How the Crybabies on Wall Street Try to Force the Fed into QE-4

The repo blow-out — whoever instigated it — comes in real handy.

Fed Chair Jerome Powell’s explanation on Tuesday and the FOMC minutes released yesterday were a bitter disappointment for the Crybabies on Wall Street – the broker-dealers and banks: They’d expected a massive bout of QE, and perhaps some of the players had gleefully contributed to, or even instigated the turmoil in the repo market to make sure they would get that massive bout of QE as the Fed would be forced to calm the waters with QE, the theory went. This QE would include big purchases of long-term securities to push down long-term yields, and drive up the prices of those bonds these Crybabies are holding or have bet on with derivatives.

This is particularly crucial to the “primary dealers” – the 24 US and foreign broker-dealers and banks that are authorized to deal directly with the US Treasury and the New York Fed. They’ve been hoarding Treasury securities with longer maturities. As of October 2, according to the most recent data from the  New York Fed, they hoarded $161 billion, double the $81 billion a year ago – though that has come down from the peak in July of $219 billion:

Note the top two lines (black): Less than two-year maturities amounting to $74 billion; and 11-year and over maturities amounting to $37 billion. Not included on this chart are the primary dealers’ holdings of Treasury bills, TIPS, Agency securities, and Floating Rate Notes.

Primary dealers are funding their hoard in the repo market. These funding needs were putting pressures on the repo market, the Fed already said in its minutes for the July meeting, before repo rates totally blew out in mid-September.

But primary dealers could have sold a large part of those securities, if they’d wanted to. Prices were high and yields were low, a sign that there was heavy demand. But the dealers were holding out for even higher prices and even lower yields. And any heavy selling could have pushed up those yields and steepened the yield curve, very unpalatable for folks clamoring for rate cuts.

So these dealers are sitting on a pile of Treasury notes and bonds whose prices they want to rise, and therefore their yields would have to fall. Massive QE, where the Fed buys these types of Treasury securities, would accomplish that.

But that’s exactly what the Fed said it wouldn’t do. Starting with Powell on Tuesday and with the minutes released on Wednesday, the Fed is outlining a plan to buy only Treasury bills.

T-bills are securities with maturities of one year or less, such as a 3-month T-bill. They do not have a coupon. Instead, they’re purchased at a discount from face value and are redeemed at face value. The difference is the yield for the investor.

Dealers have not been hoarding T-bills. As of October 2, they were holding less than $7 billion in T-bills, at the very low end of the three-year range.

So these Crybabies were hoping for real QE with long-term notes and bonds. And all they got was a plan focused on acquiring T-bills, on top of the new plan from a few months ago to replace longer-term Treasury securities and all MBS on the Fed’s balance sheet with a mix that includes T-bills.

Under these plans, any growth of the Fed’s balance sheet would free up longer term Treasury securities that the market would have to absorb. In turn, the Fed would absorb more T-bills.

The bond market was aghast. Treasuries with longer maturities have sold off across the board since Powell spoke on Tuesday, and yields rose. The 10-year yield closed on Thursday at 1.67%, the highest all month, up 15 basis point from about 1.52% on Tuesday at the time Powell was speaking.

This is not what the Crybabies on Wall Street had in mind. They’re now trying to forcefully push the Fed into restarting real QE. And they’re coming up with all kinds of hoary ideas of why the Fed must do it. MarketWatch has gathered up some of them.

The most hilarious idea is that there suddenly aren’t enough short-term T-bills out there for the Fed to buy, and that is why the Fed will have to buy longer-term notes and bonds. But there are $2.4 trillion in T-bills outstanding, and if the price is right, anyone can by them, even the Fed.

“Is that part of the market large enough to deliver the reserve growth [the Fed] wants?” Steve Johnson, senior portfolio manager at SVB Asset Management, told MarketWatch. “Where do they go besides banks for those bills? That’s a big question mark right now.”

