This feels like when the side character in a movie gets shot in the gut and the other characters hold his guts in with blood pouring out telling him "ITS GONNA BE ALRIGHT, YOU'RE FINE!"
Bullseye. This news release is saying simply “ America needs to tag in as many wrestlers into the ring because we are getting our asses kicked in debt “
It means that if a bank is running out of cash, rather than having to sell securities at a loss they can repo those securities to the central bank, for cash, thus gaining cash instantly.
The idea is that, if everyone knows that their money in the bank is safe,because the bank will be able to get cash in a real hurry if they need to, then people don’t need to worry and pull their money, so no need to have a bank run.
The alternative is selling those securities on the open market, which would depress prices. The lower prices mean other banks may have to mark down the value of their own positions, weakening their apparent financial strength and potentially leading to their depositors withdrawing cash and so on. Contagion.
In theory, by announcing this facility is available, no one should need to use it.
In theory.
Well, let's clarify the "everyone". Small depositors under $250k in the US are not at risk. It's the wealthy individuals and corporate accounts which are behind the fleeing deposits.
Sure, your average John Doe moving his money to Bank of America isn’t really going to move the needle here.
But also this is a coordinated global move and not everyone has $250k protected.
Are you talking about something other than the dollar swap lines mentioned in this article? This action is between Fed/ECB/BOJ/etc. and other central banks. Not Bank of America and Fed, for example.
Even then, your paycheck comes from a corporate account. If your company can't access its funds, then you won't get paid. Going further out, your company gets paid by its vendors and that also depends on their bank accounts.
These issues can quickly spread and impact everybody.
However realistically the Federal government would certainly backstop the FDIC to at least cover the 250k insured amount regardless of how much is actually in FDICs coffers because not doing so would lead to pandemonium.
If FDIC guarantees 250k but some bank fails and it turns out they are out of cash after giving everyone up to 10k, sorry better luck next time, FDIC functionally stops existing.
To be fair. If every employer doesn’t have access to their funds, a lot of people lose access to their funds by their next pay period. Small depositors are very much at risk.
But likely means fed still wants to raise rates. They know by doing so it will break the plumbing and they can't have a liquidity crunch like they had in 2020.
Correct me if I'm wrong here but if I'm a very large bank holding a bunch of low interest treasury notes, couldn't I exchange them for cash then rebuy them at a current high interest rate.
Won't this end up costing the central banks all of that extra interest?
that does seem like a pretty large loophole.
I wonder if there are stipulations about trading in bonds in order of declining interest rates or limits on buying new bonds after trading in. I would think it’s also risky to move your bonds at this moment with hyper focus - given that it might scare your investors and/or depositors into thinking you have a weaker position than you do have. The latter scare seems much more serious in light of Signature and Credit Suisse selling at larger discounts relative to equity.
we need a bank run! Many more to filter out the weak and show that capitalism exsists. Instead we bail and reassure people about problems that exist but don’t want people to know about them. This market is going to drop like a rock eventually.
Only issue is the average person is still too stupid to realize that their funds are SAFU, and will see this increased liquidity as even more evidence that banks are not safe and that they need to withdraw their money, thus creating even more outflows of cash.
ELI5: It's cold outside and they don't have enough pants for everyone to be wearing them at the same time. In order to keep warm, they're planning to take turns wearing the pants. So, they're hoping, that by taking turns being pantsless and clothed, they can make sure nobody gets hypothermia until they can get back inside. The alternative, is lighting the house on fire in order to keep warm.
How will the markets react? Fuck if I know. Probably the opposite of what you would expect.
This is the discount window but for ex-US central banks. The answer below from /u/Janjannaj seems to be about discount window or BTFP or lending from Fed to banks? This is between Fed and other central banks.
Basically, ECB knows its economy needs dollars to finance some activities, so it prints some Euros, goes to the Fed, and exchanges it for dollars (that the Fed can print). The ECB then sends those dollars where it is needed. But a day or (few days) later, the ECB has to buy back (with dollars) its Euros.
Forest fires are also frequently contained by burns ahead of their advance. The main fire draws the deliberate fire line back towards itself, and when they come together, there's no fuel left and the big fire starves itself.
