6 ms·
Why I'm Worried About the Repo Market
- WaxProlix 7y agoOutline to the rescue https://outline.com/DuqfDW https://outline.com/DuqfDW
- freejulian85 7y agoIt’s essentially QE4. Fed’s balance sheet is increasing (even if for a short duration). Make no mistake - this results in lower return on cash for savers. At a time when big banks call 0.05% “high yield”, this is the last thing we need. If banks are short on reserves they should be increasing interest rates to attract new deposits and maybe selling some of those foreclosed homes they’ve been holding onto for an eternity. The banks have completely failed as a business and the fed is enabling their incompetence. How many stories do we need of money laundering, market manipulation, fraud, until we say enough? The best part of all this? We don't even get to know the real reason there's a liquidity crisis. Obviously the "it's investors buying treasuries and corporations paying taxes!" explanation was BS.
- undefined3840 7y agoWho are you referring to when you refer to “savers”? Interest rates have been basically 0 for a very long time for retail bank customers.
- AznHisoka 7y agoShort term CD rates have hovered around 2%. They are not completely liquid but if you are saving for the medium term, they are a valid investment vehicle.
- RickJWagner 7y agoMarcus recently had a 'high interest savings' program where the base rate was 2%, you got a short-term bonus of another percent for signing up. (So effectively 3%). With limits and early withdrawal penalties, though. I think the program's ended, but it was nice when it was available.
- cylinder 7y agoCDs / money market are essentially risk free. I don't understand why people expect a rate of return above inflation without taking any risk. This is a fundamental component of capitalism, and most people have no understanding of it.
- quaquaqua1 7y agoHave been getting 1% monthly uncapped for almost 8 years now on my checking account.
- undefined3840 7y agoThat is an exception, not the rule. If you have Chase, Citi, BofA, etc. it’s been like .01% for 10 years.
- basementcat 7y agoIf you're willing to move your funds to another institution, check out https://www.depositaccounts.com https://www.depositaccounts.com to see how much you could be earning with your money.
- quaquaqua1 7y agoI understand where you are coming from, but my bank has something like 100B USD in assets under management, so I think such a plan is available to millions of people
- icedchai 7y agoConsumer banks barely pay anything. It’s awful. I moved all my long term cash to online banks and investment accounts.
- icedchai 7y agoWhere are you getting 1% monthly? I’m getting like 2% yearly from Ally.
- tanr54ok 7y agoThat’s over 12% APY. I think you’re either getting scammed or full of it.
- quaquaqua1 7y agoSorry, I should have been a lot more clear when I wrote this post last night. 1% compounded monthly is what I intended to say, as opposed to compounded continuously or yearly.
- turk73 7y agoNo, rates were going up in lockstep with fed tightening and peaked late last year. I was finding 6-12 mo. CDs with nearly 3% coupon. Then everything fell apart back in the Spring and it has continued its downward trajectory until the yield curve inverted and now we're looking at all kinds of fucked up rates and short term CDs are like 1.9% but some of those banks are, well, you'd be crazy to do business with some of those names. I watch corporate bonds and the same thing is going on. It's a giant shit show right now. Things are gradually heading in an ominous direction and I did reallocate my investments some just in case. The problem is, you can't rely on bonds anymore, either. So I'm in MM funds at the moment, and those have shitty returns and high fees. The next defensive stage downward for me is precious metals hidden at home. I hate to even imagine doing that, but I won't pay negative rates on savings when gold and silver are available.
- deleted 7y ago[deleted]
- daxorid 7y agoeven if for a short duration Nobody will unwind their balance sheets in any substantial or meaningful way, ever. QT ending because asset values came down 10% from all time historical highs should make this abundantly clear. It's a post-2008 world, and the new mandate is to smash that VIX to zero. Every central bank on the planet is engaged in this competitively, and none of them will stop until they manage to destroy their respective currencies. Bear in mind that the 100 year Austrian bond yields close to 1%, so the smart money is betting that it will take over a century for this to ever end.
