Last week we
explained why while endless promises of Fed intervention may be enough to
confuse the market and force endless rounds of short covering as weak hands are
flushed out of positions under threat (but never action) of central planning,
banks are no longer in a position to delay indefinitely the moment they have all
been waiting for: a $500+ billion reserve injection which will allow them to go
hog wild in investing in risk assets or plug capital shortfalls (off the books
of course), and otherwise continue their lives in a ZIRP environment which makes
net interest margin existence impossible. We also showed that for the first
time after nearly 4 years, the Fed conducted a regular (not reverse) repo
last Friday. As we explained, regular repos are liquidity injecting, and while
the Fed may promise these are merely test runs, everyone knows they are anything
but, and are merely a telegraphing to the banks of what is in store. Today, the
day after the last repo expired, we just got a new 3 day repo, only not for $210
million this time, but one for $600 million, including not only Treasury, but
also Agency and MBS securities. The result: S&P above 1400 for the first
time in months.
From the NY Fed:
And this is how the history of the Fed's various repo operations has looked like in the past 4 years.
Sure enough, the S&P just went above 1400 like clockwork.
From the NY Fed:
And this is how the history of the Fed's various repo operations has looked like in the past 4 years.
Sure enough, the S&P just went above 1400 like clockwork.
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