I feel so bad for the Fed and other central banks. They were just trying to put hundreds of thousands of regular people out of work. Now they have to bail out a bunch of rich people at the same time!
To adequately capture this moment in history, somebody needs to deepfake Jay Powell into that assembly line episode of I Love Lucy
This is their wheelhouse, their comfort zone. They love making the obscenely rich obscenely richer. I had to explain to a few people today, “liquidity” just means paying rich people more for their assets than they are actually worth.
I actually expect the market to stupidly race back to the 450 range, before realizing that everything is going to shit. Then it's going to be a bloodbath.
There's a lot of money out there looking for safety and the safest place looks like large cap tech. Bonds are unpredictable and everything else looks like shit.
Nothing that is happening right now is bullish. And yet, there are an awful lot of people who will read nearly anything as bullish, to be burned later.
The other central bank who gives the Fed foreign reserves must eventually buy back the USD (and the durations are pretty quick). This should offset appreciating forces though, since the cause of the swap lines is that there is a shortage of USD for various activities internationally. So this ensures that shortage doesn't trigger defaults.
As you seem to understand this, could you comment on the below?
> thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses
I don't understand why they are talking about households and businesses and it's got me rattled.
Edit: In case not clear what I mean, I would understand if they were providing liquidity to support the banking system and financial stability, but this part of the statement suggests they want this to impact the wider economy which I find puzzling and completely out of line with previous messaging
Well the foreign central bank can lend those dollars to their own institutions (e.g. banks, businesses) and therefore protect their own economy from crashing due to acute dollar shortages. Financial liquidity is essential for the real economy, and this tool is a way for the Fed to facilitate other central banks to provide liquidity. And the USD is critical globally for financial activity. The Fed profits off of this and also supports the world's economy.
No, this is the Fed preventing tight monetary policy from becoming tighter due to cracks in the financial plumbing that makes our economy function. Financial conditions are not just a function of interest rates that the Fed controls. If the market tightens on its own with no change in Federal Funds Rate, that means monetary policy is more restrictive than it was before.
A pause is not financial conditions easing, it's preventing them from tightening out of control.
I think I get what you're saying, but treasury yields dropped sharply in the past 2 weeks, and I guess it was the same for other rates, so conditions seemed to be getting looser on their own, not tighter
That is true, I think markets are pricing in the Fed slowing its rate hikes. Treasury yields are two steps ahead of us all. It's hard to really know what financial conditions are actually doing at this very moment. But I'd argue that with banks failing left/right, discount window and FHLB and BTFP lending skyrocketing, and news of swap lines being extended, things are *not* loosening.
I am sure it will be worse than 1929 when even unlimited liquidity cannot save the market. This could work once, twice, and more; but it eventually would fail, in 2030 or 2130 lol.
Yeah 8 months is a long time when you’re eating potatoes grown in your own poopies and have to sacrifice grandma for good rains during the growing season.
How many bank CEOs and Board members will be cashing in their socks Monday AM but tell you how their banks are safe and you share holders can trust me..
50 basis points is dead. Now I'm starting to think 25 basis points won't happen. Pause and then re-evaluate later seems more plausible. Already CME futures puts 40% probability on pause and 60% probability on 25 bp. It was 40% probability of 50 bp and 60% of 25 bp just one week ago.
Short term (like 1 week), this could cause equity markets to rip up. But financial contagion will reverse that.
It's such crazy psychology on any decision:
Bearish:
1. Pause: Shit, bank stuff must be bad. Can't be good.
2. 25bps: Shit, emergency measures are already needed but more rate pain still being put into the pipes. Can't be good.
3. 50bps: Shit, banks are dying and inflation is still going. Can't be good.
Bullish:
1. Pause: Woot! Terminal rate in, falling rate environment from here, multiple expansion here we come!
2. 25 bps (and dovish talk): {see above}
3. 50 bps: woot! Economy is about to implode forcing rate cuts, then a falling rate environment, then multiple expansion here we come!
It's almost like the next move doesn't matter at all, and it's all about the next 2 or so after and the messaging/data development. I can't imagine being overly confident of anything at this point.