- princeb 7y ago"When Fed Fixes Repo Markets, Don’t Call It QE: Brian Chappatta" https://www.bloomberg.com/opinion/articles/2019-09-23/when-the-fed-fixes-repo-markets-don-t-call-it-qe https://www.bloomberg.com/opinion/articles/2019-09-23/when-t...
- freejulian85 7y agoI'm sure the Fed asked this article be written. They're buying assets from banks and giving them money. What is your definition of QE?
- elSidCampeador 7y agoDid you read the article? They specify the definition of QE (indirectly) there.
- freejulian85 7y agoPer wikipedia (https://en.wikipedia.org/wiki/Quantitative_easing https://en.wikipedia.org/wiki/Quantitative_easing): Quantitative easing (QE), also known as large-scale asset purchases, is a monetary policy whereby a central bank buys predetermined amounts of government bonds or other financial assets in order to inject liquidity directly into the economy. The fed is buying treasuries and MBS's on a nightly and ongoing basis from the banks to the tune of $100B. Is that not large scale? Are those not assets? Is this not injecting liquidity into the economy? Hell, you can actually see the increasing fed balance sheet from their own data! https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL
- simplecomplex 7y ago“repo operations”, “quantitative easing”, and “emergency asset relief” are all fancy methods of printing money.
- coliveira 7y agoPrinting money in itself is not the problem. The problem is where this money goes and what is made of it. Operations such as QE are designed to inject money on the hands on the top of the 1% richest.
- rossdavidh 7y agoWhile I am no fan of banks, I don't think that (unless we go to negative rates in the U.S., which while not as impossible as it once seemed, still seems off the table here) it makes much difference to savers if they are getting very nearly 0%, or very, very nearly 0%. In both cases, even our modest inflation is an order of magnitude greater, so for all practical purposes they are getting a real interest rate of -1x(the inflation rate). Not that there's not problems with what, I agree, is in many ways QE4. Just that a number very near to 0 getting divided by 2 is not really the biggest one.
- freejulian85 7y agoWe don't know what interest rates would be if the fed wasn't promising free money to the big banks. My credit union can offer 2.0%, why can't Bank of America or Chase or Wells Fargo? This is no different from the LIBOR manipulation that happened a few years ago. Back then, the media was quick to point out how the LIBOR interest rate impacted everyone from pensioners to savers.
- delfinom 7y ago>We don't know what interest rates would be if the fed wasn't promising free money to the big banks. My credit union can offer 2.0%, why can't Bank of America or Chase or Wells Fargo? Because banks aren't around to make the customers money, they are there to give the shareholders dividends.
- freejulian85 7y ago> Because banks aren't around to make the customers money, they are there to give the shareholders dividends. Fine, but that doesn't entitle them to free money from the Fed.
- vuln 7y agoFor the Fed it’s just the “cost of doing business” at zero cost to them.
- simplecomplex 7y agoMain Street is starting to see that the Fed will monetize anything, with no limit. They’re starting to demand access to the printing press. The moral hazard with permanent ongoing QE is becoming a reality if Yang is taken as an omen of what’s to come.
- caublestone 7y agoThe value of the US dollar keeps going up while every other currency is going down. Off shore dollar reserves have been increasing as a safe haven.
- coliveira 7y agoThis is a classic example of bad money expelling good money. The bad currency (dollar) is driving out all other currencies because it is easy to get and use. Its value keeps going up because there is demand, not because it has any value. As long as the dollar is the only/major currency used around the world, its value will continue to hold against other currencies.
- NTDF9 7y agoLet banks fail? Arrest the execs and bankers who can't keep enough reserves?
- AlexTWithBeard 7y agoArresting someone is always a good thing to do. They tried it in the Soviet Union in 1937. Worked like a charm. I have a question though: do we arrest everyone who fail to perform, or only bankers? For example, our county recently had to pay 16 million to the family of the guy who was killed because of a faulty traffic light. Should our county executive go to prison? Also my train was late this morning by 40 minutes due to what they called "equipment failure". Should a person responsible for maintaining the equipment be arrested as well, or execution in front of the passengers would be a better measure here?
