Jimbo

MUSINGS ON THE TEN YEAR Is it me or....... Looking at the ten year chart..... I just can't help but think the FED has drawn a line in the sand..... At around 4.2%. Its bounced off this line three times ..... I don't think that is coincidence. Is the FED is using a lot of "Dark Liquidity" to save the banks, insurers and pensions funds bond portfolios from further loss??? And could a lot of that liquidity be leaking over into the stock market???

WHY THE BANKS LOVE OF THE FHLB The FHLB have lent over a trillion to the Banks. And over a 100 Billion to the Insurers..... Most recycled bank deposits........throught the MMF's. The Banks are OK with this....... Because they really really really dont want to raise deposit rates. The FHLB acts as a "deposit recapture mechanism" for the banks. It allows them to institute a "Two Classes" deposit system with very different rates and overall minimize interest payments. They only have to offer higher rates to the money that actually leaves and not the money that stays.

ITS GOOD TO BE A FRIEND OF THE FED Yes its so very nice to be a "FED Friend" Lots of little benefits.....Like joining an exclusive club...... Are you a primary dealer....no problem....the cheapest bonds and T bills for you...... Are you a bank....no problem....the FHLB and FED are here to replace your deposits and lend you 100% on those money losing bonds. Are you a hedge fund up to your eye balls on money losing treasury bonds......no problem....here is a $500 billion REPO program so you have all the liquiidity you need while they recover in value........ Are you a depositor sick of low interest rate Bank deposits....here are some higher yielding T bills you can invest in.... Are you a money market fund that does'nt want to buy negative rate T bills.....here is the RRP fund so you dont lose money....... We are sorry that the FED put under stocks is temporarily out of service but we expect service to resume shortly....... Sorry for any incovenience caused. NEW ETF IDEA The Friends of the FED ETF

THE QUIET JOKER IN THE PACK Where is the FHLB getting all the billions to prop up the banks??????? It's the quiet joker in the pack. The silent backstopper and Hans Brinker actor. Keeping the banks away from the welcoming arms of the FDIC. Quietly nationalizing the bank deposits. I just get the feeling that the Government is going to rely more and more on these back door and indirect measures to keep the liquidity can for feeding the defecit beast kicked down the road. Low profile and stealth will be the modus operandi!!!! Everyone is desperately searching for the next liquidity momentum trade. Whilst in the shadows the FED quietly plays liquidity puppet master.

THE BACKGROUND RADIATION OF THE BIG PRINT The Big Bang produced a lot of back ground radiation....it took time to decay. Similarly the Big Print of 20/21 produced a lot of background liquidity. Which is similarly taking a long time to disburse. The RRP is fundamentally concentrated background liquidity. As were the SPACs, Crypto and NFT's. But while the other concentrated liquidity bubbles have popped and are disbursing.... The RRP soldiers on...... Carefully protected and husbanded by the FED Thats because it is its emergency rainy day liquidity fund. Used when needed...for emergencies....like now.... It is needed now to plug the Treasuries liquidity gap. And that's why all the short hopers and gropers are being squeezed.... There high probability sure thing short trade being neither high probability nor a sure thing...... For some strange reason they keep on forgeting that Government's exist to frustrate their desires.

THE BIG SHORT AMBUSH Yes all the shorts hoping for the big liquidity squeeze have themselves been squeezed. "Et tu crowded trades". The probability of the general market going down increases significantly after most of the shorts have been squeezed out. And for that reason I like the whipsaw idea. The last real high probability trade I saw was the Long bond short trade at the beginning of 2022. Over 90% probability. You can add the great bank slide at the beginning of 2023 (but the timing for this could not be determined with any real accuracy). There just arn't trades like these available at the moment.

