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What's up with the Repo rate?

Discussions about the economic and financial ramifications of PEAK OIL

Re: What's up with the Repo rate?

Unread postby Revi » Thu 17 Oct 2019, 10:35:54

The fed is dumping in 60 billion a month nowadays. That's the same as the military budget. Do you think that's going to continue to work? We're not supposed to call it QE. That's 720 billion a year just to hold the thing up.

https://www.wsj.com/articles/the-fed-is ... 1571218200
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Re: What's up with the Repo rate?

Unread postby jedrider » Thu 17 Oct 2019, 13:06:53

So, Revi, the Fed is holding up it's pants/trousers by hand without a belt. I get it.
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Re: What's up with the Repo rate?

Unread postby Revi » Thu 17 Oct 2019, 13:14:47

I guess it still isn't working! Banks are still afraid to lend each other money.

https://www.silverdoctors.com/headlines ... -not-a-qe/
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Re: What's up with the Repo rate?

Unread postby Outcast_Searcher » Thu 17 Oct 2019, 13:34:19

Revi wrote:I guess it still isn't working! Banks are still afraid to lend each other money.

https://www.silverdoctors.com/headlines ... -not-a-qe/

As I pointed out in the "stock market crash" thread (which has been wrong for a year , despite many calls for insta-doom by the usual suspects):

There is no meaningful issue here. If there were:

1). The stock markets would be realizing it instead of being strongly positive when it first occurred, and acting normally since.

2). The interest rate would have spiked again, like it did in mid Sept. (9-16 - 9/18, with the big spike 9/18), re the Fed SOFR rate, showing stress in the overnight funding market. It hasn't.

https://apps.newyorkfed.org/markets/autorates/sofr

3). Why are people so quick to jump at any zerohedge blather when they've been more or less constantly 100% wrong for the past decade plus? That desperate to report a possible financial calamity real soon now?
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: What's up with the Repo rate?

Unread postby sparky » Sat 19 Oct 2019, 19:04:43

.
The fact that porn-doomers have been consistently wrong for 74 years doesn't prove that one day they will not be right :-D
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Re: What's up with the Repo rate?

Unread postby Outcast_Searcher » Sun 20 Oct 2019, 18:45:55

sparky wrote:.
The fact that porn-doomers have been consistently wrong for 74 years doesn't prove that one day they will not be right :-D

True. But betting with them every time they use the word "crash" for something that isn't a crash isn't exactly a recipe for financial success. Especially when in the real world, over the long run (several decades or more), the stock markets appreciate roughly 7 percent -- after inflation.

Having practical preps for short term realistic blips makes lots of sense. That's why I keep plenty of food, water, a gun, a whole house generator, some precious metals (not paper, the actual hard assets), a bunch of blankets, and quite a few practical staples around, just in case something unpleasant happens that takes weeks, or even a few months to sort out. But that's a FAR different thing than constantly short term doom mongering.

Despite such fast crash doomers' fantasies, aside from getting to shoot at people and zombies for "fun" (and assuming no one will shoot back or arrive in packs), I seriously doubt post civilization survival will be anywhere as near as enjoyable as folks and their doomsteads imagine. Doing one's own doctoring, dentistry, clothes making, and on and on would return one to the bad old days with a barbarous existence, and a lifespan of a couple/few decades, even IF everything went ideally. And in the real world, practical matters like one's clothes rotting to rags and THEN dealing with winter is a bit of an issue, etc. would come to bear.

Even if "the crash" happens, it's more likely a gradual thing. In the real world we'll all grow old (if we survive that long). There's a reason the short odds horses usually do better.

But hey, if living the doomer fantasy, sans any sense of reality or education is all they have, it's not like a hobby like golf or fishing or messing around with computers is objectively any "better".
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: What's up with the Repo rate?