Primary dealers hold less than $7 billion of T-bills, but if the Fed’s starts buying them, the primary dealers start buying them in the market to sell to the Fed at a profit. With $2.4 trillion outstanding, it’s not a problem.

“We think the Fed should aim to purchase both bills and short coupons in order to speed the pace of reserve additions,” said Mark Cabana, head of U.S. short rates strategy for Bank of America Merrill Lynch, cited by MarketWatch. He thinks the Fed can only acquire $25 billion a month in T-bills, but that it should buy a whole lot more, a whole lot faster, and that would have to come from longer maturities.

They all want the Fed to “speed the pace” – to use Cabana’s term – of this new QE. It’s never enough, never fast enough, and maturities to be bought are never long enough. These Crybabies cannot wait to get out of this horrible quagmire when bond prices fall as yields rise. Let’s push and kick the Fed into action, the theory goes. They’ve been clamoring for QE all year and have not been getting it. The repo blow-out – whoever instigated it – has now become the latest rallying cry for QE.

And there is this meme circulating out there that the Fed, as Johnson told MarketWatch, “may be erring on the side of over-communicating” that it is not conducting QE – in other words, that the Fed doesn’t actually mean to say what it is saying so clearly and emphatically. And this meme is just another tool to try to wedge the Fed into forceful and real QE. Those Crybabies on Wall Street are just a sight to behold.

I wish I could have sat in that meeting, watching the bewildered faces of Fed officials as they got hourly updates on repo rates blowing out in real time. Read...  The Day When Repo Rates Blew Out: Fed Recounts a Fiasco that Occurred as the FOMC Was Meeting, and How it Reacted

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  70 comments for “How the Crybabies on Wall Street Try to Force the Fed into QE-4

  1. Bobber says:

    I’d love to see the weak Federal Reserve Board restart the QE again in full force. It would accelerate the inevitable blow-ups, so we can get back to normal sooner. Much damage is done by the Fed and it’s aimless market interventions.

    • Rubicon says:

      As Mitch Feierstein observes: “You can not (reform/modify) a Ponzi Scheme.

  2. timbers says:

    While I’m sure much emotional satisfaction can be had by stuffing it to the Cry Babies, when the heck is the Fed going to end the fraud in it’s Inflation Fraud Report and raise rates to 3-4% as it should have done oh I don’t know 10 years ago?

    • sc7 says:

      It’s amazing how a paltry 3-4% rate is now seen as impossible due to how much damage the fed has done. 5.25% right before the great recession, and it still took all this intervention to get back to normal. What happens when we’ve got a whopping 1.75% to work with?

  3. Iamafan says:

    No, it’s not dealers hoarding. Their inventory is down. It’s direct, non-dealer, hoarding. The Fed Repo is simply making dealers net lenders. Why do GCF when the Fed Repo is cheaper? Arbitrage it.

  4. semantics says:

    Many say the 300 billion ++ already given to cover REPO a few weeks ago is/was QE-4+

    I guess its all semantics? The FED is printing to infinity to keep the USSZ ( usa zombie ) gov alive,… and will continue

    • Wolf Richter says:

      Not quite. On the Fed’s balance sheet today, total repos were 179 billion, not $300 billion. Today’s balance is down about $2.5 billion from last week’s balance. The overnight repos unwind in the morning, and the 14-day repos unwind in 14 days. The Fed has given the market some time. So it offered new 14 day repos to replace the maturing ones. All recent repos have been undersubscribed.

      • d says:

        Is it possible to easily find out who is the listed owner of the security’s the FED takes in REPO’S.

        Such information could be useful to some curious but not “Connected” people.

        • Iamafan says:

          No. In GCF repo (tri-party settled) both sides, the borrower and lender, are anonymous the whole time. That’s why they use IDBs, inter dealer brokers.

          You don’t even know the number of participants in the Fed Repo.

          Unless the stink gets as high as Bear and Lehman, you probably won’t here who is who.

