The Wall Street Journal (and Other Media) Should Stop Lying About Repos

My patience has been exhausted.

By Wolf Richter for WOLF STREET.

On January 9, the Wall Street Journal ran an article about the Fed’s repo operations with this headline: “Fed Adds $83.1 Billion in Short-term Money to Markets.” This is what the headline looks like:

The article then said that the New York Fed “added $83.1 billion in temporary liquidity to financial markets Thursday….” And: “The liquidity came in two parts. There was an overnight repurchase agreement, or repo, that totaled $48.8 billion, and a $34.3 billion 14-day repo intervention.”

It said that this $83.1 billion that the Fed “added” on Thursday was up from $46.6 billion it had “added” on Wednesday (so $129.7 billion in two days???).

The WSJ and other media have published similar articles with similar headlines before. It’s part of a larger pattern.

But this WSJ headline & article are a lie about repos.

Neither in the headline nor anywhere in the body of the article does it explain that repos are in-and-out transactions. The headline and the text of the article only mention the “in,” but willfully ignore the “out.”

Here is the “in” of a repurchase agreement: The Fed buys securities (mostly Treasury securities and some agency mortgage-backed securities) in exchange for cash. This adds liquidity to the market.

Here is the “out” of a repurchase agreement: Every repo matures on a set date when the counterparties are obligated to buy the securities back from the Fed at a set price. At this point, the repo unwinds, and it drains liquidity from the market.

All repos are by definition in-and-out transactions. When a repo matures, the net goes back to zero (except for a tiny interest payment).

The Fed’s repos fall into two categories: “overnight” repos that mature the next business day; and “term” repos that mature on a specified date further in the future, such as 14 days.

Every business day, the previous day’s “overnight” repo matures. In a week without holidays, five overnight repos mature. Each time one of these repos matures, the original transaction unwinds, the Fed sells the securities back to the counterparties, and takes back in the cash it handed out, and this drains liquidity from the money market.

Every week, two or three term repos mature and unwind on the same principle, and drain liquidity from the market.

The WSJ’s headline and article willfully ignore this “out” part of the repo. The headline and article describe only the “in” part of the repos, the new repos – and not the repos that unwind at the same time.

Liquidity: the net of new repos minus matured repos.

The WSJ’s article was about the repos on January 9. This is what happened on January 9:

  • Fed added liquidity: +$48.83 billion new overnight repos (undersubscribed, of $120 billion offered by the Fed).
  • Fed added liquidity: +$34.3 billion new 14-day term repos (slightly undersubscribed of $35 billion offered).
  • Fed drained liquidity: -$46.6 billion overnight repos of January 8 unwound.

So on net, on January 9, the Fed added $36.5 billion, not $83.1 billion.

But repos are a daily in-and-out flow, that variously adds or drains liquidity. So for example, here is what happened the day before and the day after January 9:

On January 8, on net the Fed drained $46.1 billion:

  • Fed drained liquidity: -$63.9 billion overnight repos from January 7 unwound.
  • Fed drained liquidity: -$28.8 billion 15-day term repos from December 23 unwound.
  • Fed added liquidity: +$46.6 billion new overnight repos (undersubscribed).

On January 10, on net the Fed drained $8 billion:

  • Fed drained liquidity: -$48.83 billion overnight repos from January 9 unwound
  • Fed added liquidity: +$40.8 billion new overnight repos (undersubscribed).
  • There were no term repos.

Looking at the liquidity flows of those three days:

On January 8, the Fed drained $45.2 billion; on January 9, it added $36.5 billion; and today on January 10, it drained $8 billion. So, on net over those three days, the Fed drained $16.7 billion via its repo operations from the money market.

But there is no mention of these outflows of repos in the WSJ’s article. It only describes the inflows. The WSJ collectively and its reporters are smart. They know this – or at least the editors that pay attention know this. And so this is a willful misrepresentation of a very import factor in the market.

I suspect that this is an effort to manipulate readers and therefore the markets into thinking that the Fed is constantly and endlessly adding tens of billions of dollars in liquidity to the repo market every day, even as it may be draining liquidity from the repo market, and that these articles are designed to create shock-and-awe stockmarket hype.

But my patience with this type of article has been exhausted. I’m a subscriber of the WSJ, whose reporting I generally respect (and trust), and whose reporting I have cited many times. But this type of article is very unbecoming of the WSJ and throws serious doubt on the wisdom of my decision to subscribe.

The week after the year-end Repo Chaos didn’t happen, here’s what’s reflected by the Fed’s balance sheet. Read... Fed Drains $45 Billion from Repo Market, back to Oct Level. T-Bill Purchases Continue. Assets Shrink by Most Since QT

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  206 comments for “The Wall Street Journal (and Other Media) Should Stop Lying About Repos

  1. Squanky says:

    Why? The question I have not seen answered is who actually makes money off of a repo? Does the government make money on these transactions or the banks? How much money? Where do the profits go? Nothing is free.

    • Wolf Richter says:

      The borrower makes money in that they get very cheap funding (1.5%) that they can invest, for example in MBS, with a higher yield, and earn the spread. This is risky. But hey, no problem. Those risk-takers are making the most money, unless the repo market blows out, and then these risk-takers might blow up, which is what I think the Fed was afraid of and triggered the Fed’s intervention.

      Here is more on one of those risk-takers borrowing in the repo market, AGNC, a publicly traded mortgage REIT:
      https://wolfstreet.com/2019/11/06/whats-behind-the-feds-bailout-of-the-repo-market/

      • sunny129 says:

        Wolf:

        How long this ‘game’ go on? Is there any limitation from factors, beyond Fed can control? I keep scratching my head, everyday!

        • moar says:

          how long?

          full faith & credit, same as always, as long as uncle-scam can hold the nuclear gun to the worlds head, look at nations that tried to sell their oil in form other than USD

        • rhodium says:

          Well in this particular case of welfare for the rich, the answer is indefinitely, as long as no one stops the fed from doing it. I wish I could borrow money for ~0% and buy higher yielding securities risk free courtesy of my fed buddies. I’d gladly borrow a $billion if they let me!

        • JZ says:

          Sunny, in my mind, the limitation is the following. If Elon Musk, Uber, Netflix, all these money losing zombie companies hired everybody, and the good business like Apple and Google have to pay more to hire employees, this is the event of “labor eat into capital”. Then the “capitalist” will suffer profit shrink and march to Washington and tell Jay Powell to turn off the liquidity and let these zombies die to release labors out.

          Rhodium, I will front run you to borrow overnight at 0% and buy 30 year treasury at 2%, and roll the overnight everyday at the FED.
          There, that’s it. This is where the income equality happens. We are losers because we are NOT FED friends, the club that has access to the repo, FED funds market.

        • JZ says:

          By the way, the “labor eat into capital” event is where FED truly watch. The FED can fuck all inflation numbers beyond recognition, and they won’t give a damn. But they do watch wage inflation like a faithful dog for the masters.

        • sunny129 says:

          Many argue, rightly, the current monetary interventions by the Fed are technically ‘Not QE’ because they are purchasing Treasury Bills rather than longer-term Treasury Notes.

          However, ‘Mr. Market’ doesn’t see it that way. As the old saying goes, ‘if it looks, walks, and quacks like a duck…it’s a duck.’”

          Curvature Securities’ Scott Skyrm in his daily “Repo Market Commentary” via Zerohedge:

          “Indeed, something appears amiss, because the total overnight and term Fed RP operations on Friday were greater than on year end! On year-end, the Fed had pumped a total of $255.95 billion into the market verses $258.9 billion on Friday.”

          L Roberts at RIAcom

        • Old-school says:

          I find it a little strange that the SEC has such strict reporting requirements for material events but it seems like if things get too close to the system plumbing the rules change on disclosure. If someone is in trouble and is a public company isn’t that a material event that has to be reported or do they get a waiver?

        • a citizen says:

          You’ll be scratching your head for a long time if you don’t understand Basel III Capital and Leverage ratios and the concept of “Cash Equivalent” securities.

          The bottom line is high quality credit instruments account as cash for purposes of Capital and Leverage accounting in the banking system. When actual funding needs exceed cash available at a given institution, said institutions exchange cash equivalent securities for cash at the repo window to fund these needs. The counter-party lends actual cash against these credit instruments, and, whether it’s the FED or another institution, is paid interest at the overnight rate for funding the loan. Simple as that.

          The recent turbulence has simply been caused by a shortage of counter-parties willing to provide funding for repo transactions, leaving the FED as lender of last resort, and it is this paucity of counter-parties that is the subject of a great deal analysis and conjecture.

          Personally, I think certain changes to Basel III capitalization requirements starting in 2019 are at the root of the problem, but that is my own conjecture.

          At any rate, it’s not a game, it’s not scam, and it’s not a ponzi. It’s just the way things work.

      • Squanky says:

        Thank you. That is the best explanation I have read on this amazing wonder machine called the computer, where so much information is found to be worthless, misleading or down right lies. This helps me see the game more fully. I used to believe that governments let our markets rise and fall on their own, that smart men did not make the same mistakes twice, that ownership of stock was a stake in that company, that the game could be played if you knew the rules well, and that while the game could be manipulated it was not entirely rigged. So much for nostalgia. Thanks again for honest information.

    • Iamafan says:

      Nothing is free. Correct.
      Fed Repo uses the market value of your collateral gov’t security PLUS a haircut of one percent (according to their book).
      Then you pay 1.55% interest on the loan value.
      This ain’t a free lunch.
      Of course, they could try borrowing elsewhere.

  2. RD Blakeslee says:

    One weak (!) defense of the WSJ: Their headline did say “Temporary” addition, implying withdrawal.

    • RD Blakeslee says:

      Woops! “Temporary” occurred in the body of the story – “Short Term” was in the headline.

      • Wolf Richter says:

        “short-term” is what all these repos are = 1 day to 30 days.

        • Iamafan says:

          To remove this “bias”, just compare h.4.1 on Sept 19, 2019 and January 02, 2020. It will show one the difference between the start of repo till the end of the year.

          Simply compare #2. Maturity Distribution of Securities, Loans, and Selected Other Assets and Liabilities for each date. The difference is what transpired. One can see the gross effects of repo, T Bills, and T Bonds. In addition you see the increase in excess reserves (~222B) and Treasury TGA Account (~132B). That was the goal. The Fed always said they wanted a high level or reserves (so they didn’t need to fine tune it). A high TGA balance is obvious.