Unread postby Revi » Wed 23 Oct 2019, 07:14:42

I guess they have been pumping in an extra $104 billion just as insurance lately. I know it's just more stimulus, and we aren't supposed to get excited about it because nothing has happened, but what's going on? I would love some input from people who won't accuse me of being a godless communist just because I noticed that things are getting a little weird.
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Re: What's up with the Repo rate?

Unread postby Outcast_Searcher » Wed 23 Oct 2019, 10:08:15

Revi wrote:I guess they have been pumping in an extra $104 billion just as insurance lately. I know it's just more stimulus, and we aren't supposed to get excited about it because nothing has happened, but what's going on? I would love some input from people who won't accuse me of being a godless communist just because I noticed that things are getting a little weird.

I thought this was a pretty interesting piece, trying to shed some light, and neither claiming no problem or insta-doom. And CNBC is a pretty reasonable source.

https://www.cnbc.com/2019/10/22/fed-rep ... ssues.html

They rightly point out that this is a moderate term issue pointing out underlying problems (like persistent high deficit ramifications, IMO), and the Fed needs to deal with this. OTOH, they rightly point out that the rate rise last week was very minor, especially compared to the spike in Sept, so it's not like there is some sort of crisis.

I agree with you that things are "weird". I don't agree with those who are, as per usual no matter what, claiming this means insta-doom.

Over time, nothing would make me happier re US government policy than a long term balanced budget, or even a long term surplus, with budget deficits ONLY when there is a crisis like the 2008-2009 mess. I suspect such a policy might well fix this, but barring that, they clearly need more liquidity vs. the $600 in reserves they cut over the past months (per the article).
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: What's up with the Repo rate?

Unread postby Revi » Wed 23 Oct 2019, 10:18:54

Here's an interesting article on it.

https://www.silverdoctors.com/headlines ... derstated/

"According to what they do decide to tell the public, the Fed is engaging in daily interventions in the repo market.

Why?

The banks are not trusting something with the current financial system.

You see, in the repo market, there is zero risk.

Here’s how it works:

Bank “A” needs money.
Bank “A” goes into the repo market to enter into a repurchase agreement.
The agreement could be Bank “A” selling a US Government T-bill to Bank “B”, which Bank “A” will buy back from Bank “B”, at the same price, plus a smidgen of interest, the very next day.
Bank “A” gets that fast cash to keep the party rockin’ all night long, and Bank “B” gets to earn some sweet interest, absolutely for free, as Bank “A” is required to buy back the T-bill.
Here’s the problem: For more than a month now, Bank “B” has been unwilling to participate.

Here’s my first point, and I’ll ask it as a question: When is a financial institution, in this case a bank, not interested in free money?

And it’s not like this is “dirty money”, or anything criminal in nature, but rather, it is simply the latest active policy undertaken by the Fed.

Why is this such a serious issue for the markets and the economy?

Because the banks are not acting normal, in much of the same way that a rabid skunk does not act normal.

It is serious because we are not privy to the details of the scope or severity of the problem." From the article
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Re: What's up with the Repo rate?

Unread postby Outcast_Searcher » Wed 23 Oct 2019, 10:36:35

Revi wrote:Here's an interesting article on it.

https://www.silverdoctors.com/headlines ... derstated/

"According to what they do decide to tell the public, the Fed is engaging in daily interventions in the repo market.

Why?

The banks are not trusting something with the current financial system.

You see, in the repo market, there is zero risk.

Here’s how it works:

Bank “A” needs money.
Bank “A” goes into the repo market to enter into a repurchase agreement.
The agreement could be Bank “A” selling a US Government T-bill to Bank “B”, which Bank “A” will buy back from Bank “B”, at the same price, plus a smidgen of interest, the very next day.
Bank “A” gets that fast cash to keep the party rockin’ all night long, and Bank “B” gets to earn some sweet interest, absolutely for free, as Bank “A” is required to buy back the T-bill.
Here’s the problem: For more than a month now, Bank “B” has been unwilling to participate.

Here’s my first point, and I’ll ask it as a question: When is a financial institution, in this case a bank, not interested in free money?