- turk73 7y agoI would flay the traffic engineer. I swear, all the lights in our city are timed to piss me off. Fucking incompetent people in every level everywhere. They can't think for themselves, they all have to follow some moronic playbook.
- avs733 7y agoLots of countries arrest people...the us tried to arrest its way out of the "drug crisis" Your example would be more meaningful if there wasn't such a strong history of demonstrable and unpunished malfeasance by bank executives. The county executive likely didn't select design or program the light....and the victims family did find justice. Your examples don't strike even a passing resemblence to what the op said. They are borderline strawmen.
- kadoban 7y agoThere's a difference between failing to perform and specifically making choices that hurt others. If the county executive knowingly chose faulty traffic lights, yeah they should go to prison. The bankers aren't bumfuzzled or victims of circumstance, they're just not optimizing for public good or the stability of the system, because why should they? They have no incentive to. If shit goes sideways, they'll just get bailed out. So how do we change the incentives? Not sure personal liability is the answer, but it's not the worst idea in at least some cases. (Though in this specific case, as much as I even understand what's going on, the answer is probably just standard regulation on the banks themselves)
- larzang 7y agoOh it's the _regulation_ that's the problem, not the inability of banks to not overleverage themselves.
- marcrosoft 7y agoOverleverage == self regulation
- MR4D 7y agoThe Fed created this problem. Yet he wonders why. It’s reasons like this that cause people like Ron Paul to think the Fed is dangerous - they don’t understand their own creations. Kocherlakota doesn’t understand it either. The repo market explanation is simple: the IOER rate is higher than fed funds, but with the Fed reducing their balance sheet (QT) by $800 billion, there are going to be unusual effects. This is one of them.
- MR4D 7y agoFor anyone who would like further reading on this, there is a great (readable) article here: https://www.advisorperspectives.com/articles/2019/09/25/understanding-the-great-repo-fiasco https://www.advisorperspectives.com/articles/2019/09/25/unde...
- marcrosoft 7y agoThis article is unreadable on mobile with popups and scroll injection.
- AlEinstein 7y agoLooks fine on my iPhone.
- markus_zhang 7y agoIsn't this just a short-term shortage of credit? We have experienced similar things on different levels many times. Or did I miss any thing?
- 33MHz-i486 7y agoWithout Fed intervention, the repo market is just big banks lending to each other overnight, using mostly risk-free assets as collateral. Why wouldn't this market clear at a large spread above the fed funds rate? ... either a majority of banks are too low on capital reserves to participate in some lucrative low-risk loans, OR one or more unknown participants are close to insolvent and the others don't want counterparty exposure. Either way it's a dangerously close to a systemic liquidity crisis and the Fed is completely behind the ball.
- coliveira 7y agoThe reason why we start to see problems in the repo market is clear: the FED is paying banks to keep their money in a safe place, being rewarded for taking no risk! Why would a bank ever lend money to others if they see any problem whatsoever appearing in the horizon? In the next recession, you will see that ALL banks will stop lending to each other and let their excess reserves safe and sound receiving interest for doing nothing. The FED has created the very conditions for a sure repetition of what happened in 2008.
- mrfinks 7y agoJust want to plug a bank I love that is founded on good principles. aspiration.com 5 mins to open an account with a bank which has a great "social conscience" and truly great perks you won't get from other "big" banks. No. Seriously, take a look. Also, in case you are wondering: your credit is not touched when signing up, so really - it's a no brainier You can thank me later.
- michalu 7y agoNoob question: does this have something to do with inverted yield curve? Isn't it simply more useful/profitable for banks to finance their operations with short term debt right now?
- cm2187 7y agoThat’s only one consequence of the regulations taken after 2008 (the leverage capital requirements forcing banks to shrink their repo book, reducing liquidity in the repo market). Tighter rules on capital requirements for holding many other asset classes, bonds in particular will also reduce a lot the capacity of banks to make a market for these instruments in bad times, resulting in more volatility. None of that is new, banks have been warning about that for years. But it will only become visible in a sharp market downturn.