          Super revealing, beats the NY Times or Bloomberg.

        • andy says:

          Wolf,
          Apple, Microsoft, Amazon, and Google combined market cap is quarter of the US GDP. Hussman will be livid to find out.

        • Wisdom Seeker says:

          Andy – You’re right and that IS terrifying!

          Back in the 1950s when the S&P500 data starts, total S&P500 market cap to GDP was only about 40%. Even with low interest rates. Same was true in the 70s and early 80s as well albeit with higher rates.

          Now just 4 companies are worth 20-25% of GDP?

          Forget the S&P500m just call it the S&P5!

        • sunny129 says:

          Irrespective of What Fed ‘deposit and later withdraw’ in the repo mkt ( shell game!?) the it’s balance sheet has grown back up by ‘ the panic-printing of $410 billion between September 1, 2019 and January 1, 2020 as the Fed’s assets zoomed from $3.760 trillion to $4.173 trillion in a mere 17 weeks.

          derived from chart from the St. Louis Federal Reserve (FRED).

          August 28, 2019: $3.760 trillion

          December 25, 2019: $4.165 trillion

          January 1, 2020: $4.173 trillion

          January 9, 2020: $4.149 trillion

          h/t Charles Hugo smith-oftwominds com

          No matter what, This has big impact on the available liquidity and further impetus in risk-on trading

        • Old-school says:

          I will reply here because of the way the chain works. The big 4 or 5 companies are one sign of excessive speculation.

          I have ran across another in the small cap space and that is excessive shorting on companies that are profitable. I have ran across 4 that I have investigated that short interest has been or is 50%. These are PETS, MED, DLTH, and SKT, but there are many others that I haven’t dug into.

          Anyone jumping on the short band wagon at 50% short interest is definitely gambling as so many things can go wrong. I try to make money off the situation one stock at a time by doing homework and then going long for a bumpy ride until shorts panic. It’s worked out for me so far, but that has been with rising stock market behind my back. To me the extremely high short interest is just a sign of excessive speculation.

  3. sunny129 says:

    Don’t you get it!

    Any headlines constantly blaring that Fed added to LIQUIDITY today so much(X) will boost the investors confidence re the ‘liquidity’ situation and equities got bid up! You and I know there was also with drawl(Y) but matters little!

    This is Wall St favorite game. WSJ is their crony!
    Why the surprise?

    • van_down_by_river says:

      The media are not in the business of informing the public, they are in the business of selling ads. Of course we would be better served if media reps would ask intelligent questions at Fed pressers.

      The media should come out and ask the Fed to inform the public prior to expanding the balance sheet so not only the primary dealers know what is going on. The Fed makes its purchases through the primary dealers so they know exactly when the Fed is initiating QE, they get this information before the general public and they trade with this inside information.

      Mr Wolf’s article yesterday, pointing out the stall in the Fed balance sheet, got me thinking today and I liquidated my stock positions. The only week the market dipped in the last 17 weeks was when the Fed momentarily paused their balance sheet expansion, if they pause again the market will collapse, this correlation is well established.

      One thing puzzles me: if the Fed stops buying Treasuries, who will fund government deficits that look to be nearing $1.5 trillion/year? Deficit spending is adding about 7% to GDP/year, if the government balanced the budget the U.S. would spiral into a depression. If the Fed stopped funding the shortfall interest rates would balloon and interest on the debt could not be sustained. How can the Fed stop funding the government now? It seems to me they painted themselves into a corner, inflate of die. I don’t see how they can possibly stop QE but I can well imagine they may try once again if only for a short time.

      To an outside observer the Fed seem both ignorant and cowardly, what if outside observations are correct? What have they done? What will become of us now that we are left no escape? Is it simply too late?

      • Richard says:

        It’s not a hard choice for the fed. Monetize debt, act like they will unwind, repeat.

        They will never unwind because there is not enough liquidity in the market for them to exit their position.

        BTFD

      • Keith says:

        I would say that the Fed is neither ignorant nor cowardly. They are smart and brazen. They know how to juice the market so they/friends can benefit, and will know when to short when they pull the plug. Look at one of their ‘selected’/fave stocks over the last 6 months (other than Apple, MS, TSLA, etc) – Micron for example is up 75% since June 2019.

    • Iamafan says:

      @sunny129

      the h/t you mentioned suggested that the Fed is reducing its balance sheet (albeit only $20B).

      I am not sure this means anything unless we see a continuous decrease.
      I think we need to place close attention to the COMPOSITION of the balance sheet. Of course that takes a lot more work than writing a blog.

      But to give you an idea, it’s the RESERVE BALANCES that might matter more. On January 9, it was:
      Reserve balances with Federal Reserve Banks 1,654,086 + 38,240 compared to last week.
      That’s closer to the amount (at least the part that is really free and excess above regulatory requirements) the banks can use to lend at repo.

      • sunny129 says:

        The REPO program is ‘shell game’ to confuse the issue and declaring it is ‘NOT QE’ , but is really another form of QE (4). look at the S&P chart and all of previous QEs, since March of ’09! It is self evident of ‘ addiction of ‘easy-peasy’ money!

        The Fed’s problem is not only are they caught in an “economic liquidity trap,” where monetary policy has become ineffective in stimulating economic growth, but are also captive to a “market liquidity trap.”

        As Mr. Skrym noted:

        “The problem with the broken repo market, and the Fed’s respective Repo operations, is similar to the problem observed with QE, and the Fed’s balance sheet in general, over the past decade. The market has gotten addicted to the easy Fed liquidity.”

        h/t RIA

        • Iamafan says:

          Sunny,
          How does Lance or Scott make money?

        • sunny 129 says:

          I don’t about them! I just read free news columns . I think they are Fairly invested BEAR with hedges of different kind!

          I am in the mkt since ’82. Now happily retired with enough for the rest of life. I am 40-50 cash and the rest – I use options tools, leveraged ETFs (both long & short) +MFunds mostly vanguard ( with automatic investment but also periodic withdrawal – back to MMKT pool They have prime and Federal MMKt.) I have also BEAR MFunds periodically .

          My dominant strategy is Div paying (at least 2.5% ot above) ETFs in various sectors/sub sectors, industries Countries ,regions ++ and also some alternate themed ETFs. Some closed funds(CEF)
          B/c of de-globalization I am focusing ‘small cap’ in foreign countries especially SE Asia including China! More than diversification there has to be uncorrelated assets from +1 (neutral S&P) to -1. I am a seasoned ‘tactical’ investor and less of long term/structural investor understand ing ‘RISK adjusted RETURN and believe in ‘reversion to the mean’

          I lost NOTHING during GFC and even made $, then I lost quite a bit of those PROFITS when Fed backing the mkt and the death of free mkt capitalism replaced by CRONY kind. The investment matrix as I know is upside down in this surreal mkt.

          Ironically I made more $ during BEAR than BULL! in the coming secular BEAR there will be severe volatility with ‘whip lashes’ and bear traps b/c there is so much greed and hopium andunquestioned confidence in the Fed!

          The coming down cycle when(?) it comes, will be worse than GFC. complacency out there is just unbelievable! Good Luck!

  4. sunny129 says:

    follow up to my comment:

    In essence WSJ giving investors of ‘ everything is hunky dory’ and let the mkt bubble bubble up more!
    When did WSJ put a headlines to say ‘Time to SELL”??

    I read it to know the view from MSM!

    • Iamafan says:

      Isn’t that why there is the ALTERNATIVE media?
      But just how good are either of them, when many in the alternative media are just gold salespeople?

      I think we should just think for ourselves.

      • sunny129 says:

        NO!
        Read, analyze with critical thinking and then deduct before executing any thing I read!
        There are a lot of GLD nuts gurus with gloom & doom at Zerohedge . that is true! I read the guest articles with their analysis and charts.
        I do trade GLD options ( a lot other index options-both ways) i am some ETfs like BAR, Aui and sgol – Gldm & Goau/ I stick more with etfs!

        For macro picture I read mishtalk, nakedcapitalism, oftwominds and realinvestmentadvice com. I tried the later (RIA) for 30 days free and found out nothing special or nothing I didn’t already, know. I do read their articles which are level headed and fact based. I do read Expert ETF com. Everything one reads has to go thru one’s critical thinking -meter!

        Most of my investment ideas come googling and re filtering and additional research at Yahoo/finance – ALL FREE!. Been in the mkt since ’82. i am life time member AAII. Have MBA background by additional education, after I retired. I am a voracious reader from the very beginning adopted easily to digital age. no advisers or brokers just online trading.

        I am away from stocks and more towards ETFs as I explained above. i do read MSM – WSJ and Barrons + Marketwatch to see the prevailing opinion propagated by the fin.industry. If I replenish what I withdraw MRD each year from IRAs, I am happy.

        But getting real investment returns above inflation especially to keep the purchasing US $ will be harder.

  5. Wisdom Seeker says:

    It’s been over a decade since the Fed did Repos as a routine operation.

    How many of today’s news writers (or even editors) remember that far back?

    Time for retraining?

    But still, one would think that usually the WSJ (of all media) would get this sort of New York / Finance story mostly right. It’s in their backyard.

    So is it more pernicious than that? The media ARE paid by their advertisers (and other more hidden sponsors), many of whom WANT to create popular fads and misleading narratives. Lots of ways of exploiting popular delusions for financial or political profit!

    So when you see the media all lined up to shill the same dodgy story, you have to ask “why”?

    In this case, who wants to promote the “Fed is pumping in liquidity” narrative?

    • NBay says:

      Thanks Wolf, I finally get the repo thing.

      During the FC I remember Libor went real high making it the indicator of
      “nobody trusts nobody because they all lie about the value of their assets”…more like TOO much lying of large size is going on.

      Make any system as complex as our current financial system is, and continues to get, and the opportunity to cheat and lie one’s way to riches
      (or just riding their tailcoats) increases to the point I doubt anyone can grasp the full thing. Certainly proves why the Nobel family despise the so-called Nobel prize for Economics

      The term “moral hazard” is far too weak…..the WSJ,Barrons, etc? They just sell words ideas to the wannabe insiders….maybe it’s even a status symbol to be seen bringing one to an office where all this stupid crap goes on.

      I’m glad I chose to make my living with my brains and my hands.

      • NBay says:

        Oh yeah, I researched your example of a repo user…N whatever….formed in 2008….with only 56 people moving all that money….plus derivative action. Even researched some of their director bios, (ex-Lehman REIT mgr, etc) and how they are pleasing investors with a 10.8% dividend (Good dividend stock according to M Fool)….blah blah blee.