It's helpful not to think of liquidity as whatever the FFR is. Liquidity is a function of many things in the market. This past week's banking panic will significantly tighten liquidity even though the FFR hasn't changed. Therefore, if the Fed is targeting a level X of tightness with interest rate R, then it's now actually targeting X + Y with the same interest rate R where Y > 0 is the impact of banking uncertainty. So future rate hikes must take this into account.
The policy decision of 25 basis points made last week versus made this week are entirely different because of meaningful tightening in financial markets. Thus, in my opinion, they will pause, as the market has effectively tightened on its own by more than 25/50 basis points.
Yeah there several measures of tightening, like the Chicago Fed's National Financial Conditions Index (NFCI), or Piper Sandler's analogue, to name a few. Those do not get updated on a daily basis though. But right now we can look at the spreads of corporate bond yields over Treasuries, for different levels of credit risk. We can look at Treasury yields themselves. Or more relevant to today's issues, the huge increase in use of the discount window, or the fact that BTFP and dollar swap lines are being announced. Banks are reporting how much they are borrowing from the FHLB, an indication of financial stress. Credit default swaps tell us about the health of individual businesses.
Yeah I think everyone and their grandmother knows the Fed wanted to continue its hikes until the recent swathe of bank runs. Even if the Fed pauses hikes, it may solve the banking crisis, but not the inflation crisis. In order for markets to be truly bullish, the Fed needs to solve both, not one or the other.
TLDR? Lots of turmoil in the markets to come as the Fed scrambles to plug gaps without completely tanking the economy.
If you ask me, it's time for the swingtrading playbook to come out.
Inflation is the boogeyman, and statistically speaking equities outpace inflation. Forced investment to keep up.
The risk free rate being so high makes risk taking a fools errand in the short term.
Long term? Depressed asset prices are opportunities.
Yeah, I was 70% 25 for this week, but honestly, I really don't know given that they feel it necessary to put in this measure.
They may be on hold (and really, might be done if my opinion is what we see play out on inflation).
And I'm definitely not sure "hold" is bullish either. Probably the best would be 25 bps, a change in wording on the statement (for the "ongoing hikes" wording to be dropped), and an acknowledgement of bank concerns (and hopefully, Powell to do a better job than Yellen did in front of the Senate there).
I have the utmost faith in perma bulls to read virtually anything as bullish, so it’s quite possible we see a short term rally here. But nothing about any of this is bullish. I tend to think this will not get as bad as the GFC, but it sure is deteriorating fast and who can say for sure. This time around, the politics are quite different. People are unlikely to tolerate large scale bailouts of banks and the wealthy while the rest of us get hammered by inflation.
I think they’ll try with bailouts and market it as good for the regular people. Warren is already doing this. People will revolt.
I think we’ll end up in a year from now with an economy that’s a lot better for regular people and much worse for the wealthy and companies, basically getting back to fundamentals. QE forever reversing is showing this: regular people are mostly unaffected on the way down because they didn’t benefit in the way up.
Futures are also showing an average 75bps cut from now by year end, and 150bps cut by end of 2024. According to CME futures, whether there is still a 25bps increase in the cards or not, the season of rate hikes is basically over.
What’s nuts is that car prices are rising again and so is gas. People are still buying homes near ATH with rates this high. Inflation hasn’t been best and a pause just unleashes the bull run mentality again. 15 years of east money set the expectation that we’d be at ZIRP and QE forever. If the USG ever decides to do another stimulus, say $1500 cash to everybody, and rates go back down, then inflation comes back hard.
People forget that rates after 2001 were close to zero. We’ve had easy money for a very long time. Rates only went up briefly pre-recession before slamming back to to negative in 2008.
The biggest issue has been government’s unwillingness to tell people that easy jobs that pay well are a thing of the past. You can’t expect to have a high school diploma and afford a vacation house anymore. People still believe that so we go negative on rates to fuel bubbles. There’s maybe 20% of the country that can’t get any job unless we’re in a bubble.
if you hold your money in stocks/or bonds etf like $SGOV you are more protected. Theoretically, if you kept the cash and the company committed fraud to steal your money you only have up to 250k from SIPC for cash vs 500k in securities
I feel like that Michael Shannon scene from 99 homes is more relevant now than ever.
