201805.22
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Eurodollar University: Way Beyond Bank Reserves

The Crash of ’87 was a big deal, though not in the way most people remember. It was a stock market event, obviously, and those are the terms under which it has been understood. That’s not really its legacy, however, as the major shifts that began with Black Monday have had little and most often…

201805.11
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Bank Reserves Appendix; One Additional Case Study

Early last month, Deutsche Bank replaced one CEO pledged to paring back the bank’s ailing franchise with another committed to doing the same thing only more quickly. As I wrote at the time, “Cryan isn’t being ousted because he was wrong, but because he was right.” In comes Christian Sewing whose plans are starting to…

201805.09
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Bank Reserves Part 3; In Practice

There’s one final step to our examination of QE and bank reserves (you’ll need to read through at least Part 1, though Part 2 is worth the time, too). It’s all well and good to try and map out complex subjects using very simple models. That can help illuminate concepts, but we should always strive for…

201805.08
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Bank Reserves Part 2; If QE Was Really QT, Then Why Hasn’t QT Been QE?

Since we’ve already cracked open the accounting, it makes some sense to take our example into an important corollary examination (if you haven’t yet, you’ll need to read through Part 1). In our prior examples, we’ve assumed that the swap of risk-free assets on Bank A’s asset side is a neutral trade. That is, there…

201805.08
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Bank Reserves Part 1; The Great Tease

I completely understand the confusion regarding bank reserves. I really do. It’s easy to believe they are money because that’s what you’ve been taught from Day 1. Not only that, the same message is carelessly reinforced in the media every single time QE or any LSAP is referenced. Bank reserves are the aftermath of money…

201712.04
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Three Years Ago QE, Last Year It Was China, Now It’s Taxes

China’s National Bureau of Statistics reported last week that the official manufacturing PMI for that country rose from 51.6 in October to 51.8 in November. Since “analysts” were expecting 51.4 (Reuters poll of Economists) it was taken as a positive sign. The same was largely true for the official non-manufacturing PMI, rising like its counterpart…

201712.04
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Just When You’ve Thought You’ve Seen It All

I could understand it if its track record was spotty, or partially mixed. But the level of denial runs deep and wide with the yield curve. There is a growing chorus of nonsense, really, which is attempting to spin the flattening as some kind of benign technical rotation that through illogical convolution equals the opposite…

201708.22
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Eurodollar Futures, The Verdict (Eurodollar University)

The American banking system had been primarily a domestic one throughout its early development. Despite, or because of, the rapid growth in the later 19th century, banking was orientated almost entirely inward to finance the needs of that growth. But as a growing national as well as industrial power, the US adopted several measures early…

201704.24
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‘Dollar’ ‘Improvement’

According to the headline TIC statistics, foreign central banks have in the past six months sold the fewest UST’s since the 6-month period ended November 2015. That may indicate an easing of “dollar” pressure in the private markets due to “reflation” sentiment. They are, however, still selling. In February 2017, the latest month available, the…

201704.12
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An Inside Basis For Unfortunate Continuity

Primary dealer holdings of UST securities have been on the rise again. This sort of warehouse activity is drastically misunderstood, exemplified best when last year around this time surging dealer inventory was blamed on those banks’ purported inability to sell off their holdings. It was an absolutely absurd idea for several reasons, but most prominently…