        The fact this sort of “honest work” and req’d education even exists is beyond even my ability to scream and swear. Hell, how many of these financial “chop shops” exist?

        Drug dealers are better human beings…..but neither know that, it seems.

  6. James says:

    Wolf, how much total money has the Federal Reserve put into the REPO market from September 17 to January 10? I have read that 6 to 7 Trillion has been pumped into repos.

    How much has been taken out since September 17?

    Why was this necessary if there is no ongoing financial crisis?

    Why is the Fed extending repo funding into late April (claiming it is due to “tax payments sharply reducing reserve levels”)?
    Taxes come due every April, why is this April any different?

    How low are the reserve levels at the six Mega-banks, and are any or all of them actually insolvent?

    Is this Repo bailout just a ploy to drive up the stock market and make Trump look good? Is the Fed doing partisan political actions instead of “national good” actions?

    I know MY answers to some of these questions, but I would you to give us YOUR take on this largely under-reported Repo market bailout.

    Thanks

    • Wolf Richter says:

      James,

      You’re a victim of the very lies that I just exposed in my article above. So please, I implore you, read my article above carefully. It explains how repos work. These repos are NOT additive. They constantly unwind and go to zero, to be replaced by new repos.

      Total repos on the Fed’s balance sheet as of Jan 8 were $211 billion. This “6 to 7 trillion” you cite is total garbage nonsense that keeps circulating around out there. Here are the latest numbers, and I implore you to read this article too:

      https://wolfstreet.com/2020/01/09/fed-drains-45-billion-from-repo-market-back-to-oct-level-t-bill-purchases-continue-balance-sheet-shrinks-by-most-since-qt/

      • phathalo says:

        Or to give a silly example: it’s like every morning I go to an ATM, withdraw all of the money in checking account ($1000) and redeposit it back at the branch in the afternoon.
        In a year, I have “deposited” $260,000 (260 business days +/- fees/interest) but that would be meaningless as I didn’t count the withdrawals and my account balance would still only show ~ $1,000

        • Wolf Richter says:

          phathalo,

          Thanks. Great example! Why didn’t I think of it :-]

          I will steal that from you in the future, because this question always comes up.

        • phathalo says:

          @Wolf – With pleasure.

        • crv says:

          But. To be able to take out $1000 the $$ have to be there. If there are no $$ in the machine, you don’t get any and can’t do bussiness with it.
          The market, for some reason, needs to withdrawl liquidity. The FED makes sure it is there for the taking by expanding its balance sheet. So one could say the liquidity is created, even if nobody takes anything of it. But they do take it, therefore the liquidity does enter the market. It’s only when the repo window is closed when this liquidity dries up and the extra $$ are not available anymore.

        • Iamafan says:

          @crv

          The “it” is bank reserves. That’s the CASH we are really talking about.

      • Cas127 says:

        Wolf,

        I think multiple things are going on, all of them fairly weird, and that is why people are getting confused.

        1) Intentional mis reporting of Repo recycling – my guess is that the papers want clickbait and don’t mind juicing the market as a side effect…and their integrity is in the rear view mirror.

        2) The Fed is actually pumping money/adding to its balance sheet – but via Tbill purchases (to force ST interest rates down, in order to avoid an inverted yield curve, since the Fed was able to get LT interest rates down).

        Since this QE Bills is happening at the exact same time as the Repo interventions (of rare recent size and duration) people are getting confused – they hear much more about the repos (for some weird reason) and think that is what is pumping money – when it is really QE Bills.

        3) You do have to wonder why Repoville is happening at the same time as QE Bills – both look like some major inside players are getting scared…

        a) enough to exit the repo mkt so that the Fed has to take up the daily slack so as to not blow up repo – and therefore other -interest rates and,

        b) enough so that the Fed has to print yet more money to buy T bills in order to force the short end down in order to have a normally sloped yield curve in extremely abnormal times.

        Those two things are probably related (Fed pushing short end down, scaring one or more primaries away from lending into repo mkt…therefore forcing Fed to).

        Maybe it is just bank risk mgt, a protest/strike against the Fed by the primaries, or some weird inside baseball arbitrage play by the banks.

        My guess is it is hybrid risk mgt/strike agst the Fed.

        Basically the banks may be saying that by driving the short end down close to zero (via QE Bills), where rates have mostly been since 2009, the Fed is making us exit the repo mkt because repo rates won’t compensate for the actual risk this late in the cycle (oceans of crappy Corp loans are coming due over the next 5 years).

        The thing about lending short – it only looks less risky – when in reality during a bad environment it is more like playing Russian roulette…simply with greater frequency.

        Granted, the loan is not out for multiple years…but when things go bad for corps, they go bad fast and deep…on any given unpredictable day. Getting nailed during a 14 day repo can be just as bad as getting nailed during a 7 yr loan – you are locked into bankruptcy for both.

        (I am unclear why alleged ideal repo collateral does not offset this…maybe in the real world, the collateral is not so perfect)

    • Iamafan says:

      @James,

      While the Fed has been through $5,726.23 billion in Repo, most of that have expired and is gone from the market. Each week only 200-250 billion remain active. Compare this to about $1-1.5 trillion a day in the whole repo market at this isn’t as big you think it is.

      And, none of the six mega banks are insolvent. After Dodd-Frank, Basel3, LCR, G-SIB, blah-blah, etc., the big US banks are a lot stronger today.

      Ponder this, the last 5 weeks leading to the Sept 16 debacle, had a week to week big decrease of bank reserves while an increase of the Treasury TGA account of similar size. Do you have 5 weeks of tax payments from Aug-Sept? Nah. But how do you think dealers pay for the treasuries they buy at auctions???? Time to think.

  7. timbers says:

    Maybe the intended audience of this WS Journal Fed Repo reporting is Mr 409K Man.

    He’s not smart.

    He doesn’t pay attention.

    Maybe the next WS Journal headline will read:

    Mr President,The Fed Is Doing Exactly What You Told Them To Do.

    • phathalo says:

      @timbers, that’s what I thought about as well.
      It’s most likely just lazy journalism but if we pretend it was done on purpose, that would be the most likely guess.

    • NBay says:

      Ha-Ha…..I can see him now at a rally claiming he had to negotiate with them for a long time, many tough hours on the phone, but they finally saw he was right, as usual.

      Provided nothing financial goes to heck soon.

  8. Sean says:

    So what’s causing the very fast increase in Fed Balance sheet?

    • Sean says:

      Since October, all those activities are net adds?

    • timbers says:

      It’s organic.

      Or as Joe Pantoliano says to Med Tilly in Bound after he shots dead his boss’ son:

      “It’s allllllllllllll part of the business”

    • Iamafan says:

      It’s the stock market (stoopid). [Sorry not meant to be you.]
      From September 2018 to September 2019, the S&P was essentially flat.
      Then the September 16th day of infamy.
      The S&P was up like 10% after the “repo problem”.
      This is way bizzare.

    • nearlynapping says:

      This is my question as well. I get the Repo in and out. But what does the balance sheet growth represent?? Is there a pathway from the expansion of the balance sheet to the stock market??

      • Iamafan says:

        Its been going on since 2010 or so.
        How much evidence do you want?

        • nearlynapping says:

          @Imafan, you miss the point of the question. Or maybe my question needed further explanation. I have not seen an explanation for why the Fed Balance Sheet is currently expanding again. The assumption of most is that it is grown from the repo injections. If that is largely balanced over time then that assumption would be wrong.

          So if it is not from repo injections then what is it from? Then how does what the Fed is doing flow to the market?? Or is is is the market going up at this point largely because of perception and messaging — which seems to be the focusing the comments.

          I have long seen the connection between the Feds past actions and the market. But that does not mean that is what we are experiencing at the moment.

        • Iamafan says:

          @nearlynapping

          The Fed has been repeating this statement:

          We want to keep the level of bank reserves high so we don’t have to make many adjustments.

          How do you think that is done? By the Fed doing QE, Not-QE, or short term asset purchases, or repo or reduction of reverse-repo.

          Interest rate repression accompanies this. That’s why money flows to riskier securities where there is better yield.

          Dude, this ain’t rocket science.

        • nearlynapping says:

          @Iamafan: Dude, why do you condescend when you still don’t even understand the the question?

      • Old-school says:

        If I understand it correctly it goes like this:

        Fed magically creates zero interest money and buys govt backed assets which takes those off the market. The cash is then in the market as a hot potato because 0% is not a good long term holding so the money keeps slopping around in the market bidding up assets. The Fed’s reached maximum screwup when future yield on all assets is near the same as cash and there is no price discovery in market at all. Once assets start falling Fed is somewhat impotent as 0% is a pretty good relative return when everything else is going south. Anyway that is mainly Hussman’s view.

        Hussman is obviously very smart and has been a horrible money manager the last decade. It just shows how extreme the Fed’s policies have been that someone who knew the system could not conceive how extreme Fed policies would be. It seems like nearly everyone knows its a Fed induced bubble right up there with valuations back to 2000. Tesla appears to be the new Tech fart proving once again you can make some neat stuff as long as investors are willing to stump up the money via the Fed.

  9. Yak now says:

    The Fed is caught in a Big lie, and now the media is trying to spin a yarn to cover a lie that they don’t understand.

    We needed a Paul Volcker, but instead we got the bernanke. Now we are screwed

    • Crazy Chester says:

      It wasn’t hard to see this at the time as Volcker had been the first ‘name’ economist to endorse Obama, which at the time was a big deal in ‘Clinton World’.  Everyone expected his appointment as Treasury Secretary and a painful re-set and honest correction.  Instead we got Geithner who was Rubin’s tennis partner and the boys were back in town.  And that’s being nice.  If you want to be accurate Geithner was the lap dog at the NY Fed who missed the melt down and then, as a reward for the Treasury gig, did his absolute best to protect the trading houses CEOs.  A Goldman cheerleader.  The appointment of Volcker would have been seen as a necessary cleaning house – exactly what was needed and what did not happen.  As a result we’ve been patching the system with QE this and QE that ever since (along with this repo leakage now).  And those folks – in large part the Rubin/Clinton alumni (who, don’t forget, gave us the repeal of the Glass–Steagall Act) –  who had inside knowledge of where we planned to patch next made a lot of money when they would have otherwise become bankruptcy experts.  Can you imagine the collective exhale when Volcker was thrown under the bus?  Obama was probably an eager quick student in all this but not going after the trading houses worked out well for him.