          Remember the collateral was pristine, treasuries or maybe less pristine Agency MBS.

  5. Memento mori says:

    Wolf has usually great insights but for some reasons still wants to believe that the yields are going up. They are not.
    Those cry babies will get the Fed to do exactly what they want as they have been getting away with it for the last decade. Powell has no balls to let the stock market go down even 5%, this should be obvious by now.

    • JZ says:

      The moment you are sure it is obvious and you put in a position, you get wealth transferred. The real deal is this is NO longer a market where people participate and pick winner and losers based on long term business profit. This is purely casino wealth transfer game. In this game, there is NO theory. The only question is are you the top 5% who gets wealth transferred into or are you the 95% whose wealth gets transferred out of. I think I am the 95%. So any time I think I know something, I slap my own face and start to contemplate how to deal with the opposite outcome. I don’t expect myself to win in this FED transfer game. I just want to survive.

    • Wolf Richter says:

      “..wants to believe that the yields are going up.”

      #1. No, that’s not how it works. I’m not saying that “yields are going up.” I’m telling the Fed that it should do what it takes to get yields to go up; I’m doing the opposite of what the Crybabies are doing, I’m leaning against the Crybabies. I’m not a huge voice, but I do my little part :-]

      #2. Yields have already gone up. Short-term yields used to be 0%.

      • Wes says:

        Good article Mr. Richter. These banksters just want to recycle treasury notes, bills and bonds back and forth and get paid for doing nothing. Let’s have some real price discovery and watch how the market should really work.

        Here’s a good primer on the original Fed discount window mechanism.

      • Buckaroo Banzai says:

        But Wolf, what if the Fed re-starts QE, but the dealers don’t sell off any of their inventory?

        In fact, what if they even buy more?

        There is a global dollar shortage out there which is why the dollar has a relentless bid under it. The Fed is–slowly—figuring out that they need to pump a lot dollars into the world, and quickly, which is the real reason they will do QE again, even if they don’t call it that. But they may find that what the world wants to sell them for those dollars aren’t US Treasury instruments.

        Bottom line is, get ready for falling rates, a rising dollar, and increasing dollar liquidity problems, right up until the moment the Fed breaks down and starts buying the world’s garbage.

    • Iamafan says:

      Yields for NOTES (not the 30y bond) except for the 10y has already declined to their previous 9/4 levels. This means that the collateral price has no more price impairment. The Fed Repo should be more stable.

    • akiddy111 says:

      ” Wolf has usually great insights but for some reasons still wants to believe that the yields are going up. They are not.”

      Exactly. That is the first thing that jumps out at me.

      It was only a few months ago when the word counting Hawk O Meter was doing victory laps.

      I read Jeffrey Snyder,Rosie, Jim Grant etc. quite a bit. They were having none of this inflation, tightening and yield hiking rhetoric.

      A Zero bound Japanification (sooner than later) end game for the USA is the only thing that sits comfortably with my instinct. Everything else is wishful thinking.

      Blaming Wall Street crybabies or the FED is a waste of time.

    • MC01 says:

      Mario Draghi has been doing exactly what the crybullies wanted: he slashed rates and resumed QE. It blew in his face despite the crybullies’ semi-comical attempts at representing that nutjob as some sort of savior. Yields are going up and bond prices are coming down, with high yield spiking.
      This wasn’t supposed to happen because, and I am quoting a well known Italian economic magazine here, “Draghi has fired his bazooka again”. Kinda like GI’s in Korea found their bazookas were only useful at attracting the unwanted attentions of the Soviet-built tanks used by the DPRK.

  6. WES says:

    It seems to me the market is just gaming the central banking system.

    Since 2008 there has been no free markets thanks to central bankers. Central bankers are now the market.

    So instead of gaming the free market they game the central bankers. They are the only game in town.

    • wkevinw says:

      Correct. They have gotten good at it too.