And it’s not like this is “dirty money”, or anything criminal in nature, but rather, it is simply the latest active policy undertaken by the Fed.

Why is this such a serious issue for the markets and the economy?

Because the banks are not acting normal, in much of the same way that a rabid skunk does not act normal.

It is serious because we are not privy to the details of the scope or severity of the problem." From the article

And note how the people who want to print or reprint such articles are in the business of hyping and selling precious metals. Or how such articles come from sources like zerohedge or "half dollar", like this one.

Balance and context. That's all I'm saying. If PM's had followed the trajectory such firms portray for the 35 years or so I've held them, gold would be more like $15 million an ounce than $1500.

People will read into things what they want. And with the internet, they'll flock to the sources which tend to say what they want to hear.

"The Death of Expertise" book documents and comments on this rather well.

I'd prefer to try to learn things re complex economic events from actual serious economists without an obvious axe to grind, cited by credible sources, but that's me.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: What's up with the Repo rate?

Unread postby StarvingLion » Wed 23 Oct 2019, 12:01:24

pointing out underlying problems


Yeah, deteriorating quality of oil and catastrophic increase in oil field decline rate due to massive desperate reckless EOR.

Consequence: They're fucking HOSED

The money printing will never stop, it will increase, and its pure ROT.

You may as well jump off a bridge
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Re: What's up with the Repo rate?

Unread postby Revi » Wed 23 Oct 2019, 13:08:40

StarvingLion wrote:
pointing out underlying problems


Yeah, deteriorating quality of oil and catastrophic increase in oil field decline rate due to massive desperate reckless EOR.

Consequence: They're fucking HOSED

The money printing will never stop, it will increase, and its pure ROT.

You may as well jump off a bridge


I heard it may be the fact that the Saudis need so many dollars to hold up their oil purchases so they can fill their orders since they lost a bit of capacity. I don't know if it's true, but I read it somewhere. I'll look for it.
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Re: What's up with the Repo rate?

Unread postby Yoshua » Thu 24 Oct 2019, 09:20:20

The global Repo market is a USD 5 Trillion daily operation.

If demand is higher than supply, then the price (in this case the interest rate) goes up.

We can at least conclude that demand is higher than supply.

What if the Repo demand has risen to USD 6 Trillion?

What if there are now two Bank A agains one Bank B?
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Re: What's up with the Repo rate?

Unread postby evilgenius » Thu 24 Oct 2019, 09:55:49

What happened with the oil price after the attack on the Saudi facilities was the first thing I thought of when I actually took some time to think about this. I saw this thread a while ago, but didn't pay much attention to it.

I think it's important to consider the role of speculation in the oil market. Many say, when the price is high, that speculation doesn't play a huge part in that. The theory is that market equilibrium sorts them out. I tend to think, however, that speculation does play a part. There is always a leveraged component. It's just that sometimes it's smaller than others.

Price in large markets, where there is substitutional choice, is almost always determined by how much money is active in the market. Because there is substitution available, supply crunches don't have as big an effect, unless they are huge or prolonged. This is true for healthcare and student loans, why not for oil? Anyway, this dynamic creates obligations as well. Normally, they aren't revealed nakedly. I'm sure that some of this is a result of the ramifications brought about by those obligations, as they filter through the money, not the oil, markets. The oil price shot up something like 11% in the aftermath of the attack. I'm sure that many of the players involved in that run-up had to borrow money in order to participate, and that many others were obligated to follow course.
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Re: What's up with the Repo rate?

Unread postby Revi » Thu 24 Oct 2019, 10:32:46

Makes sense. Could that amount of money be taken out of the repo market and that causes the spikes in interest rates?
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Re: What's up with the Repo rate?

Unread postby Outcast_Searcher » Thu 24 Oct 2019, 10:43:10

Yoshua wrote:The global Repo market is a USD 5 Trillion daily operation.

If demand is higher than supply, then the price (in this case the interest rate) goes up.

We can at least conclude that demand is higher than supply.