      • Nate says:

        Yep, Geithner getting appointed was the exact moment I realized Obama was going to play the game instead of move forward and wasn’t the savior they all said he was. Disappointing to say the least.

        • Nate says:

          Truckguy I continue to prefer listening to Obama talk vs about any politician alive today because of those oratory skills. He’s just a lot more conservative than the left wanted to believe. His corporate enabling and war skills became evident eventually but he made a lot of good environmental efforts as well. Geitner’s appointment was just the point I knew. Putting another Goldman Sach’s alumni in the driving seat was the move the oligarchy wanted and today’s mess is the result. All those banksters got a free pass on his watch too. He’s a very mixed bag in my book. Still prefer him over others tho lol.

      • NBay says:

        Yep. Madoff was only one of hundreds that should have been jailed and stripped of their dirty FC money, but then everyone on Wall St knew about his ridiculously obvious fraud, and on top of it he turned himself in. How could one not prosecute him?

        I saw Obama say, “Wealth inequality is the defining issue of our time”, with total oratory skills conviction.

        ONCE. And then never again. I’d like to know who took him aside and said, “Look ‘Mr. President’, there are some things you don’t fully understand”.

        • Truckguy says:

          This “Volcker was ignored in favor of Geithner” position is more than a little simplistic. Don’t forget Obama appointed Volcker to his advisory board to help define regulations after the recession, one result of which was of course the Volcker rule.

          Regarding wealth inequality, far from mentioning it “just once,” it was a bedrock of most speeches and interviews he gave on the topic of finance. In terms of concrete action, recall that he instituted the surtax on cap gains to pay for Obamacare (a double-sided poke at wealth inequality).

          If we’re looking to be angry at politicians, I see better targets represented by the folks who are currently trying to roll back the liquidity protections instituted under Obama.

    • Old-school says:

      No matter if it was Bernanke or Volker the economy was going to come out of the recession and would recover. Bernanke determined that savers were going to foot the bill for asset reflation. Was just reading that the GDP is levered up by 5.6×. My guess with Volker the GDP would be about the same but leverage would be much less. Who really can say for sure?

  10. Prairies says:

    Would the machines running on algorithms simply react to stories stating the inflows or would they be going off factual data submitted by the Fed and trade based on knowing the whole story without bias?

    • Truckguy says:

      I would imagine the algorithms include ones and zeroes to account for both the subjective “confidence” created by this type of article as well as the actual liquidity itself when it becomes available.

  11. Iamafan says:

    A better way to measure repo.
    Repo comes in two flavors. Overnight and Term.
    It is easy to measure term since they usually last throughout the week – maybe 14 or more days.
    Overnight is difficult to measure since the only one that survives the Wednesday h.4.1 reporting is the one started Wednesday and expires the next day Thursday. ALL OTHER DAYS expire.
    So the better measure is to average all the 5 day OVERNIGHT repos instead and add the average to the term repos that are still active.
    You will get a better picture.

    I key in repos and reverse repo twice a day. I also key in the T Bill purchases and examine larger purchases buy vs issue dates. That way I can understand better what is going on. Then weekly, I key in the h.4.1 numbers and the DTCC GFC Repo in a spreadsheet. You get a better view of the liquidity situation.

    Finally I key in all Treasury Auctions and compute my own stats. I don’t listen to pundits, I get the numbers myself and use what I learned in my grad degree (RPI) to analyze what I see. You will get junk if you rely on mass media.

  12. Iamafan says:

    Prof. Schiller politely calls this Narrative Economics. A kinder way to call BS.

    • Yak now says:

      One BS’er (Shiller) is calling BS on another

      Benjamin Graham proposed smoothing 10yrs worth of earnings… and did so decades before Shiller. Graham paid taxes, Yale dodges taxes

  13. andy says:

    BREAKING >> “Tsunami of Fed liquidity propelling markets to record highs”

  14. Petunia says:

    Wolf,

    Don’t give yourself a heart attack. The WSJ has always been a creature of the industry. Do you really expect them to say that in a normal repo market most of these bonds would be worth %&#*.

    • sunny129 says:

      Exactly!

      What is their interest in properly educating the investors, all the wall st wants to keep buying and stay invested ‘for the long term’ (wink,wink!)
      WSJ goes along with that song!

  15. Mel says:

    Maybe the jargon has shifted over time? Decades ago (when I discovered the essays of Gerry Goodman (The Money Game, etc.) and tried to learn about finance, “liquidity” wasn’t a synonym for money. It meant a supply of money ready to do deals; easy, active times for doing business. If I am remembering right, then, the FED did supply $83bn of liquidity that day.
    I fully accept Wolf’s point that it would be wrong and silly to believe that this liquidity (the old-fashioned kind) could accumulate on top of the $48bn used on the day before, and so on When did the meaning of “liquidity” shift so that people could possibly think that?

    • Petunia says:

      The shift happened on the same day they replaced “profitability” with “risk.”

    • robt says:

      Jargon? Similarly, analysts and copy writers confuse liquidity with solvency. Somehow a high percentage of businesses having a temporary liquidity problem seem to go bankrupt quickly, except bankruptcy isn’t that any more, it’s restructuring. Anyway, all the preceding is intended to restrain panic, but the recent deluge of lurid repo-reports, including one from a ‘renowned expert’ who predicted total financial collapse by New Years seem to wish to induce panic, even describing it as QE4 to support an imploding financial system.
      Something may be up, but perhaps not as bad as all that, and the business of the ‘news’ is to worry people in order to get attention.

      • Iamafan says:

        Great comment.
        Lack of Solvency is when they can’t fool around with liquidity anymore. When you can’t borrow cash because no one wants to lend you, then you go broke. In the meantime, you play the game.

        • a citizen says:

          And if Mary shows up to close on her house and her lender couldn’t lay hands on the cash to pay the buyer, then the closing doesn’t happen…

          We all play in this game.

  16. Stan Getz says:

    I’m a fan,

    So would you kindly comment on what your trend analysis has uncovered?

    Whats the “Running Net” liquidity being provided on a weekly basis?

    Wolf’s point is well-taken but I would be curious to see what the market reaction would be if the Fed, without announcement and randomly, stop providing new liquidity for a few days then restart, rinse repeat?

    Of course, this is anathema to their goal but I would posit it would uncover some reality and perhaps price discovery on what I’m guessing are over valued debt.

    So, Iamafan, I’m a fan, could you divulge?

    • Iamafan says:

      I commented on this on a previous article. I will summarize.

      From Sept 19 to end of the year 2019 the Fed Balance Sheet ADDED (in millions):

      Treasuries (+) 223,107

      Short Term (<1 yr)* 116,732 *takes to account decay of LT bonds
      Long Term 106,377

      MBS decrease (-)75,757

      Add:
      Repo 242,326

      My Comment: Unless they can increase holdings of T-bills or bonds, they are stuck helping repo for a long while. For comfort, the Fed has to increase the level of bank reserves. They were 1,394,122 (mil) on Sept. Now they are higher 1,615,846 (end of Dec). Think higher.

      • Stan Getz says:

        Thx iamafan,

        Wolfs larger point is that the misinformation stewed by the media’s focus on the influx of repo is the narrative required to keep fragile markets afloat. As of late, the “standing repo facility” is more of the same .

        The fed & financial media are desperate to maintain this narrative.

        The Chinese are working a dual narrative of providing liquidity while also letting Ponzi schemes fail; be absorbed, enabling price discovery and debt holders experience loss.

        Seems a wiser course.

        I greatly appreciate the forum and others comments.

  17. Bobber says:

    Wolf, you can store this on the shelf with other WSJ misinformation and abuse.

    I don’t know which I hate worse – the claptrap surrounding earnings beats (after earnings targets have been quietly but drastically reduced), the moronic statements regarding “money on the sidelines”, the use of forward earnings projections, the exclusion of loss-making companies from the P/E of a broad index, nothing but positive hype in earnings calls, exclusion of small investors from earnings calls, exclusive meetings with public companies providing large investment firms inside, information, investment firm meetings with central bankers (again, allowing them inside information about central bank policy), the revolving door between government and Wall Street, incompetence of debt rating agencies, B.O.D. accountability, ridiculous executive comp packages, too big to fail issues caused by lax antitrust policy, …etc…. I could go on and on.

    I’m surprised the working public has any savings, given all the snakes and vultures on Wall Street and puppets in government.

    • Wisdom Seeker says:

      +100 for an excellent!

      Sometime you should “go on and on”, because the youth need to know so they don’t get bank-robbed.

      A few more:
      Bogus “Chinese Walls” and other internal conflicts of interest.
      Debt-financed LBOs, share buybacks, and asset-stripping.
      Gimmicks to mask stock-compensation expenses.
      Non-GAAP accounting metrics.
      Mark-to-Fantasy accounting standards.
      Citizens’ United
      Cost-of-Business fines rather than punitive damages plus jail time for responsible individuals.
      Perfectly Legal tax-avoidance schemes.
      Banging the Close
      Quarter-End Window Dressing
      Pump-and-Dump
      Front-Running and stop-loss harvesting from peeking at orders.
      Narrative Fraud (hyping fake news)

      Maybe when my kids make it to college and I have some free time again, I’ll give it a try. Not too many more years!

      • Wolf Richter says:

        EVERYONE…. please add your favorites to this list. Maybe I will publish this list — contributed by readers and commenters. This is just too good to let pass. Thanks.

        • phathalo says:

          mmm.. I heard Jim Cramer is still operational

        • robt says:

          -‘Arms-length Agreements’ to describe veiled self-dealing.
          -Mopping up overgenerous options by looting the Treasury with share buy backs, described as ‘Returning Shareholder Value’, while never paying a dividend.

        • NBay says:

          Nothing to add except “citizens united” should always be in caps…..at least until congressional seats are part the upcoming treasury auctions list.

        • Mean Chicken says:

          Print media conveniently forgets to disclose the financial interests of guest speakers in their financial columns and misinformation shows. I wouldn’t put it past the MIC “swamp” to purposely misinform the POTUS, as well.

          Rid us of the swamp already!

        • Ensign_Nemo says:

          A long time ago, years before I recycled my final television set, I happened to be surfing through channels and I stumbled across a financial one – I think it was CNBC.

          They had a guy on there who was literally dressed like a clown, with huge round Coke-bottle-bottom eyeglasses, a big bow tie, and clothes with colors that didn’t match. He wore a bright yellow shirt that looked quite hideous under the studio lighting.