      From the 1987 event – “recovery” “helped” by the Fed, to the LTCM event, to .com recession/market to the 2008 recession/market.

      Even though he claimed “I didn’t call the government”, if you think Buffett’s organization and his investor-class buddies didn’t call the government about bailing out the economy in 2008, we’ll have to disagree.

      Bernanke (and the “establishment bankers/economists” as much said the wealth effect was the aim of the QE. As such, the stock market “becomes” the economy- even though the stock market is not their mandate.

      Everybody has been gamed into a corner for ~ 10-20 years now.

  7. jrmcdowell says:

    “Massive QE, where the Fed buys these types of Treasury securities, would accomplish that.”

    Yes it would and that is why QE is the ultimate fraud. Why can’t the primary dealers and everyone else sell their bonds into the open market? Why must they concoct a scheme for the Fed to create new money and essentially gift it to well-connected insiders by purchasing their assets at above free-market prices? How can a nation and financial system be considered just with such flagrant graft and self-dealing? Has there not been enough wealth transferred to the top already?

  8. Michael Engel says:

    Wall street cry, Fed print green.
    The world cry, red & blue Turkey shooting Turkey.

  9. porque says:

    What about glass steagall, when will all this monetization actually collapse in real terms..this is all just filtering up to Fed, which means it’s all just puff puff speculation at this point. So, we just now await for the Fed to be the bank failure and then move our dwellings to China?

  10. NotMe says:

    If the primary dealers sell their hoard, their balance sheet blows up. They go bankrupt, hence the messing around in repo where they need to keep repo rates capped. Kind of like sitting on sitting on a grenage to hold the pin in. Nothing goes up or boom.

    • MarvinTheMartian says:

      Please go BOOM!!!

    • Iamafan says:

      The primary dealers T-bill position is less than $9b. They hold mostly long-term Notes and Bonds.
      If the Fed buys T-bills from the OPEN MKT, the dealers will simply front run them and sell them on-the-run Treasury bills.
      Perfect non-crime.

      • NotMe says:

        Except the point is not just the trade-able securities, but their book, which for US banks is 3 trillion in various Ts, and private debt held by banks for US investors is almost $7T . A sudden bump to 3.5% on short term rates (seen in the blowup), would change that book value about 25%, or to closer to 2.5 trillion on Ts, and possibly $5T to $6T on all their debt. How much of those numbers are held by PDs is open to question. Still a big bite which none of them could sustain.

        Check FRED for the numbers.

        That is the instability.

  11. MD says:

    One of the most nauseating aspects of this continued state support for the finance industry is how, for the past 40 years, as people who had well-paid jobs in manufacturing lost those jobs as they were ‘offshored’ were told, by people cut from the same cloth, that this was just market forces and they had to suck it up and accept how the world is now; how it was/is ‘naiive’ to think it could be any other way, and that any form of industrial planning is ‘communism’. Stockholder gains were the only concern, not well-paid jobs for workers [neoliberal ideology].

    Now we have to plunge money, magicked from thin air, into the black hole they’ve created, and rely on centrally-planned, chronic (it seems) support for the world of finance to keep their plates spinning.

    Bizarre double standards and hypocrisy.

    • eg says:


      There isn’t the slightest whiff of capitalism about what the banks have been up to all through the deregulation decades of the past 40 years.

  12. Ole C G Olesen says:

    As observed Years ago ..Wolf .. You continue being SHARP !
    Great explanation .. lets hope the ” Fed ” sticks to its plan , punishing those greedy Rascals … even if i doubt it. .. Ive sent You an E mail .. consider what I say .. even if my English prose may be lacking .. my Thinking NOT

  13. David Hall says:

    Hoarding low yielding long bonds in a rising interest rate environment is risky.

    What is a bond bubble?