What if the Repo demand has risen to USD 6 Trillion?

What if there are now two Bank A agains one Bank B?

Except that, as I keep pointing out, aside from the big spike in September, rates have been quite calm. Supposedly, the FED repo operations have been "insurance" to help ensure they stay calm. With the rates hovering around 2 percent, the interest rate isn't going up, at least on a sustained basis. In fact, since the spike almost 5 weeks ago, the repo interest rate has, IMO, been very steady. And for US treasury paper overall, the interest rate is remarkably low, according to the Fed.

https://apps.newyorkfed.org/markets/autorates/sofr

So the idea that there is "too much demand" doesn't seem to make a lot of sense, does it? Also note that the volume trend of the overall overnight funding has been decreasing over the past month. Again, not a sign of panic or demand increasing. (Black line in chart near bottom of document).

The repo market is HUGE.

https://www.sifma.org/resources/researc ... heet-2019/

This paper explains a lot of stuff about the repo and reverse repo market in terms which are pretty easy to grasp. It also confirms the scale of the repo market globally. It also talks about risks and benefits of the market.

https://www.bis.org/publ/cgfs59.pdf

...

Bottom line, the scale of this issue is small compared to the overall market. It's fun for armchair pundits looking for doom around every corner to point at every unusual statistic and scream "crash" or "imminent doom", but with so few facts vs. hype, and given the scale of daily operations anyway, not exactly convincing.

Again, I'm not surprised that the usual suspects re self-interested sources like zerohedge and gold and silver sellers are screaming their heads off about this. Gold and Silver sellers have been predicting "hyperinflation" every chance they see to sell some extra PM's for many decades now. Gold and silver have indeed risen since I started paying attention in 1985, but roughly in line with inflation overall, and FAR FAR less than the stock markets overall.

The over-reaction here reminds me of the frequent over-reaction to the oil markets.

...

If anything, given the scale and persistence of deficits the US and many other developed countries faced, it's counter-intuitive how calm the debt markets are. OTOH, it's not like this is new news. Markets look ahead, and unlike people with certain endless agendas, markets absorb and trade based on credible information.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: What's up with the Repo rate?

Unread postby StarvingLion » Thu 24 Oct 2019, 11:35:02

StarvingLion: "The money printing will never stop, it will increase, and its pure ROT. "

And it only took 1 day for another astounding prediction of mine to come true....Hahahahaha.

You people are screwed.
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Re: What's up with the Repo rate?

Unread postby Yoshua » Thu 24 Oct 2019, 14:01:21

There are probably many factors to the spike in the Repo rate. Fed's QT program probably led to a supply side problem. There has been a lot of talk dollar liquidity problems globally after the Fed's tightening policy.

The Fed changed its policy right after the Repo spike and is injecting liquidity into the financial markets again.

Did the Repo spike only take place in the U.S market? Since the dollar is the world reserve currency there should have been signs of stress in the LIBOR and SHIBOR?

I have been reading that the LIBOR has been falling...and actually leading the Fed to cut rates.

Complicated stuff...
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Re: What's up with the Repo rate?

Unread postby StarvingLion » Fri 25 Oct 2019, 11:26:02

Whats complicated about it? The rivets are popping from the airframe. The currency will fail in 2023-2025.

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Re: What's up with the Repo rate?

Unread postby Outcast_Searcher » Fri 25 Oct 2019, 11:53:27

Yoshua wrote:
Did the Repo spike only take place in the U.S market? Since the dollar is the world reserve currency there should have been signs of stress in the LIBOR and SHIBOR?

I have been reading that the LIBOR has been falling...and actually leading the Fed to cut rates.

Complicated stuff...

Speaking of LIBOR, while looking at the REPO situation, I noticed talk on the Fed pages about SOFR replacing LIBOR. And doing a quick search, I see this is in the news.

https://www.americanbanker.com/news/lib ... rent-ready

https://www.sec.gov/news/public-stateme ... transition

The world keeps changing, and the direction is NOT toward simplicity.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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