          Most of the people who appear on TV are careful to wear suits and ties, or else neat female business attire, especially if they are going on a business channel.

          Intrigued by the spectacle(s), I stopped and listened for a while, and it turned out that this guy was a “contrarian”, somebody who cautioned that the stock market didn’t always go up up and awaaaay 200% of the time.

          They were using visual cues to indicate that this guy was a clown, and then used his implied clownishness as a way to discredit anybody who didn’t agree with the narrative that their corporate masters were spinning.

          There is a simple way to figure out who the token “conservative” or “contrarian” or other disfavored person is in any TV roundtable discussions or personal interviews. Mute the sound, then find the guy or girl dressed like a clown, or else the least attractive guy or girl.

          That’s the “tell” that he or she is a token “spokesperson” who has been pre-positioned to discredit the counter-narrative.

          TV is a visual medium, and what you see subconsciously influences your opinion more than you realize, especially when you are not playing very close attention to the actual content of the discussion.

          This is as true, if not more true, for political TV shows than it is for financial TV shows. George Will was a perennial favorite on TV talk shows because he wore a bow tie and looked like he had a testosterone deficiency – the perfect leftist caricature of a conservative. He was a smart guy and won a Pulitzer, but on TV your looks are more important than your thoughts.

        • Buy what the Fed is buying.

        • EBITDA; subtract all “exceptional items.”

        • Flow through shares with warrants. (Bought Deals.)

        • Price to sales and market share. Unit losses. Goodwill. Anything that Tesla does.

        • Cas127 says:

          “Non-GAAP accounting metrics.”

          GAAP accounting metrics…

      • Wisdom Seeker says:

        A few more nits to pick from the finance-media nexus:

        High-frequency trading which evaporates whenever the market needs genuine liquidity

        Wagging the Dog – manipulating markets via fake or incorrect headlines to trigger reactions from speed-reading algorithms

        Wagging the Dog 2 – manipulating primary securities prices in liquid markets via small-scale trades in illiquid derivatives markets

        Opinion presented as fact, especially on the front page rather than editorial pages.

        “News” articles which present only one side of a situation.

        Machine-generated formulaic articles which aren’t labeled as such.

        The mindset in which “If 2 sources say the same thing it must be published as if true”. (Especially when the 2 sources are colluding behind-the-scenes.)

        Hyping the same wrong-as-a-stopped-clock shills for decades.

      • Saltcreep says:

        Positive coverage of “Share buy backs”, ostensibly to enrich share “owners”, but really to enrich share sellers and to recycle management share options through corporate treasury?

      • Iamafan says:

        I interviewed in Wall street right after graduation. My classmates were some of the original quants. To summarize this list is saying that “it’s all wall street”. I doubt you want these people over for dinner. I have no choice but my neighbors work there.

    • MC01 says:

      Have you seen where newspaper sales and subscriptions (physical and online) have gone in a decade? The public isn’t buying it anymore, quite literally.

      But these misleading pieces have a far more subtle and pernicious goal than corralling retail investors into buying questionable financial products or building some sort of alternate reality like in Tlön, Uqbar, Orbis Tertius.
      All trading firms nowadays use software programs that are designed to trawl the internet for any scrap of information that can be used to gain an advantage, no matter how minuscule, when trading financial products of all kinds. Articles from the WSJ, Financial Times, Bloomberg and other big name media are obviously highly valuable, so these trawling programs immediately give them top priority the instant they are published. It takes far less than a second to scan an article such as that quoted by Wolf, see the Fed is injecting $83 billions in liquidity in the markets and send the processed data to the High Frequency Trading servers.
      Now, the scary thing is apart from a few huge players such as JPMorgan and Mitsubishi Shoji which can afford custom-built programs from the ground up (these babies are very very expensive) pretty much every trading firm on the planet uses the same pieces of software, perhaps with some degree of customization. This means all these programs react in exactly the same fashion when they hit a piece of news such as the WSJ article. Suddenly the crazy behavior of Boeing stocks (still worth $330 apiece) doesn’t sound so crazy: it doesn’t take much to have trading firms march to whatever tune you want.

    • Wolf Richter says:

      Bobber,

      You picked some really good ones. “Money on the sidelines” is one of my favorites. And it’s immortal. It has been cited all my investing life, and it will still be cited long after I’m gone, to be passed proudly from generation to generation, no matter how often it gets debunked :-]

      • Bobber says:

        The only good thing about the “money on the sidelines” talk is that most financial professionals probably aren’t intentionally lying when they say it. Most of them simply haven’t questioned the logic behind it because they are, ironically, financially unsophisticated.

        I follow a select group of about 5-10 financial commentators, including you Wolf. The rest of them haven’t proven they have the capability to offer a logical and/or unbiased opinion.

        • Wisdom Seeker says:

          Bobber – Love to know who the other 4-9 are on your list? It’s gotten a lot harder for me to find the good ones in the past 4-5 years.

        • Bobber says:

          Wolf,

          You’ve probably heard of them.

          I follow John Hussman and Lacy Hunt (for excellent historical and statistical analysis, and macroeconomic commentary), David Stockman (fiscal and budget matters, political considerations, macroeconomic commentary), Lance Roberts (general investment commentary), Ray Dalio, and some lesser knowns.

          ZeroHedge, Peak Prosperity, and Epsilon Theory are some other websites I visit from time to time.

          Also, I find the Peter Schiff Show to be entertaining, showing zero reverence for central bankers, politicians, and Wall Street.

          Some of these people have businesses and talk their book from time to time, but they always have some unique insights to share.

        • Wisdom Seeker says:

          Bobber, thanks for that list! I agree with most.

      • Jeff Relf says:

        Historically, the S&P 500 only falls when
        the president is a lame-duck, à la 2008.

        Every technological advance creates a bubble.

        In 1930, electricity created the bubble;
        in 2000, it was the Internet.

        Today, it’s gig workers, and they’re being
        outlawed per “California AB5” because
        “government unions” (Democrats) can’t compete.

        In Seattle, minimum wage hikes are killing businesses,
        including my own.

      • Saltcreep says:

        That ‘money on the sidelines’ thing drives me nuts. I sit around wondering how captured financial commentators must be to even entertain such concepts on such a regular basis…

      • Bobber says:

        Sorry, I meant to address the last comment to Wisdom Seeker.

        I also forgot to mention that I read Wolf Street & comments more than anything else, as there is a lot of specialized experience and intelligence here.

      • raxadian says:

        I found a coin in the sidewalk once, it must be the infamous sidelines money. Just a million coins more and I will have enough to go on vacations.

        • NBay says:

          Good one- an extreme limit of the “Sidelines Money” definition/domain is most likely now established.

      • nearlynapping says:

        Stating the obvious: “risk own vs risk off”

        • Wolf Richter says:

          nearlynapping,

          Just to clarify: Was the “risk own” a typo or a very clever twist?

        • NBay says:

          As I said before, when you start getting comments via Alexa and Siri, the effort to moderate this website may put you in a padded cell.
          Better ban it now.

  18. Hemingway's Cat says:

    Closing repo positions may not mean closing out the positions bought with that money.

    Consider the below mechanism where by the ‘out of repo’ part of the equation does not require the borrower of repo money to sell the stock they bought with it.

    You can buy your stock with repo money then use the stock as collateral to get another non-repo loan., to pay off the repo loan.

    You thus get your bond collateral back when the repo loan closes and now have your stock subsidized by an outside non-fed lender. You can then use the bond collateral again to get another Fed repo loan. Wash- rinse- repeat.

    We are not in a crisis mode so getting loans backed by stock should be pretty easy. It’s my assumption that the whole repo-crisis was a sham from day one, and that there is no actual money shortage. Could be massive leverage can be applied this way so long as the Fed keeps making the money available. And Fed officials are just gushing with comments making that clear.

    Just a guess!

    • Iamafan says:

      Can you demo this scenario with numbers?

      Please show how you’ll get enough money to pay the Fed back plus interest.

    • phathalo says:

      My understanding is that repo’s are used (by borrowers) mostly for funding shortfalls, i.e. positions are already open but need funding.

      I also heard from some that repo’s are used by lenders to cover their short positions and in this case it’s the borrowers who are in the stronger position (at least the ones holding sought-after securities)

  19. Mean Chicken says:

    So AGNC was being squashed, someone(s) realized this and the stock was being sold off as a result then the FED instituted a rescue and voila the stock recovers, all behind the curtain and in the interest of insiders?

    I believe I have this correct and I see what looks like a miraculous recovery… Just trying to comprehend….

    • Wolf Richter says:

      I would say, “Someone like AGNC” — some mortgage REIT or hedge fund with access to the repo market.

      • Mean Chicken says:

        Yes, or some specific sector(s) were affected. Mortgage REIT’s as a whole were hit pretty hard and rebounded spectacularly recently, so someone knew. Probably WSJ was aware.

  20. ABC says:

    I think the market came bouncing back because the Fed wasn’t going to cause another 2008 by refusing to liquify the financial plumbing of short term repos. Do we really want a repeat of 2008 where everyone can’t get credit and businesses and jobs collapse just so we have a cheaper stock market/asset prices? What are we rooting for here?

    • Mean Chicken says:

      “Do we really want a repeat of 2008 where everyone can’t get credit and businesses and jobs collapse just so we have a cheaper stock market/asset prices? What are we rooting for here?”

      Just need to be prepared for when the FED does pull the punch bowl away, it could get ugly? Meanwhile, gamblers (insiders in the know?) reap the rewards, free and fair markets indeed (be damned?).

      • Trent says:

        “Do we really want a repeat of 2008 where everyone can’t get credit and businesses and jobs collapse just so we have a cheaper stock market/asset prices? What are we rooting for here?”

        Yes, let the stock market fail, sorry about your retirement but then again you shouldn’t have been so trusting of the same people who screwed the steel workers out of their pensions in the late 70’s and early 80’s. If banks fail, nationalize them, recoup anyone who has 200,000 in that bank but nothing above. We’ll level the playing field and reduce inequality very quickly. The cycle of needs to restart from the beginning, it’ll get back to where we are now but that won’t be for some time.

      • Iamafan says:

        Can you elaborate on the “connection” of repo and C&I or Credit Card or Mortgage loans?

        Aren’t these separate punch bowls?

        • Trent says:

          We are rooting for a redistribution of power. Less at the top, more at the middle and the bottom.

        • Mean Chicken says:

          Trent, you know that won’t be allowed at any cost. Quite the opposite.