  14. Old-school says:

    The FED just like the CIA was created by congress. We may not like it, but it is there to help the Federal government achieve it’s goals. We are left with 3 choices:

    1: Minimize their power over you by holding savings in precious metals.
    2: Accept reality of Fed and try to hold as much as possible in safe productive assets that can generate cash higher than inflation.
    3: Accept that nobody knows what is going to happen and diversify assets into every possible thing stocks, bond, cash, real estate, gold. Hopefully you will survive.

    • RD Blakeslee says:

      Nobody so far has mentioned productive real estate, owned debt-free which one lives on and enjoys as it produces real wealth – timber, for example.

      • a reader says:

        That’s how I read Old-school’s point #2, although in the case of real estate ‘safe’ is relative. It can not be owned debt-free due to the recurring debt in the form of property taxes.

        Another form of an asset in #2 category is “Tools and Materials”.

    • JZ says:

      End the FED. If this thing exist, everything corrupts, one way or another, sooner or later. I am NOT saying FED and it’s people is bad. I am saying POWER, like cocaine, corrupts people. Good people turn bad. Ban FED power like you ban drugs. The only money people can trust is the money “nobody can do anything about”. FED’s power to print is such enormous power, anybody gets close to it will get corrupted.
      This power should NOT exist.

    • Gold is says:

      I think most/many people have a sense of what’s going to happen (‘dread’ – comes to mind, an old fashioned word you don’t hear a lot these days).

      When a financial system becomes irreversibly & totally corrupt & out of control, and it becomes obvious there’s no way out, it hits the rocks.

      When that happens, good luck with stocks, bonds & leveraged real estate.

      Surprisingly though, the lifeboats are still relatively uncrowded.

  15. Augusto says:

    I don’t really understand the repo market including whether this little crisis was manufactured or real. However, in a Republic supposedly dedicated to its citizenry, the government, the media, and its elected officials seem to spend all their time looking after the money of the 1%, whether in the name of growth, prosperity, bust or crisis. To me just an indication the US is in deep trouble, as a nation.

  16. The volume of QE from offshore overwhelms any tiny Fed efforts at Repo stimulus. The problem is what happens when EU and US bond spreads narrow and the currency risk slows the rate of offshore purchases? The money stops. When that happens all the Repo backstopping and bond shuffling between UST/Fed/PD contrived balance sheet shuffling will not save Treasury which is the source of all the largess. The system is rotting from the core. The US system is in far far worse shape, internally, and while we harangue our allies they are quietly undercutting our economy with global NIRP. The US system is not prepared, while the NYSE is an international (hot money bizarre(sp), and feeds the needs of the global elite, like SNB, US taxpayers are going to get blindsided by higher taxes and inflation.

  17. Iamafan says:

    Fed to Start Buying $60 Billion of Treasury Bills a Month From Oct. 15

    Well, well. It’s nice to know that some people’s guess are not bad.

    • qt says:

      It looks like they extended it to Jan 2020. How kind of the FED?

    • QE was 85B a month by comparison

    • Iamafan says:

      ***The Fed said purchases of Treasury bills will extend “at least into the second quarter of next year,” leaving open the possibility of a change in the pace and duration of purchases.

      Now the big question. Since T bills mature in only a few weeks (time), what would the Fed do? Make them rollover at maturity?

      Only about $83 billion of 4 and 8 week T-bills are issued per week.
      If the Fed buys $60b per month, they can buy almost the whole week’s auction unless the spread it over weeks.

      But if they rollover these T-bills when they mature, we could be in for near ZERO interest in a few weeks.

  18. Bobber says:

    I read this today on ZeroHedge. Is Goldman Sachs giving instructions to the Fed?

    “Just one day after we laid out what Goldman’s revised forecast for the Fed’s “NOT A QE” will look like, which for those who missed it predicted that the Fed would announce “monthly purchases of about $60BN for four months, split across Treasury bills and short maturity coupon Treasuries, in order to replenish the roughly $200bn reserve shortfall and support the pace of growth in non-reserve liabilities”, the Fed has done just”.

