantitative Easing (QE)… or the Fed would have you believe.

Both Repo and QE inject money into the system, it is just how they do it and is new bonds/debt vs old bonds/debt.

QE is when the Fed buys new bonds from a primary dealer which thus injects money into the system from the purchase.

Repo is when a bank is given or ‘loaned’ money directly from the Fed for some collateral in return (we are told it is US treasuries, but could be toxic assets for all we know), to meet short term/overnight liquidity issues.

This money is lent for a small amount of time, usually a few days up to a week.

This is changing. We saw our first 42 day term Repo announced two days ago and there will be 55 Billion Dollar 28 days term Repo’s beginning in December.

Generally other banks would loan to each other and the Fed would not have to do this.

It seems as if something is either broken with the system, or the banks do not trust one another.

To be honest, it seems like there could be a bank that is about to go belly up and is being propped up by the Fed.

We do not know which bank(s) is/are receiving this money. The Fed should be transparent about this. Imagine knowing that your money is deposited with a bank that is borrowing money just to remain liquid and solvent.

Of course they cannot tell us this as it could trigger a confidence crisis. The role of the Fed is to maintain confidence in the system by reassuring everyone that they know what they are doing, and what they are doing is working.

Fed chair Powell did remark in the last FOMC press conference that the Fed does not know if this Repo policy will be handled, but you should not worry about it.

We are eagerly awaiting the next Fed Balance Sheet update. Despite doing ‘not QE’ for a month, the last Fed Balance Sheet statement showed a DECREASE of 17 Billion. It had a lot of people scratching their heads.

However, it is very likely this is the tiny bump in the road towards a much larger balance sheet which we will see in the next few months and years going forward.

 

 

 

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Vishal Toora

Vishal Toora

Vishal is an avid market analyst, geopolitical junky and wealth management strategist. As the founder of UnchartedFX, Vishal has over 7 years of live market experience with real money accounts. Originally an archaeologist by career, Vishal decided to pursue trading full-time in 2014 because of the freedom and financial stability awarded from the worlds financial markets successfully.

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