THE CREATURES FROM SCHRODINGER ISLAND Matt Levine of Bloomberg wrote an article "Nobody trusts the banks now" on 5 may. He got close to the truth but not all the way..... He did correctly identify that banks can exist in 2 "energy" states. 1/ State One: Assets long term deposits short term.....duration lossses....deposit flight. 2/ State Two: Assets long term deposits long term (i.e. deposits sticky) ......no duration losses. What has Matt described in these 2 states is..... A Shrodingerian system!!! The Banks can exits as a supposition of both states 1 and 2 at the same time! The outside observer observes state 2 while the inside observer observes state 1!!!! So the normal state the depositor normally sees is state 2 as they are outside the box/frame. Why arnt the banks trusted by depositors anymore.... Because State 2 no longer exists....it has collapsed into state one and the depositors can see the duration losses. Why can they see the losses?????????? 1/ Because the FED stopped printing in April 2022. 2 / Because the banks cant plug the capital gap....because deposits are still fleeing.....because the US Government is sucking them up through high priced ST treasuries. i.e. it is the actions of the US Government and the FED which have collapsed state 2 into State 1. Remember State 2 existed in a strong state because FED NIrp/Zirp was covering up the budget defecit until March 2022. We have gone from a strong state 2 (the box with the door closed) To a strong State 1 (the box with the door open and the duration risk and bank losses on full display) The outside observer (depositors) and the inside observer (shareholders) are now one and now only observe and react to State 1. To close the door....to bring back State 2...to create a healthy and solvent banking system again......requires a FED pivot and US Government fiscal discipline and recapitalisation. Rather low probabilty outcomes at the moment. So expect more State 1 and reaction to State 1.

RE CHD Sells for 30 times free cash flow. I would pay 15 for it!!!!!

THE NOT SO SECRET SECRET Yes the Republicans caved. Because they don't want to balance the budget either. Its all about the pretending...the acting...the Kabuki theatre. Its all about propaganda for their voter base so they don't go off and vote for some one else who actually does want to balance the budget. This means the banks will continue to go down. Until the FED pivots.

A POSSIBLE GIANT WHIPSAW I agree with Doc. Could all end as a giant whipsaw. Giant short squeeze followed by giant dump.

PARTY LIKE IT'S 1937 US M2 is contracting at the fastest rate since 1937. Was that a good year for stocks!!!!!!! Down 50% if I remember. This will eventualy lead to a FED pivot. Its just a question of how much gets broken in the interim.

THE OTHER REASON THE BANKS CANT BE RECAPITALISED....YET As I said before...who is going the recap the banks while their business (the deposits) waltzes out the door every day to cover the buget defecit. The second reason is financial repression. Long rates should be a lot higher. The Treasury is repessing them at the cost of high short term rates. This should correctly be called "Inversion Policy" The inversion policy is actually contributing to the deposit flight. Inversion policy is not only slowly destroying the regionals but needs to end before the banks can be successfully recaped. But the end of inversion policy will lead to more bond losses (and share price falls) and the need for more capital to recap the banks.

THE MAGNIFICENT 7 MARKET Apple, Micosoft, Alpabet, Amazon, Nvidia, Meta and Tesla. Since January its been all magnificent 7 up 44%. The rest of the S&P 500 has only risen 1%. Can you call that a bull market?????? Looks like the end of a bull market......not the start. Idea for new ETF's: The Magnificent 7 ETF, the Magnificent 7 Short ETF.

THOUGHTS ON THE GREAT LIQUIDITY SUCK UP Yes the US Treasury could issue lots of debt and the market could tank..... But then the FED could simply print to neutralize this........ Or lower the amount in the RRP to soak up the excess...... China could suddenly buy more Treasuries to keep the exchange rate suppressed to help their exporters ..... A sudden outflow of bank deposits could soak it up..... Too many unknowns to ponder or predict correctly. Trading on this idea is a crap shoot!!!! "The more widely something is anticipated the less likely it is to occur" However I will caveat this ....tech is way overbought. The market is just the big 7 tech stocks. They have to break sometime. Fragility builds up under the surface. Even as the stocks make higher highs. Until the breeze from a butterflies wings can break the biggest of stocks. (i.e. even selling from anticipation of the post deal liquidity squeeze could tank the stock market)

THE LONG AND THE SHORT OF IT Why is the US treasury yeild curve inverted. I think one of the primary reason is because the US treasury does'nt want to put any more pressure on the long bond. It does'nt want the banks and insurers and pension funds to suffer any more losses. So it borrows short at higher rates....... A deliberate gift to short term lenders. But this only encourages more deposit flight..... So to save the Banks in the long term they are destroying the banks in the short term. (Or is that the other way around!!!) The choice is between more bond losses or more deposit flight!!!!