    Why does the Fed appear to be following instructions from Goldman Sachs? Doesn’t Goldman Sachs benefiting from inside information and special meetings with the Fed? Why would Goldman Sachs be allowed to trade on the open market if it has access to inside information? Why does Goldman Sachs restrict its accounts, which appear blessed by inside information, to wealthy individuals?

    I thought the Fed was supposed to be independent.

    Isn’t it about time we audit the Fed to understand the scope of influences that impact its independence.

    • No remember that the Fed was exploring a way to have the banks run QE, which is what they do in Japan? I characterize this Fed as “rogue”. They have abandoned the standards of previous Feds; protecting the dollar, assisting fiscal policy, and furthering employment. Powell publicly expressed a disconnect with the first two, and a previous Fed moon walked on the employment benchmark. This Fed is primarily focused on monetizing debt, and they have several tools; Repo supplies liquidity to the markets, QE provides liquidity to the banks, and Reserves provide liquidity to Congress for government spending. In the new monetization process Fed holds (or hoards) new bond issues, and Congress taps the line of reserves. It’s almost direct monetization. In each case bonds or bills on loan are converted to cash, and recycled by banks, markets and Congressional spending. The new Fed is outside White House policy; the dollar, and economic data like employment and inflation. The old Fed actually made policies in order to direct economic growth going forward, so if a Fed policy did not work immediately, the analysts (and markets) were imperiled to wait and see. Now the Fed moves in real time, in broader macro terms, and is more deeply involved in deficit spending. The current debt crisis is not getting much attention because the hysteria levels about debt have been off the charts for a long while. This is all leading to some form of MMT. Trump didn’t want the globalist Yellen, now he will get a more domestic form of socialism, and the WH will have less control over spending. Powell is esp keen on domestic, or state issues. Dropping rates based on trade war rhetoric was his way of disowning that interest rate decision.

  19. Memento mori says:

    From the Fed statement:
    ….In accordance with this directive, the Desk plans to purchase Treasury bills at an initial pace of approximately $60 billion per month, starting with the period from mid-October to mid-November. These reserve management purchases of Treasury bills will be in addition to the Desk’s ongoing purchases of Treasury securities related to the reinvestment of principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities…
    Consistent with this directive, the Desk will roll over at auction all principal payments from the Federal Reserve’s holdings of Treasury securities. As Treasury bill holdings mature, the principal payments will be rolled into new Treasury bill securities.

    In addition, at least through January of next year, the Desk will conduct overnight and term repo operations to ensure that the supply of reserves remains ample and to mitigate the risk of money market pressures. Term repo operations will generally be conducted twice per week, initially in an offering amount of at least $35 billion per operation. Overnight repo operations will be conducted daily, initially in an offering amount of at least $75 billion per operation….

    So there you have it, a combined firepower between POMO and Repo in the $100s of billions per month, The cry babies got already more than what they asked for, a $60BN Bill POMO + $75BN in weekly O/N Repo + $70BN (2x$35BN) in weekly Term Repo, if this is not stealth QE I don’t know what it is, but let’s not call it QE for now, shall we?

  20. Iamafan says:

    Just so you will remember. QE was during an almost zero Fed Funds Rate.
    Today’s $60b/mo QE-like (or not) announcement is at the Fed Funds Rate 1.75-2%.

    New economic territory.

  21. Iamafan says:

    What is the Fed scared about?

    Foreigners (Indirects) buy about 40% of all issued T-bills sold weekly.
    $60b of Fed T-bill purchases a month till 2020 looks like overkill if the current liquidity issues is the only concern.

    Indirects have decreased their 13 and 26 week purchases and largely moved towards more short term like 4 weeks. I wonder what foreigners will do once the 4 week rate goes to zero.

    That’s probably why this cyclical reasoning is quite confusing.
    As for me, I am ready to spend my principal since I don’t think I will have much interest income. Maybe I won’t spend at all and grow veggies.

