Blood For A Dirty Dollar?
Yesterday, power of the POMO on display with NDX and SP500 to new all time highs, MID and RUT still lagging, while DJIA missed it by that much. Our unprecedented in depth coverage of the repo ruckus continues, following up on Part 7: The Million Dollar Bloodhunt?
As opposed to previous QEv1-4, there is a not so subtle difference with this "QE lite" operation; no toxic debt, only short term (less than 1 yr) UST bills. Only with the 24 primary dealers (commercial banks), direct with the NYFRB window twice a week for a total of $60bln per month.
Like cash notes and specie, outside money expands when the Fed credits the dealer banks with reserves at the FRB that didn't previously exist. Ex nihilo, manna from heaven? While expanding IBDD's (remunerated reserves) "to bring them back into alignment" expands the outside money stock, buying UST's from the dealers (QE asset swap) while lowering FFR could be less than stimulating. How so? In Part 8, can the arbiters not squeeze enough Blood For A Dirty Dollar...
With Blood For A Dirty Dollar in mind, what's going on at the window? One can go look for themselves in "the forbidden zone" at the NYFRB site under last 20 operations. To date, five qualifying operations Oct 16,18,22,23,25 accepted 7.5bln per operation, submitted 32.5, 32.5, 41.5, 44.2, 35.7 ; total purchases 37.5bln on 186.4bln submitted. What's the message here?
The very thing that is "coveted" more than cash or reserves, and is being drained by the Fed in this "QE lite"? And... the dealers are submitting at 5X the limit, or lining up at and getting crowded out of the window as in: can't get rid of enough of it, fast enough? Why?
In the MEMO field it will state "Reserve Management Purchase". Next to the CUSPID note the maturity date, purchases for Jan 2020 through Oct 2020 maturity viz. 1 yr and under. Upon further random review of CUSPID 912796SM2 2.8bln; 912796TR0 2bln had been issued one day prior, and 912796WJ4 5bln had been issued that very day. What's the message here? And now this...
Honey, what a sweet gift: but I really don't need it and/or you can get it cheaper next week when it goes on sale; in either case: take it back where you bought it for a refund. The two magic words? Yes, dear... because I'm usually right, but she's always right. I digress, moving West...
Ceteris paribus, under "QE lite" Fed purchases, $60bln lower float, yields drop, prices rise. Why would one line up at the window to get rid of what is coveted and could be going up in value? Not so fast Joe, or you finish outside. As we presciently pointed out on August 1st to a friend...
A $60bln monthly drawdown of inelastic collateral liquidity (asset swap) with the caveat that the primary dealers come up with said $60bln plus an additional $67bln per month for more collateral? The Sheriff doubled down a fine on the infamous "Jamie Gang" for last months drunk on collateral, and disorderly "premature withdrawal" at the Lender Of Last Resort Backdoor Saloon?
Less than stimulating? Along those lines, unless the Fed lowers reserve requirements, any rise in reserves and the timing thereof, could exact a contractionary penalty viz. an increase in GSib/LCR costs. In both respects, for reasons outlined above and below, we don't THINK they will.
Are there not enough participants willing to part with their UST (HQLA) to accommodate the transformation of an over abundance of lesser grade and junk collateral? Judging from the primary dealer crowding out at the window or oversubscription to QE and repo "trade in", not the case? Again, not so fast Joe...
Did those ruthless dirty double dealers create a general collateral strike to make a subtle, yet distinct point to the Fed Sheriff?... And now this... Honey, I need to buy these Manolo's on sale from the wholesaler so I can resell them to my girls, but I swept my checking account into savings. Can I borrow a little cash? You know I'll make it up to you overnight Mr. Big...
Primary dealers can transact at the window on their non bank customers behalf. As they don't do anything for free, much less play intermediary, there's a price. With POMO muscle to supply settlement balance funds, the primary dealers who suffer from premature withdrawal, will be double ending their non bank customers and the Fed. But isn't this business as usual? In this case, what's hiding behind the window?
Coming full circle to partially answer the contractionary question posed... in that case, perhaps the Jamie Gang's "crowding in" at the window might have something to do with the Fed's "crowding out" in markets of late? This round of QE will not stimulate much of anything, other than...
primary dealer churn and turn, new outside money to buy replacement assets for arb, at the cost of other market makers risk off or priced out disintermediation, and investor irrational exuberance viz. risk on equity purchases because "Sh*t howdy folks, it's all safe to go back in the water, ya all jump right on in now". Not enough Blood For A Dirty Dollar?
At the end of the day, none of this is healthy activity viz. the circumstances are indicative of something seriously amiss and missing. As we keep Nattering, you just can't make shit like this up, and something is rotten in Denmark. More to come when the Man With No Name returns in Part 9: High Plains Drifter? Stay tuned, no flippin.
Recommended Reading:
A Fistful Of Dollars?
For A Few Dollars More?
The Good, The Bad And The Ugly?
A Coffin Full Of Dollars?
A Dollar To Die For?
The Devil's Dollar Sign?
The Million Dollar Bloodhunt?
A Negative Disposition?
A Wayward Italian in Kansas?
First Rule Of Bond Market: You Do Not Talk About Keynes?
Half Baked Hopes Souffle?
As opposed to previous QEv1-4, there is a not so subtle difference with this "QE lite" operation; no toxic debt, only short term (less than 1 yr) UST bills. Only with the 24 primary dealers (commercial banks), direct with the NYFRB window twice a week for a total of $60bln per month.