    • Frederick says:

      Yes Bring it please asap

  21. Norma Lacy says:

    I stopped reading the propaganda mill – I mean the Wall St Jerk – years ago.

    • Paulo says:

      Add to that the ‘Economist’. rah Rah blah blah.

      • Wisdom Seeker says:

        The Economist is double-evil because it’s not just propaganda and opinion-masquerading-as-fact, but it’s so bloody longwindedly and forgettably unreadable. I suspect even the market-moving algos can’t parse it intelligibly!

        • Dan Romig says:

          One has to look at who owns The Economist, The Wall Street Journal and Bloomberg News.

          From The Economist’s website on its ownership: “The ‘A’ special shares are held by individual shareholders including the Cadbury, Layton, Rothschild, Schroder and other family interests as well as a number of staff and former staff.”

          Since its founding in 1843, The Economist has been controlled by the Rothschild cartel.

          bloomberg.com has a catchy tagline: “Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.”

          At least with Bloomberg’s ownership we pretty much know where we stand. Michael Bloomberg was mayor of NYC, he has a monopoly on thousands of trading terminals that sit on the trading desks Wall Street’s elite investment banks and yes, his terminals are at the helm of the one and only Wizard of Oz, the Federal Reserve Bank of New York.

          Mr. Bloomberg is a down-to-earth hard working guy. He’s worth a bit over $50 billion, and if you would so kindly vote for him, he would like to be the next President of the United States. Heck, just a couple days ago he was chatting it up with some soybean farmers in southern Minnesota, what’s not to like about that, eh?

        • Dan Romig says:

          Full disclosure: I have not met, nor do I endorse Mr. Bloomberg in his bid to be the next U S President.

          http://www.startribune.com/in-minnesota-michael-bloomberg-tries-to-show-he-would-fight-for-rural-interests/566828232/

          I do find it ironic that a multi-billionaire is hanging out at the Johnson Family Farm to get rural farm-cred.

        • NBay says:

          Yeah Dan, but he’s not giving the local farm kids helicopter rides, e.g., no trickle down.

  22. A says:

    Murdoch media lies about everything and invents their own fantasy world where the 400 billionaire families are demigods and mere mortals must worship them and tithe tax cuts, 0% interest rates, and FED bailouts to them via conservative politicians. Avoid this trash like the plague.

    • Gandalf says:

      Exactly.

      I noticed WSJ started going bonkers after Murdoch bought it in 2007. It took a while for Murdoch to root out the last of the really good editors and reporters, but today, the once proud Wall Street Journal has turned into the same far-right political and economic propaganda machine as Murdoch’s other prize possession, Faux Notnews. Dressed up in more polite business lingo, but the same Murdoch BS designed to fool the masses and perpetuate global plutocracy.

      Yep, Wolf, time to cancel your subscription

      • NBay says:

        Yeah. That lady Faux brought on that was originally introduced as a reporter from some semi-legit sounding paper is still there, and one of their most vehement commenters, but they no longer mention the paper.
        Anyway, when they bring on WSJ reporters, then Murdoch’s well known MO will be completed. It will ring a very good bell in their audience’s heads, even if he then guts it to a bare bones constant loss paper.

  23. Unamused says:

    Mass media and IT services have been consolidated and are monolithic, and retail is being consolidated online, as instruments of mass control. The time is coming when you will only know what they tell you, you will only be able to buy what they want to sell you, and they will know everything about you. They will engineer and optimise your exploitation, or discard you if you are not sufficiently useful. It is already happening, and it is deliberate. They have the will, and they have the means, to establish and enforce technological totalitarianism.

    The truth will not set you free, because you will never know the truth. This article proves that the window is closing.

    You will be assimilated. Resistance is futile.

    “Oceania was at war with Eurasia; therefore Oceania had always been at war with Eurasia.”

    1984

  24. Mean Chicken says:

    WSJ(Pay to play) – Extends their gratitude’s specifically toward career politicians, no?

  25. tommy runner says:

    ws urinal.. ‘yellow journalism’.

  26. Iamafan says:

    In case you have not noticed, there is a new phenomenon not yet unmasked in mass media.

    I call it the new 4 and 8 week T Bill SOMA Add-on. Nowadays rollovers are not just in Treasury Notes and Bonds. Even short term T bills are rollover-ed.

    This is the 4th week we have had massive Fed SOMA purchases in the 4 and 8 week auctions (more than 2 billion each) per week. It was $4B last Dec 12th.

    How’s that even possible, why?

    Because part of the $60b/month T bill purchases were much shorter than 6 month or 1 year T bills and they began maturing. Since the Fed intended to rollover T bill purchases, you saw it just happen.
    Watch Apr-May 2020 when the bulk of the bill purchases begin to mature.

  27. Iamafan says:

    Not Conspiracy Theory.

    Last 6-Jun-19, the 4 week auction had a test; a small 2,666,700 SOMA purchase by the Fed. The 8-week amount was 2,333,300. We dismissed this a only a small value EXERCISE.

    Then silence.

    On 12-Sep-19, the Fed increased the purchase by ten times the amount. This was the week of the repo conundrum!!!!

    What’s the significance? Don’t you think the Fed was preparing for this ($60B a month T bill purchase with ROLLOVER) since June?

    Got to watch closer.

  28. Sinbad says:

    The key point is the Federal Reserve is using it’s power to create money from thin air to prevent market forces raising interest rates.
    The US is no longer a free economy, it’s a centrally controlled economy.

  29. fred flintstone says:

    I outperformed the markets for years coming out of college…… Then, like most, was told that anyone who wanted to be financially astute read the Journal….so I read the Journal religiously and lost money for a decade…….
    I stopped reading 20 years ago and have had my best years…….
    I have a timing service that is one of the best that I’ve learned to trust over the past 60 years…….so I relax and leave all the numbers to the experts.
    Everything in the Journal is reflected in the market long before any of us read it. The timing service has gotten me out before almost all corrections with insignificant losses compared to being in for all the long runs.

    • Zantetsu says:

      What is a “timing service”? If it is what I think it is … am I dumb for trying to use free expertise provided in the comments of wolfstreet.com as my “timing service”? It is why I got out of the market nearly altogether soon after Wolf announced his short, after all …

  30. GSH says:

    I understand the Fed only accepts treasuries and Fannie/Freddie mortgage bonds as repo collateral. How does that help banks that are repoing some dodgy AGNC collateral? They cannot post the AGNC collateral at the Fed or have they found a way to do that?

  31. gorbachev says:

    Core earning .Just give me GAAP please

  32. John says:

    Non Gaap accounting metrics is my vote. Thanks again, what a crew!

    • NBay says:

      Love changes in biz lingo. In the 70’s “creative bookkeeping” did the job.

      Also, Personnel became HR (or the HR bitch, in w-2 lingo) and I just saw my first CPO….Chief People Officer, no lie!

  33. Michael Engel says:

    1) The $4T repo market provide funds, for limited time, to the shadow banks and foreign entities that need US $ to swap debt.
    2) The shadow banks provide liquidity and decide how much % rates
    to charge. They make money on car loans, C/C debt, mortgages… 3) The repo market is a lever that lift the global debt.
    4) Since the shadow banks provide fake, useless collateral the repo
    market will freeze one day.
    5) When that will happen the Fed will be the buyer of UST.
    6) Fed assets will easily exceed $7.5T, so the gov can :
    — Feed hundreds of millions of unemployed people.
    — Treat their growing health problems.
    — Provide shelte. — Merge with energy cos, whales eating guppies, to provide gas and oil
    for your cars, electricity & heat for your house, otherwise ==> no extraction when prices will plunge.

  34. Mike says:

    So I guess repos are no big deal?

    • Wolf Richter says:

      Repos are a $200-billion deal. So that’s pretty big.

      Don’t forget that the Fed is also buying T-Bills, and we’re talking about another $200+ billion — for a total of $400+ billion in just four months so far. So yes, it’s a big deal.

      The reasons why this is being done are also a big deal, including the fact that the real reasons have not been disclosed yet. Who was the Fed bailing out? All we can do is speculate at this point. So this is a big deal on many levels.

      • Iamafan says:

        That’s exactly the problem. When the Fed repos, the whole reported amount is being loaned. All that loaned money is available.

        How is this compared with the other repo when long and short positions are netted but all we hear are the huge nominal amounts which could really net close to zero.

        Maybe this 200-400b from the Fed can support a lot more repo than we hear and think.

      • HollywoodDog says:

        This is why I suspect it’s happening: JP Morgan and the other big banks know that the financial system is gonna seize again due to the conditions created by “free money for everyone.” They don’t want to be left holding the bag when it happens, so they’ve left the repo market, leaving the “lender of last resort” to step in. This only delays the inevitable. The “reset” is in the works.

        • Iamafan says:

          Maybe they didn’t have that much excess reserves or liquidity left beyond regulatory requirements.

          Who has the duty to save repo? Looks like it should be the Treasury and not the Fed. I don’t believe that’s the Fed’s mandate.

      • pogohere says:

        “Who was the Fed bailing out? All we can do is speculate at this point. So this is a big deal on many levels.”

        Exactly! Whose dog is not barking in the night? “Silver Blade,” A. Conan Doyle.

        Gregory (Scotland Yard detective): “Is there any other point to which you would wish to draw my attention?”
        Holmes: “To the curious incident of the dog in the night-time.”
        Gregory: “The dog did nothing in the night-time.”
        Holmes: “That was the curious incident.”

      • WSKJ says:

        I am guessing that we can assume that the Fed was bailing out some big financial player (bank, brokerage, etc.)…..a player deemed Too Big to Fail. A highly visible medium-sized player might be TBTF in this context ??

        That does limit it. Am I wrong?

        • pogohere says:

          The odds favor an EU bank, and likely a BIS “globally significant financial institution:”

          Global Systemically Important Financial Institutions (G-SIFIs)

          The FSB, in consultation with the Basel Committee on Banking Supervision (BCBS) and national authorities, has identified global systemically important banks (G-SIBs) since 2011. The list of G-SIBs is divided into ‘buckets’ corresponding to required level of additional loss absorbency. The list of G-SIBs is updated annually each November, together with information on the application of policy measures to G-SIBs under the integrated set of policy measures to address the systemic and moral hazard risks associated with systemically important financial institutions published by the FSB in 2011.

          https://www.fsb.org/work-of-the-fsb/policy-development/addressing-sifis/global-systemically-important-financial-institutions-g-sifis/

        • Old-school says:

          Seems like wall street has at least 3 typical ways of making money:

          1. Gather a lot of financial assets and charge a skimming fee.
          2. Use leverage and hope you get rich before the leverage goes against you.
          3. Front run trades using high speed computers.