    • NARmageddon says:

      Carp, that comment was supposed to be at the main thread level bottom. Sorry.

  22. unit472 says:

    So Powell is going to do exactly what Goldman Sach’s yesterday ‘suggested’ he do. I’ll say one thing for China. They execute people for corruption and if the BoC governor was found to be a puppet of a private bank he’d be donating his organs tomorrow

    • Wisdom Seeker says:

      Two issues with the Chinese “role model”:

      1) There aren’t any big “private” banks in China. The Party controls everything, even if it’s not obvious.

      2) The corrupt leaders are only caught and punished when they are on the wrong side of the latest intra-party power struggle. The approved forms of corruption continue.

      This is not to say that the US doesn’t desperately need to get its act together and start prosecuting its own corruption. In both parties, the career officialdom, and their corporate cronies as well.

      • Unamused says:

        This is not to say that the US doesn’t desperately need to get its act together and start prosecuting its own corruption.

        Should have thought of that before the corporatists got a lock on the legal system, some time back in the Eisenhower administration. Your only hope now is to try to starve them and hope they start eating each other.

        Laws are for little people. Top government and corporate officials are above the law. They said so.

  23. MF says:

    I’m eternally grateful that you have the courage to put a target on your back by calling out Wall Street behavior for what it is. Crybaby tantrums.

    Somehow we have to get to the point where we ignore the tantrums of special interests, because appeasement is the road to ruin.

  24. Iamafan says:

    In the beginning of the GFC, the Fed bought about $12 billion T-bills to their stash of about $265 billion for a high total of $277b. (Currency in Circulation was about $776 b.)

    After Operation Twist, they zeroed the T-bill balance.

    Now we are talking $60 billion per month additional with no plans how to take them away or out for normalization.

    I don’t mean to scare you but this looks a bit overboard. Crazily Irresponsible.

    • unit472 says:

      Its obvious Powell, Draghi, Kuroda. The lot of them have no idea what they are doing and are just making it up as they go. If shrinking the balance sheet was a wise policy just a few months ago how can expanding it be the ‘correct’ policy now?

      Ask any of them what economic theory or ”school” they are basing their policy on and they couldn’t name it.

    • Makes you wonder if they don’t know something

  25. Unamused says:

    Those Crybabies on Wall Street are just a sight to behold.

    Spare the rod and spoil the child. And these brats are way spoiled. They should go to bed early without any bonuses, bail outs, corporate jets, or tax cuts, and sent off to boarding school run by sadistic nuns.

    • Wisdom Seeker says:

      Re “sent off to boarding school run by sadistic nuns”

      – wouldn’t that be cruel and unusual punishment…. for the nuns?

      • Unamused says:

        My first thought was to use them as shark bait, but unfortunately the sharks won’t eat them. Professional courtesy, you see.

  26. NARmageddon says:

    Wow, I am late to the party but this is SOME article!! Great stuff, Wolf.

    I wonder what this all means? Is this Powell/Fed telling Wall St also that Fed will **NOT** not be supportive of another bout of asset inflation? That’s what it looks like to me.

    But the stock market seems to think otherwise today. Maybe a new reality will sink in on Monday?

  27. NARmageddon says:

    Oct 11, 2019 at 3:11 pm

    QUOTE from NY Fed operating_policy_191011 : the Federal Open Market Committee (FOMC) directed the Desk, effective October 15, 2019, to purchase Treasury bills at least into the second quarter of next year to maintain over time ample reserve balances at or above the level that prevailed in early September 2019.

    The total RESBALNS number at end of Aug/Sep 2019 was 1521 B$ and 1440 B$. The RESBALNS will be “at or above” these levels until at least Jan 2020.

  28. NARmageddon says:

    QUOTE from NY Fed operating_policy_191011 : In accordance with this directive, the Desk plans to purchase Treasury bills at an initial pace of approximately $60 billion per month, starting with the period from mid-October to mid-November.