Like cash notes and specie, outside money expands when the Fed credits the dealer banks with reserves at the FRB that didn't previously exist. Ex nihilo, manna from heaven? While expanding IBDD's (remunerated reserves) "to bring them back into alignment" expands the outside money stock, buying UST's from the dealers (QE asset swap) while lowering FFR could be less than stimulating. How so? In Part 8, can the arbiters not squeeze enough Blood For A Dirty Dollar...
The very thing that is "coveted" more than cash or reserves, and is being drained by the Fed in this "QE lite"? And... the dealers are submitting at 5X the limit, or lining up at and getting crowded out of the window as in: can't get rid of enough of it, fast enough? Why?
In the MEMO field it will state "Reserve Management Purchase". Next to the CUSPID note the maturity date, purchases for Jan 2020 through Oct 2020 maturity viz. 1 yr and under. Upon further random review of CUSPID 912796SM2 2.8bln; 912796TR0 2bln had been issued one day prior, and 912796WJ4 5bln had been issued that very day. What's the message here? And now this...
Honey, what a sweet gift: but I really don't need it and/or you can get it cheaper next week when it goes on sale; in either case: take it back where you bought it for a refund. The two magic words? Yes, dear... because I'm usually right, but she's always right. I digress, moving West...
Ceteris paribus, under "QE lite" Fed purchases, $60bln lower float, yields drop, prices rise. Why would one line up at the window to get rid of what is coveted and could be going up in value? Not so fast Joe, or you finish outside. As we presciently pointed out on August 1st to a friend...
In 2017 NET [Treasury] issuance 537B; 2018 $1.1T;
2019: End of June $264B cash balance, net issuance YTD 299B, estimated actual financing needs by year end: 970B; between July and Dec 31st: est $814B GROSS issuance, net TBD. See TBAC announcements for further edification.With subsequent repetition of the "ways and means" on August 12th in Fed Cuts: Accomodative? and as effected September 17th in Nuance and Timing?...
During the July – September 2019 quarter, Treasury expects to borrow $433 billion in privately-held net marketable debt, assuming an end-of-September cash balance of $350 billion. The borrowing estimate is $274 billion higher than announced in April 2019. The increase in borrowing is primarily driven by changes in cash balance assumptions.
"During the October – December 2019 quarter, Treasury expects to borrow $381 billion in privately-held net marketable debt" - UST Marketable Borrowing Estimate July 29Ceteris paribus, Oct-Dec new issuance of $127bln per month would absorb the primary dealers $60bln monthly FRB credit reserve injections. Net $67bln monthly increase in UST float, yields rise, prices drop? Again, not so fast Joe... asset swaps, inelastic collateral and the 1st rule of bond market come to mind...
You do not talk about Keynes demand for money where convexity is present - First Rule Of Bond Market: You Do Not Talk About Keynes?Since QE lite UST bill (1yr and under) purchases started on 10/16, with the exception of the 1 yr moving from 1.60 to 1.56, there has been no change in UST bill yields. The "interim" outside money stock increase of $60bln per month could be utilized for IBDD's, interbank clearing balances, or to satisfy reserve requirements, however this is...
A $60bln monthly drawdown of inelastic collateral liquidity (asset swap) with the caveat that the primary dealers come up with said $60bln plus an additional $67bln per month for more collateral? The Sheriff doubled down a fine on the infamous "Jamie Gang" for last months drunk on collateral, and disorderly "premature withdrawal" at the Lender Of Last Resort Backdoor Saloon?
Less than stimulating? Along those lines, unless the Fed lowers reserve requirements, any rise in reserves and the timing thereof, could exact a contractionary penalty viz. an increase in GSib/LCR costs. In both respects, for reasons outlined above and below, we don't THINK they will.
Are there not enough participants willing to part with their UST (HQLA) to accommodate the transformation of an over abundance of lesser grade and junk collateral? Judging from the primary dealer crowding out at the window or oversubscription to QE and repo "trade in", not the case? Again, not so fast Joe...
Did those ruthless dirty double dealers create a general collateral strike to make a subtle, yet distinct point to the Fed Sheriff?... And now this... Honey, I need to buy these Manolo's on sale from the wholesaler so I can resell them to my girls, but I swept my checking account into savings. Can I borrow a little cash? You know I'll make it up to you overnight Mr. Big...
Primary dealers can transact at the window on their non bank customers behalf. As they don't do anything for free, much less play intermediary, there's a price. With POMO muscle to supply settlement balance funds, the primary dealers who suffer from premature withdrawal, will be double ending their non bank customers and the Fed. But isn't this business as usual? In this case, what's hiding behind the window?
Coming full circle to partially answer the contractionary question posed... in that case, perhaps the Jamie Gang's "crowding in" at the window might have something to do with the Fed's "crowding out" in markets of late? This round of QE will not stimulate much of anything, other than...
primary dealer churn and turn, new outside money to buy replacement assets for arb, at the cost of other market makers risk off or priced out disintermediation, and investor irrational exuberance viz. risk on equity purchases because "Sh*t howdy folks, it's all safe to go back in the water, ya all jump right on in now". Not enough Blood For A Dirty Dollar?
At the end of the day, none of this is healthy activity viz. the circumstances are indicative of something seriously amiss and missing. As we keep Nattering, you just can't make shit like this up, and something is rotten in Denmark. More to come when the Man With No Name returns in Part 9: High Plains Drifter? Stay tuned, no flippin.
Recommended Reading:
A Fistful Of Dollars?
For A Few Dollars More?
The Good, The Bad And The Ugly?
A Coffin Full Of Dollars?
A Dollar To Die For?
The Devil's Dollar Sign?
The Million Dollar Bloodhunt?
A Negative Disposition?
A Wayward Italian in Kansas?
First Rule Of Bond Market: You Do Not Talk About Keynes?
Half Baked Hopes Souffle?
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