          I will add another one charge company fees taking them back and forth from public to private.

          Anyway, isn’t repo a leverage play? Did leverage go against someone and they get bailed out.

      • “The reasons why this is being done are also a big deal, including the fact that the real reasons have not been disclosed yet. Who was the Fed bailing out? All we can do is speculate at this point. So this is a big deal on many levels.”

        This is the nub, right here. Nobody knows why …

        Bailing out frackers (or frackers’ lenders).
        Bailing out (too big to fail) China.
        Bailing out billionaires.

        … or bailing all of them at the same time. My vote is on billionaires.

  35. Iamafan says:

    There’s something that’s bugging me.

    The Fed repo isn’t netted, meaning you borrow the whole amount.
    GFC repo is netted meaning your position for each general class is settled after netting your repo and reverse repo amounts. Therefore, the value exchanging hands in the end of the day is smaller.
    So how much more powerful is the Fed repo?
    I guess you take the money from the Fed repo and go use it in the other repo markets.
    Maybe there’s a Zoltan Posar kind of guy here who can provide more information and explain how this works.

  36. star says:

    Most of what main stream produces is blatantly agenda driven and …
    .fake as a result.
    No more. The worst is the NYTimes. Just opinion. No more news. And 3$?
    Nonsense. I cut the MSM cord completely.

    • MC01 says:

      Have you seen where viewership and readership data for big media have gone over the past decade all over the world (obviously bar China)? And the process is accelerating. The big news programs all over Europe are bleeding viewers all over place: 4% yearly losses are common and 7% not unheard of. In just one year. These folks are being wiped from the map and deservedly so.

      Funny thing is who is being blamed for these awful numbers: in Italy the oracle has spoken and declared the reason is because news programs are too favorable to Mr Salvini, which is kinda like saying CNN is losing viewers because they are too obsequious towards the current President of the United States. You honestly cannot make this stuff up.

      Even funnier (I laugh to avoid pulling out my hair, quite literally) is it seems losing viewers and readers doesn’t seem to do one iota of difference: while French and Italian newspapers are kept alive directly by taxpayers, in the US a failing newspaper can always count on some billionaire bailing it out (I think Reverend Moon inaugurated this practice by buying sagging newspapers in South America and Asia in the late 70’s) and networks don’t seem very keen to cut the dead wood of their sagging news channels. It’s like watching stock market jockeys reward Boeing for being run by people I wouldn’t trust with shoveling manure.

  37. Michael Engel says:

    1) The Fed is nothing in the repo market.
    2) The big banks provide liquidity to the repo market.
    3) The problem in the repo market is fake collateral.
    4) When the market will freeze, adding liquidity by the Fed
    will not unfreeze this market. Liquidity will not solve the problem
    of untrusted collateral.

    • GotCollateral says:

      Lets break down what could make collateral “fake”?

      1) Could it be rehypothication involved?
      2) Could it be the USD (fx) swaps funding “IG” collateral with junk as collateral for those transactions?
      3) Could it be that the collateral in 2) is subjected to 1)?
      4) Could it be that the collateral involved in these transactions went into default?
      5) Could it be that prolonged pomo by FRBNY sucks available “pristine” (UST/ABS) collateral out of the market thus exacerbating 1-4?

      • Iamafan says:

        If it’s fake, then why are counter-parties accepting it? Are they crazy?
        Can they pass it to a greater fool?

        • GotCollateral says:

          Well clearly JPM isn’t accepting it… or most people wouldnt be talking about this (unlike some of us who were pointing out the direction short to long spreads were going in before this event)…however lenders could also be short the equivalent tenor in the futures market.

          If one are looking at spreads, 3month to the 30 year (and nearly everything with the 30 year) is compressing at the top of its range so clearly there’s still selling pressure there (leveraged long USTs quietly trying to reduce exposure) offsetting record issuance by the gov. Its so funny, people complain about the amount the government is going into debt while the market is levered to the hilt on the stuff way more than the issuance, and people who weren’t even paying attention to ON markets before headlines hit the tape think that just cause the frbny stepped in (after the fact…in this tiny slice of the ON market…) now everything is solved… hahaha

          I cant complain… premium is getting cheaper on theta on IG/ HY and I can keep buying OTM calls on SPY delta neutral touches during cash hours to add to the massive equity derivative exposure of these cornered players

  38. Olio says:

    “this type of article is very unbecoming of the WSJ and throws serious doubt on the wisdom of my decision to subscribe.”

    When the Murdochs bought-out the WSJ years ago, the usefulness of the paper went into the shitter. It’s a tool for manipulation now, like all Murdoch enterprises.

    It’s payback to the Repubs for changing media-company rules years ago to allow media consolidation.

    Why did the Repubs do this favor for Murdoch? That’s another story, but goes back to Australia’s involvement in VietNam and Murdoch papers being instrumental in over-throwing the PM who wanted out of that quagmire…

  39. Michael Engel says:

    1) There are other repo markets : Europe have a repo market, China too.
    2) Fake collateral all over the world.
    3) When and where the problems will start nobody know.

    • Iamafan says:

      Lets keep it simpler. Someone’s job relies on buying government securities. But that someone does not have the money to pay for those securities. So they use those securities just bought to repo cash to pay the Treasury.

      Just like any toilet gets clogged once in a while, repo liquidity shrank and interest rose. The Fed used a plunger and billions of drano

  40. Tim says:

    “A tidal wave of liquidity”

    (This phrase was used in the late 80s to explain why Japanese asset prices would only ever keep rising. Already, the nominal per-sq ft value of the grounds of the Imperial Palace in Tokyo exceeded the nominal per-sq ft value of the whole of California).

  41. LouisDeLaSmart says:

    \\\
    NEWSFLASH BY WOLFSTREET: Mainstream media unrealiable! Nation in shock and awe. Congress launching immediate investigation. The President will adress the nation soon. French president Macron appaled by discovery.
    OTHER NEWS: Scientist make discovery that the world is made of sugar bears, unicorns and little mermaids. Santa Claus on vacation in Miami. Kim Kardashian read a book.
    \\\

  42. MLK says:

    I unsubscribed from WSJ after the 2016 election. I didn’t vote for anybody but the anti-Trump bias was just too annoying. There is no reporting anymore.

    • MLK says:

      More In and Out Repo Burgers coming up for sure as the source of problem is not going to get fixed. Congress will not act. Sometimes I think it’s all planned.

  43. Unamused says:

    My compliments to WR for inspiring so many reasoned and insightful comments here, and kudos to the commenters.

    It may be a mistake to discount any of these as mere speculation or conspiracy theory. After all, sometimes a theory is also a fact. It’s interesting to see critical thinkers seeing past the official misdirection, connecting the dots, and logically inferring dots which so far remain hidden. So far. But perhaps not for long.

    One thing is sure. The Fed would not be pursuing ongoing emergency measures for years in the absence of an ongoing emergency. It would seem the Fed was able to contain the 2008 meltdown but is quite unable to resolve the causes. I do believe a reset is imminent, and not only because the Fed seems to be trying to conceal a certain rising panic, with the MSM cheerleading and providing misdirection. Twelve years is rather a long time for the Fed to have its finger in the dike.

    I’d read this page again if I had more time. Maybe later. I’m sure I’ve missed something, probably several things.

    • NBay says:

      The keeping of fingers in dikes is becoming a more important part of our “services economy”, in many ways…..unfortunately.

  44. Augusto says:

    Perhaps the media are doing what they frequently do. That is when the powers that be feed them half stories they push back with half stories of their own. “Liquidity” is a word not an explanation, just like reporting one side of a transaction is a fact, just not all the relevant facts. I agree the WSJ is playing fast and loose with the truth, but the Fed’s story, mixed with all their BS talks and speeches, treats us all as idiots, if not patsy’s.

    • Iamafan says:

      LIQUIDITY is the amount of cash in the market. Granted there are many kinds of markets. But the one were are talking about here is the short term loan market for gov’t securities for CASH.

      • Augusto says:

        Liquidity definitions vary, it’s not just cash. One definition, which accountants frequently prefer, is cash or “cash equivalents”, which opens up all kinds of options. I think a better definition is “the ability or ease with which assets can be converted to cash”. Of course Wall Street has bastardized the term, with every form of paper trade (options, put, calls, derivative contracts, etc…) being defined as “liquidity” or adding “liquidity” to markets. This to me is exactly the opposite of cash, just made up BS.

      • Petunia says:

        Liquidity is not about the amount of cash available. Liquidity is about the number of buyers in the market. The banks have plenty of cash but are unwilling to bid, therefore, the market has no liquidity. While buyers are willing to bid you have liquidity, when the buyers disappear you have no liquidity.

  45. Iamafan says:

    Did you notice that ALL longer than 14 day Repo have been OVER-SUBSCRIBED. On the first three (42 and 28 days), even the treasuries accepted was much less than submitted.
    I wonder why? Wasn’t the collateral good enough for the Fed?
    Did the market value of some treasuries submitted fall below the value of the cusips acceptable to the Fed?

  46. Iamafan says:

    Another didn’t you notice (series):

    Every Outright Bill Purchase done by the Fed, had submitters wanting to sell more 3-5 times the Fed was willing to buy.

    Why?

  47. JB says:

    The Feds repo market : “the great American pawn shop” . with 12 chumlee’s

    /s

  48. Larson says:

    You should read up on the Treasury General Account (TGA). Barton, over at barton options covers this day in and day out. Fluxuations in the TGA seems to show a high correlation with the equity markets. Makes you lose your faith in price discovery.

    https://twitter.com/barton_options?lang=en

    • Iamafan says:

      TGA Really? Maybe low interest rates is better. Where else can you put your money? Treasuries are yielding 1.50 or a little more for longer duration.
      Incidentally, how does Barton check TGA DAILY, when the Fed publishes it weekly?

      As a I said earlier, I am gonna spend my principal before I put it on the roller coaster. I bet a very small sum on the wheel for pleasure only – a nice check to test if I am still alive.

  49. Dave says:

    Wolf you are letting the ‘Media’ off the hook easy if all they have to stop lying about is REPOs! I’m sure theres a lot more that they have ro stop lying about.