    Comment: I think this is vague. If Fed buys 60B in 1mo t-bills each month, it means there will be in a effect a one-time $60B boost to reserves. If they buy 60B 12mo t-bill each month, that would add up to a 180B boost by end January 2020. Which one is it?

    QUOTE from NY Fed operating_policy_191011 : Consistent with this directive, the Desk will roll over at auction all principal payments from the Federal Reserve’s holdings of Treasury securities. As Treasury bill holdings mature, the principal payments will be rolled into new Treasury bill securities.

    Comment: Huh? If 1mo t-bills, they will roll over the $60B from last month and buy $60B additional, or just keep the initial $60B rolling????

    My gut instinct is that Fed means that they will *add* 60B to reserves each month the program lasts, one way or the other. Depending on whether 1mo,2mo,3mo,6mo,12mo bills are purchased, the result of the purchases can linger up to 12mo after the purchases stop.

    I think the press has not been reporting on these important details, please correct me if I am wrong.

    • Wolf Richter says:

      What they said elsewhere in the announcement is that they will roll over all T-bills when the mature and replace them with new T-bills. Meaning, when that $60 billion in T-bills of month 1 matures, they will be replaced by new T-bills. This is the same principle of a account where you can set it up to where your T-bills automatically get rolled over when they mature. No humans required.

  29. Unamused says:

    Let’s push and kick the Fed into action, the theory goes.

    These capitalists generally act harmoniously and in concert to fleece the people, and now that they have got into a quarrel with themselves, we are called upon to appropriate the people’s money to settle the quarrel.

  30. Kite flyer says:

    If the Fed, by its actions can succesfully uninvert the yield curve it is sending a false signal to the markets that the country is not heading into recession.

    I can’t see how anyone can make long term economic predictions when the yield curve is biased by predatory primary dealers and constant intervention by the Fed.

    Isn’t this a strong argument for doing away with the Federal reserve?

    • NARmageddon says:

      Kite flyer, Yield curve inversion is not an organic (or natural) event caused by recessionary pressures, whatever those pressures might be. Rather, yield curves invert via the concerted action of all the big names on Wall St selling shorter term bonds and buying longer term bonds.

      Why does Wall St do this? Because they *think* a recession is coming, OR they *think* they can scare the Fed into lowering short -term rates, recession or not, which will in turn make their long-term bonds more valuable. To put it succinctly, yield curve inversion is caused by Wall St attempting to front-run the Fed for profit. Nothing more and nothing less.

      If you read the financial press, you’d think yield curve inversion was some infallible message from the gods. Bu that’s just pure bullshit.

  31. — whoever instigated it — {Ret. Who?}

    Neel Cash-N-Carry and his Wall St. Buddies of course.
    [a.k.a.; Neel Kashkari –

    Thats’s Who

  32. churchmouse4 says:

    Re: “This is particularly crucial to the “primary dealers” – the 24 US and foreign broker-dealers and banks that are authorized to deal directly with the US Treasury and the New York Fed”

    I think you’re barking up one of the wrong trees, the crybabies are foreign banks, many of which are global and possibly U.S.Linked, but most all this repo stuff points at them wanting easier terms and more money … but why?

  33. NARmageddon says:

    Quite possibly significant to this thread: JP Morgan and other big banks bought into GSE MBS in a big way in 2019-Q1/Q2 and so far have racked up 1B$ in profits. Part if the crybaby/QE4 propaganda can bee seen as a push for even higher profits on this trade. Likewise, one big reason that JP Morgan is reportedly down about 150B$ in reserves, which is part of the reason for the Sep 2019 repo squeeze, is that big banks used their reserves to go big on RMBS purchases. It’s all starting to make sense.

    But Fed so far is holding back and refusing to buy long term bonds of any kind, not just RMBS. Will there be snap-back and a spike in mortgage rates?

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