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wholesale funding

Multipliers and Elasticity: The Other More Consequential Side of Repo

By |2019-10-02T17:31:25-04:00October 1st, 2019|Bonds, Currencies, Economy, Federal Reserve/Monetary Policy, Markets|

There is increasing skepticism in the mainstream media as to the functions and declarations coming from the Federal Reserve. As a direct consequence of the mid-September repo rumble, for the first maybe ever official opinions and explanations aren’t being taken immediately at face value. That may end up being the lasting legacy of what was otherwise nothing more than a [...]

The Wholesale Zoo: Where Did All The Animals Go?

By |2019-09-30T19:08:26-04:00September 30th, 2019|Bonds, Currencies, Economy, Federal Reserve/Monetary Policy, Markets|

One of the most maddening aspects of the recent repo market, federal funds mashup is the lack of context behind it. The event is being characterized and described as if in isolation. Regulations are squeezing dealers at the same time there is a lack of bank reserves. Thanks to QT, there’s just not enough liquidity to go around. Therefore, the [...]

Collateral Reserves: What Is Behind Record Low and Negative Yields

By |2019-08-19T19:27:11-04:00August 19th, 2019|Bonds, Currencies, Economy, Federal Reserve/Monetary Policy, Markets|

It was truly startling when it was announced. The second and more dangerous phase of the Global Financial Crisis had begun on July 15, 2008. Within two weeks, Merrill Lynch had etched its name on the growing list of “troubled” institutions. On July 28, 2008, Merrill Lynch agreed to sell $30.6 billion gross notional amount of U.S. super senior ABS [...]

The Remarkable And Lengthy Consistency of Repo

By |2018-06-25T18:11:32-04:00June 25th, 2018|Currencies, Economy, Federal Reserve/Monetary Policy, Markets|

Before August 2007, US$ money markets operated efficiently and predictably. They behaved according to a rigid hierarchy, which is a good thing no matter how it may sound. This inflexibility in the context of funding markets was exactly what we would want. Arbitrage opportunity was responsible for enforcing the rules. One simple example was the difference between repo and federal [...]

Eurodollar University: Way Beyond Bank Reserves

By |2018-05-22T18:35:14-04:00May 22nd, 2018|Currencies, Economy, Federal Reserve/Monetary Policy, Markets|

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 nothing to do with stocks [...]

Bank Reserves Appendix; One Additional Case Study

By |2018-05-11T16:48:29-04:00May 11th, 2018|Currencies, Economy, Federal Reserve/Monetary Policy, Markets|

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 come into focus. It’s not [...]

Bank Reserves Part 3; In Practice

By |2018-05-09T16:51:58-04:00May 9th, 2018|Currencies, Economy, Federal Reserve/Monetary Policy, Markets|

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 validation. The heart of the [...]

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

By |2018-05-09T17:35:19-04:00May 8th, 2018|Economy, Federal Reserve/Monetary Policy, Markets|

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 aren’t any costs or downside [...]

Bank Reserves Part 1; The Great Tease

By |2018-05-09T17:35:48-04:00May 8th, 2018|Currencies, Economy, Federal Reserve/Monetary Policy, Markets|

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 printing, therefore = money. That [...]

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

By |2017-12-04T18:57:43-05:00December 4th, 2017|Bonds, Currencies, Economy, Federal Reserve/Monetary Policy, Markets, Stocks|

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 here from 54.3 the month [...]

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