WE ALL KNOW re debt limit..... The repubs will cave like a wet noodle. As soon as they get phone calls from their constituents like.... "I invoiced the Government for 10 cruise missiles and they havn't paid for a month....how about earning your campaign donation". Its no longer funny or even convincing anymore. Just the most boring of boring Kabuki theatre.

THOUGHTS ON THE 30 YEAR BOND Trading at 3.78%. Even if inflation gets back to 2%. The 30 year should trade at 5%. With a balanced budget. Add in another 3% for default risk, future inflation risk and the crowding out effect due to an unbalanced budget and it should trade at 8%.

THE REGIONAL BANK CRISIS Its called the crowding out effect. When the Eccles Ecclesiarch don't print. There's just not enough money to go around. And it's not over. Till the fat defecit don't sing!!!!!!

WHY UNCLE WARREN BITETH NOTETH So Uncle Warren does not want to nibble at the Banks. Why Not.......Well................ What is the point of recapitalising the banks. When their deposits continue to waltz out the door. Serenaded by the sinister music of the US Government defecit. There is no point all. The US Government has said "Me FIrst". And so thats where the deposits are going. The only way to stop this..... 1/ The Eccles Ecclesiarch fires up the printer OR 2/ The US Government gets fiscal discipline.....ho ho ho....ha ha ha The US government will simply offer higher rates than the banks can pay on their deposits. In the current negative frame for banks recapitalisation wont work...... Its just throwing your money away.

THE CENTRE CANNOT HOLD The only thing to stop the bank rot now (and probably only temporarily) is for the FED to print 2 trillion and basically introduce TARP 2.0 to recapitalize the banks. i.e. a PIVOT Probably through a preference share issue. Longer term the US Government needs to balance their budget at the same time. Of course the 2 trillion print will crash the dollar. Asset prices were doomed as soon as the FED stopped printing in April 2022.

THE STAIRWAY TO HEAVEN Is it me or does the destruction of the regionals have a sort of controlled implosion feel to it. Which should make JPM's future share price chart look like "A stairway to heaven" The fear and loathing bank ETF needs to be renamed Either "The Controlled implosion ETF" Or "The stairway to heaven" ETF

RE REALITY VS MAINSTREAM MEDIA NARRATIVE Mainstream financial media narrative always set by ruling fashion. Fashion set by major financial companies through power of add spend. The rule is always "D'ont rock the boat" This always leads them to downplay and minimize negative news. This site gives negative news the value it deserves because it is not dependent on add revenue.

INTERESTING BALANCE SHEET OF THE DAY Balance sheets are such fascinating things Take Equitable Holdings Has a market cap of $9 B. Tangible book value 2020 14 Billion 2022 .......minus 5 Billion Hmmmmmmmmmmmmm.............. Where did the tangible go..... Was it where the bond fires burneth??????? A lot of insurers are quietly suffering.

THE COUNTRYWIDE RULE First republic. Why did the big boys refuse to bite...... They remembered the Countrywide rule: The rule is: Don't buy a busted bank buy its good assets and leave the FDIC with the bad ones. They saw what happened to BoA when the bought Countrywide Sued into the ground....fined into to the ground. That was their reward for rescuing Countrywide.... Total cost of buying Countrywide....$90 Billion. Busted banks arn't cheap. In fact they are the most overvalued banks in America.

RENAME THE FED It needs to be renamed BRAD. The Bank Replacement Agency for Deposits.