Repo Market Madness… and Flash Crashes!?!

I stand by my call that risk of Flash Crash increases with Major Momo distribution under the seemingly calm surface and major structural USD implications spur potential panic for Cash.

Perhaps the repo ruckus isn’t totally over…..the NY Fed’s $30 billion term repo operation was 2x oversubscribed. This is the first such operation; the others were overnight repos.


Big Banks with “large excess reserves” chose not to make 10% (most ever) on their money in the REPO market Monday night. TEN PERCENT. 5X. WHY? Could they have been worried about the cost and return of deploying that cash? Or was it tied up in the currency markets?

Now we’re getting to it…. New York Fed examines banks’ role in money market turmoil


Every. Single. Day. Next week.

In accordance with the FOMC Directive issued September 18, we will conduct a series of overnight and term repo operations to help maintain the federal funds rate within the target range. Full details and schedule here.


Danish and Swiss Banks to Charge Customers 0.75% Interest on Large Deposits. This means 1) deposit flight 2) less money in circulation to finance the economy 3) real economy weakens. Economy stagnates. ⁦


Some dismiss this REPO mess as Fed policy misstep not market fragility or USD liquidity. They expect the Fed to fix quickly – once they see it + agree. QE is the only way to ‘fix’ QT so Market stays bid. BUT Panic breads panic. And nothing breeds panic like Demand for cash!

When banks face a funding shortage in one market, intensified competition for funds make the effects felt in other funding markets and for other banks as well. The group of banks affected only through spillovers can ultimately suffer the most.
About that plumbing problem: This granular, thoughtful article suggests the US REPO squeeze is due more to Fed lacking proper policies on ‘autonomous liquidity issues’ than USD shortage. And that ECB has a process that solves ‘this’ problem.
Kudlow says a lot of things about China Trade talks… More curious what Sept 23 says about trade fallout in global manufacturing PMI. Then Abe and Trump meet Sept 25th. Especially keen on All things REPO market.
What’s in a name?
Fed just preannounced another $75B repo for tomorrow. By way of context, fiscal YTD gross issuance of USTs has averaged ~$45B per trading day. If the Fed’s balance sheet grows by $75B a day but we call it “repo” & not “QE”, should risk assets care? Asking for a friend.
Another glitch with SOFR
Why Repo Rates Matter: Likely from the Treasury Sell-off last wk that triggered the Growth-to-Value unwind + now with Oil much higher puts at risk certain HFs from blowing up. Knight in Shining Armor JUST appeared: *NEW YORK FED TO CONDUCT OVERNIGHT REPO OPERATION TODAY – BBG
Quick primer: what is repo and why do we care all of the sudden? Thread.
To streamline your research… For the nitty gritty check out this article. And for Perspective: Read everything from @MacroMorning

Read everything Jess has written: learn, apply, be careful.

is “In The Zone” w this whole Repo Madness “Bottom line: here’s what the market thinks of the Fed’s temporary solution… It’s a joke.”

 Far Too Little, Far Too Late

$OSTK remember during liquidation — if you stop selling the volume stops. The only way to liquidate a bad choice is to keep pressure on every chance there is after relief rally moves. Once that liquidity dries up, no way to get out.

“Everyone now knows that everyone now knows that central banks are powerless to impact the real economy, but are the only thing that matters in the market economy.”

The Right Price of Money | Epsilon Theory

Place. Your. Bets.

Manic Monday? The repo market may get even crazier – and the NY Fed knows it


@JoeNatiello “These bonds are basically negative carry” We need to parse this out more. Right now it’s just guessing. But here are mine: 1. US Pensions – too exposed to credit that is too leveraged!. ***P.E. **Unicorns *Buybacks not Fundamentals. 2. Japan – YC Control in Big Trouble.

Cash is In aaaand there’s a shortage of it. DXY GLD.

“cash surpassed equities for high-net-worth individuals as their No. 1 asset class in the first quarter of 2019” – what a World wealthy investors had 27.1% of their assets in cash while 26.3% was in equities.


Hey! Double Hey!

Here’s what every trader needs to know about the Great LIBOR Liquidation, a tectonic shift in a $400 trillion market

“Be sure of 3 things: death, taxes & the end of LIBOR” – Williams,

Well, we’re ill-prepared.


Jess (@MacroMorning), curious the timing: Oct 9th: FOMC minutes released from Sept rate-cut. Will they signal they’re done cutting this yr?
Oct 10th: REPO ends. Will there be a pause to test their liquidity claims?
Oct 11th: Mnuchin claims they meet with China on Trade deal.

REPO Matters

The spike in repo interest rates is latest incidence of post-crisis reforms’ perverse consequences: tight capital, liquidity rules diminish banks’ ability to act intermediaries, making individual markets more brittle. Read here.


Liquidity Still Matters

“Something’s very wrong with the financial system,” writes former central bank official Narayana Kocherlakota


“Hey Guy, your car is making a weird noise. Better make sure the gaz tank is full.”

Kaplan Says Repo Problems Last Week Are Not Indicative Of Broader Stress But It’S “Critical” The Overnight Financing Market Works Smoothly –Says He Feels Current Policy Setting Is “On The Margin” Of Being A Little Accommodative

“There are simply too many bonds sloshing around in the financial system and not enough cash on the other side of the trade.”

Still confused about why the repo market is freaking out, and whether you should care? It’s about BUDGET DEFICITS. Thread!


“Today marks the end of the final Central Bank Gold Agreement (CBGA). Over the last twenty years, the agreement has helped stabilise the gold market by limiting the amount of gold that signatories, all European central banks, could collectively sell in any one year.”

Twenty Years of the Central Bank Gold Agreement comes to an end today