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Weak Jobs Data Will Surprise Market, Trigger Rally in Bonds and Stocks 9/2/22

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ON LEHMANS AND OTHERS

The US mortgage market has already collapsed....who can borrow at 6% to buy a house.

The FED will have to intervene and buy massive amounts of MBS.....

No one else will run the inflationary risk of owning a 30 year fixed rate security.... 

European banks are a joke....CS at $5.....

Their share prices have dead lined since 2009.....

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5 minutes ago, Jimi said:
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Steven Major, global head of fixed-income research at HSBC, thinks the interaction of QT and the plumbing of the financial system is too complex for anyone to predict properly. “The truth of it is that no one really knows,” he says, including the Fed.

Loadacrap

And JFC! The Wall Street Journal just discovered this? 

They overcomplicate this. The Fed could instantly force MMF cash into the markets by reducing the size of the program. It could do it gradually, or instantly.  

The stupidity of the media coverage of this is mind boggling. It's not rocket scientist. I mean, I understand it, and if I can understand it, any other idiot could if they just spent a little time paying attention. Everything that has happened and will happen is entirely predictable. I loudly told everyone who would listen, all 12 people, that the market would turn in August because it was foreordained by the Fed and US Treasury. 

https://liquiditytrader.com/index.php/category/monetary/

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I'm in Marseille. Train stops here and then backs out and heads north. We stop at Exxon Pro Vonts TGV, Aveenyon TGV, Val Lonts TGV, And Lee Own Par D'you. Where I will diss 'em bark. 

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14 hours ago, DrStool said:

Loadacrap

And JFC! The Wall Street Journal just discovered this? 

They overcomplicate this. The Fed could instantly force MMF cash into the markets by reducing the size of the program. It could do it gradually, or instantly.  

The stupidity of the media coverage of this is mind boggling. It's not rocket scientist. I mean, I understand it, and if I can understand it, any other idiot could if they just spent a little time paying attention. Everything that has happened and will happen is entirely predictable. I loudly told everyone who would listen, all 12 people, that the market would turn in August because it was foreordained by the Fed and US Treasury. 

https://liquiditytrader.com/index.php/category/monetary/

If I understand correctly the FED could simply end the Reverse Repo Programme and therefore force those 2 trillion go somewhere else. But since this is money from MMFs they can‘t buy stocks, they can only buy TBills. So those 2 trillion can‘t end up directly in stocks, but somehow indirectly? 

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While contemplating why MMF's would be in RRP's at .5% instead of TBills over 2% it occurs to me that MMF's are not in the business of making money for their clients, nor themselves. I think MMF's are run by banks and brokerage houses by necessity, not choice. Keeping money in house till the MMF holders buy something else. I can't imagine there is much profit in running a MMF. They are kind of a necessary evil so deposits of liquid funds stay in house.

Nobody gets into MMF's for profit. They are for safety and convivence. I am sure everyone would be pleased to be getting 2+% on their MMF. So much so people might tend to keep them in an MMF, and out of stocks or any other thing Wall Street is selling if the MMF rate was a point or two higher.

From the Feds point of view if most of the RRP money was in TBills then TBill rates would be far far lower. Enough to make a mockery of "tightening".  So all in all I am thinking the RRP programs huge size is due to a sort of gentleman's agreement. We won't seek the best return and you the Fed can appear to be in control, with rising rates. It's a conspiracy theory of sorts and I hate them, but can't think of another.

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2 hours ago, fxfox said:

If I understand correctly the FED could simply end the Reverse Repo Programme and therefore force those 2 trillion go somewhere else. But since this is money from MMFs they can‘t buy stocks, they can only buy TBills. So those 2 trillion can‘t end up directly in stocks, but somehow indirectly? 

Most of the money is MMF but not all. What if 20% of it is dealers? That's $600 billion. And if MMFs are forced to buy T-bills, that will push rates lower and a ripple effect will encourage some to go further out the curve to reduce longer term yields. 

The thing that literally everyone seems to ignore is... I mean I haven't seen it discussed or mentioned anywhere, is that holders of this cash could simply decide to deleverage, i.e. pay off margin and repo. 

I believe that's a real possibility. 

Then we'd be in a doomsday loop. 

 

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12 minutes ago, Jorma said:

While contemplating why MMF's would be in RRP's at .5% instead of TBills over 2% it occurs to me that MMF's are not in the business of making money for their clients, nor themselves. I think MMF's are run by banks and brokerage houses by necessity, not choice. Keeping money in house till the MMF holders buy something else. I can't imagine there is much profit in running a MMF. They are kind of a necessary evil so deposits of liquid funds stay in house.

Nobody gets into MMF's for profit. They are for safety and convivence. I am sure everyone would be pleased to be getting 2+% on their MMF. So much so people might tend to keep them in an MMF, and out of stocks or any other thing Wall Street is selling.

From the Feds point of view if most of the money in RRP money was in TBills then TBill rates would be far far lower. Enough to make a mockery of "tightening".  So all in all the RRP programs huge size is due to a sort of gentleman's agreement. We won't seek the best return and you the Fed can appear to be in control, with rising rates. 

RRPs are 2.3%. They are set at the Fed Funds target rate. 4 week bills were trading 2.33-2.40 until Thursday. There's not much margin there considering RRPs are overnight vs. 4 weeks. To the MMFs, the RRPs are ready cash available for withdrawals and they pay as much as 4 week bills. 

Vanguard runs MMFs at near zero management fees and are one of the most consistently profitable investment firms on earth. It's called making it up in volume. 

There's no gentleman's agreement. The money stays in RRPs because they are risk free and available every day. The Fed had to do this to give the MMFs a place to go with all the cash they got from the T-bill paydowns. Without the RRP fund, the rates on T-bills would have been driven to zero again because of the scarcity of bills while the Treasury was doing paydowns. 

The mystery now is that with heavy bill supply now, why isn't the money coming out. 

Could be as simple as duration mismatch. As the new bills age and trade in the secondary market, we should start to see drawdowns in the RRPs. 

https://www.newyorkfed.org/markets/desk-operations/reverse-repo

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