  50. Crush the Peasants! says:

    You get some crumbs from the table of this feast, so shaddup already.

  51. Iamafan says:

    Why Repo or the increase of Fed Balance Sheet is going to have to last a little longer.

    Background: (from TBAC)
    The U.S. Department of the Treasury today announced its current estimates of privately-held net marketable borrowing for the October – December 2019 and January – March 2020 quarters:

    During the October – December 2019 quarter, Treasury expects to borrow $352 billion in privately-held net marketable debt, assuming an end-of-December cash balance of $410 billion. The borrowing estimate is $29 billion lower than announced in July 2019. The decrease in privately-held net marketable borrowing is primarily driven by the higher beginning of quarter cash balance, slightly mitigated by changes to projections of fiscal activity.
    During the January – March 2020 quarter, Treasury expects to borrow $389 billion in privately-held net marketable debt, assuming an end-of-March cash balance of $400 billion.

    During the July – September 2019 quarter, Treasury borrowed $440 billion in privately-held net marketable debt and ended the quarter with a cash balance of $382 billion. In July 2019, Treasury estimated privately-held net marketable borrowing of $433 billion and assumed an end-of-September cash balance of $350 billion. The increase in borrowing resulted primarily from the higher end-of-quarter cash balance, substantially offset by the impact of the Federal Reserve’s decision to conclude its reduction in SOMA holdings of Treasury securities earlier than previously announced, and changes to projections of fiscal activity.

    Discussion:
    Where is the TGA at end of Dec 2019 or Jan 1, 2020? $483,110 (in millions) per h.4.1
    That’s a little more than the estimated $410B.
    But what is the burn rate? As you can see from the graph (linked), https://fred.stlouisfed.org/graph/fredgraph.png?g=pTsK
    the Treasury TGA account at the Fed became “dangerously” low (about 125B) in August 2019.
    So the Treasury auctioned a lot of bonds to get NEW MONEY needed to replenish it.
    According to SIFMA, this were the numbers (in billions):
    Date Gross Issues Net Cast Raised
    August ’19 984.8 177.7
    September ’19 1102.7 198.6
    October ’19 1156.8 166.8
    November ’19 918.9 112.5
    December ’19 1085.5 51.0

    As you can see, the simple truth was repo had an indigestion problem caused by too much Treasuries it swallowed. The Treasury NEEDED to raise money and that’s what happened.
    What really happened from August to December?
    The Treasury Issued (in billions) 5248.6, Retired 4542.0 and raised 706.6 in New Cash.
    Of course it spent some, but that’s why the TGA account is sitting on 367B on Jan 9, 2020.
    The real question now is how much does the Treasury have to borrow to keep its TGA balance around $400B at then end of March? AND can the private sector fund this without repo help or increase of Bank Reserves from the Fed?

    I’m taking bets now. We know Wolf is short.

    • Gandalf says:

      Well, the obvious answer is no. The Fed is going to have to go back to more QE By Whatever Name to fund the massively growing Federal debt. It’s a Catch-22 situation created by the Fed’s reversal back to low interest rates, the huge trillion dollar annual Federal debt created by the Trump Corporate Tax Cut, with the easing out of NIRP worldwide probably contributing.

      Private investors- pension plans, insurance companies, hedge funds, etc., hungry for yield are not buying these Treasuries at such low yields. They are going for CLOs and other crappy corporate junk debt.

      When the recession comes, the junk debt is going to blow up, private capital and pension plans and insurance companies, et al are going to disappear, the Fed will try to save the day by going to ZIRP, and this WILL NOT WORK. Only Congress can bail out insurance companies and pension plans, which might happen, but will balloon the Federal debt will even more, to unmanageable levels. The Fed will have to do QE out the wazoo…… or raise rates??? allow price discovery for US Treasuries? naah, that would just increase the Federal deficit costs more…

      QE Forever!! ??

      Probably not. At some point, the US Dollar will decline as a world reserve currency, and that I believe is what will firce two things to happen- taxes will have to go up to pay off the debt and the Fed will have to raise interest rates to be competitive for finding for all those Treasuries

  52. Jdog says:

    The religion of Fed worship has become a fanatical religion in the markets.
    The ability of the Fed to spur purchasing by jawboning will be extremely useful in insuring there will by buyers prior to the next crash when smart money wants to exit.

  53. Ornad says:

    I read the WSJ daily, and consider it hardly more than a fiction rag. They did have some investigative reporting that exposed some businesses as a scam. For the most part WSJ is a cheerleader for ‘the markets’. They have some non-fiction tucked away in the inside pages, but don’t know how many people make it past the headlines.

  54. Iamafan says:

    The big lesson. Seems to me the Fed forgot to increase bank reserve levels before the Treasury auctioned a ton of bonds to increase the TGA account like a hockey stick. I thought they learned this trick from Greenspan.

    https://fred.stlouisfed.org/graph/fredgraph.png?g=pTDt

  55. Old-school says:

    Seems like wall street has at least 3 typical ways of making money:

    1. Gather a lot of financial assets and charge a skimming fee.
    2. Use leverage and hope you get rich before the leverage goes against you.
    3. Front run trades using high speed computers.

    I will add another one charge company fees taking them back and forth from public to private.

    Anyway, isn’t repo a leverage play? Did leverage go against someone and they get bailed out.

  56. Robert says:

    Wolf, you do us no favors by pooh-poohing the Fed’s repo activity. Please read Pam and Russ Martens’ outstanding Wall Street on Parade web site articles, most recently, January 6,”Federal Reserve Admits It Pumped More than $6 Trillion to Wall Street in Recent Six Week Period” in which they reveal:
    “The Fed’s minutes revealed that after multiple expansions of this vast money spigot, which was previously set to lapse in January after getting the Wall Street trading houses through the year-end money crunch, instead it may be extended through April. The minutes read as follows:

    “The manager also discussed expectations to gradually transition away from active repo operations next year as Treasury bill purchases supply a larger base of reserves. The calendar of repo operations starting in mid-January could reflect a gradual reduction in active repo operations. The manager indicated that some repos might be needed at least through April, when tax payments will sharply reduce reserve levels.”

    Corporate and individual tax payments occur every April. The Fed offers no explanation as to why this April is different and requires a multi-trillion-dollar open money spigot from the Fed.

    The Fed’s minutes also acknowledge that its most recent actions have tallied up to “roughly $215 billion per day” flowing to trading houses on Wall Street. There were 29 business days between the last Federal Open Market Committee (FOMC) meeting and the latest Fed minutes, meaning that approximately $6.23 trillion in cumulative loans to Wall Street’s trading houses had been made in that short span of time.

    During the 2007 to 2010 financial collapse on Wall Street – the worst financial crisis since the Great Depression, the Fed funneled a total of $29 trillion in cumulative loans to Wall Street banks, their trading houses and their foreign derivative counterparties between December 2007 and July 21, 2010. At the pace it is currently going, it would eclipse that $29 trillion before the middle of this year.

    • Wolf Richter says:

      Robert,

      This title that you cited, “Federal Reserve Admits It Pumped More than $6 Trillion to Wall Street in Recent Six Week Period,” is COMPLETE BULLSHIT. No reason to click on this type of garbage to just see more bullshit. These people are either lying about repos in the same way that the WSJ is lying about them, or they’re totally clueless. READ THE ARTICLE ABOVE to find out how repos work. But sure, if you’re into titillating fantasies, their $6-trillion piece may be a good read.

      • It was James Grant (Grant’s Interest Rate Observer) who came up with a $4 trillion figure.

        I’m not sure I agree with it but the amount lent — even a paltry $34 billion — is more than anyone I know can make in a lifetime.

  57. EternalSkeptic says:

    Finance is no different than a shell game.
    I pay attention about what they’re not talking. Such as how long will the power that be use the wealth effects through the US stock market to prop high income earners discretionary spending? That bubble is getting immense and theres no shortage of suckers in sight that just keep piling in

  58. Octopus Garden says:

    For those wondering why the stock market goes up because people misunderstand the repo market, perhaps my own example can shed some light.

    I have invested very little in the stock market over the past 20 years but was ready to take the plunge, take money out of what you call bank term deposits, in your country and buy some tech stock, quite recently. And it was because the so called liquidity injections, I figured, were bound to destroy the value of American money and Canadian money, by extension.

    Believe me, if I was thinking that way , as super cautious as I am, you can bet others have been acting on it. There may be some behind the scenes manipulation going on but it also may simply be fear driven by people who are afraid their savings will be further gutted.

    Thanks, Wolf, for explaining this. It was just what I needed to read. It could have been a blunder of a lifetime, had I proceeded.

    It would be ironic if the final outcome, in terms of fiat is deflationary.

  59. Paul Schwartzmeyer says:

    Thanks for the heads up Wolf. I’ve actually cut all my news feeds because of just what you mentioned. I don’t have the time to analyze every article I read.

    Everybody is just creating click bait.

  60. One must look at the Fed balance sheet to see if net increases (or decreases) are occurring.

    The balance sheet declined when QE3 ended and loans made in earlier rounds of easing matured. When the yield curve inverted and yields in the EU turned sharply from negative to positive (implying very large losses) then money started flowing into repo … and the Fed balance sheet started expanding again.

    Repo gets rolled over like any other loan and as for bookkeeping … these days anything can mean anything.

  61. Iamafan says:

    Hey Wolf,

    You might want to read this: [link]

    The key flaw in Richter’s analysis is that last sentence: “At this point, the repo unwinds, and it drains liquidity from the market.”

    Neither the public nor Congress have any proof that these repo loans are being unwound. One or more of the 24 trading houses on Wall Street (primary dealers), that are authorized by the New York Fed to borrow from its money spigot at super cheap interest rates, could simply be rolling over the same loans or using term money to pay off one loan while taking out another loan.

    Ah, what proof do they want. If the borrower does not repay then the Fed has to sell the collateral, right? I guess that’s why the Fed is picky and deals only with primary dealers.

    • Wolf Richter says:

      These people are STILL clueless and still don’t get it because they simply REFUSE to look at the numbers. The numbers are published. You don’t need to make up stuff. The other day they ran a piece that said that the Fed held $6 trillion in repos. Total bullshit. I wrote my article to debunk this bullshit. And they still don’t get it. But now at least they’re getting a little closer to getting it. But they’re still not there. Link deleted because this is garbage.

  62. ispanyol says:

    The cumulated net FED repo amount is reached to 281.212 million $.

    https://veridelisi.blogspot.com/p/fed-net-repo-tracker.html

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