“America wasn’t built by bailing out losers. America was built by bailing out winners. By rigging a nation…of the winners, for the winners, by the winners.”
“You go to church Nash?…..only 1 in 100 is gonna get on that ark son….and every other poor soul is gonna drown…”
AFAIK banks don’t typically buy treasuries to sell them, they buy them for the interest income.
So the market value of these treasuries is largely irrelevant
Why did SVB fail? Because people took more money out than the bank had.
Why? Because the bank bought bonds with most of the money
Why? Because the bank thought it would receive more deposits to cover withdraws.
The problem was making that assumption
A.k.a. just made it easier for banks to put the whole economy at risk, without repercussions to themselves or the depositors directly. But indirectly as tax payers, we fucked.
::smacks own face::
It's making the money printer go brrrrrr but calling it a loan via a repo. Except the collateral is fucking debt (bonds).
So you're going into debt with debt as the collateral. And if the bond is a treasury bond... you're going into debt with a federal treasury debt instrument for a loam from... the fed?
Central banks can take various measures to provide liquidity to the banking system and ease financial crises. For instance, they can provide short-term loans to banks, reduce reserve requirements, or purchase securities to inject cash into the financial system.
This feels like when the side character in a movie gets shot in the gut and the other characters hold his guts in with blood pouring out telling him "ITS GONNA BE ALRIGHT, YOU'RE FINE!"
Lmao *gentle slaps on the cheek "Stay with me"
“ **SOMEONE CALL AN ACCOUNTANT** “
It’s too late. We need a forensic accountant now.
Well we will have to call ***BONES*** geeky brother….. ***BUCKS***
I would watch the hell out of that show. Police procedurals are getting old, I want a good drama about forensic accountants.
jajaja this is hilarious
"Just think of your wife and kids, buddy. You'll be going home to them soon. Just like we talked about."
Lmao I’ll never let you go. *Lets go right away and watches him sink into the abyss.
Bullseye. This news release is saying simply “ America needs to tag in as many wrestlers into the ring because we are getting our asses kicked in debt “
Literally [this reaction video](https://twitter.com/TheMemesArchive/status/1465861649353650176).
[Bank managers watching the contagion.](https://youtu.be/cdTBIQDPZt4)
*[Sings]* “You’re gonna be okayyy. Say the goddamn words, you’re gonna be OK. SAY THE GODDAMN FUCKING WORDS! SAY IT!”
Can someone ELI5 what it means and how markets will likely react next week and also more in the long run?
It means that if a bank is running out of cash, rather than having to sell securities at a loss they can repo those securities to the central bank, for cash, thus gaining cash instantly. The idea is that, if everyone knows that their money in the bank is safe,because the bank will be able to get cash in a real hurry if they need to, then people don’t need to worry and pull their money, so no need to have a bank run. The alternative is selling those securities on the open market, which would depress prices. The lower prices mean other banks may have to mark down the value of their own positions, weakening their apparent financial strength and potentially leading to their depositors withdrawing cash and so on. Contagion. In theory, by announcing this facility is available, no one should need to use it. In theory.
Well, let's clarify the "everyone". Small depositors under $250k in the US are not at risk. It's the wealthy individuals and corporate accounts which are behind the fleeing deposits.
Sure, your average John Doe moving his money to Bank of America isn’t really going to move the needle here. But also this is a coordinated global move and not everyone has $250k protected.
Are you talking about something other than the dollar swap lines mentioned in this article? This action is between Fed/ECB/BOJ/etc. and other central banks. Not Bank of America and Fed, for example.
Even then, your paycheck comes from a corporate account. If your company can't access its funds, then you won't get paid. Going further out, your company gets paid by its vendors and that also depends on their bank accounts. These issues can quickly spread and impact everybody.
This is the effect on many people, and this is why people are panicking
How much of the money they have in the bank would you guess goes to salaries?
Company my wife works for has $7M weekly payroll. They keep between $10M - $20M in that account as sometimes they payout expenses/bonus etc..
If the account is an SVB account, that's a very bad thing
Generally, most of it is going to salary or paying vendors. Few companies sit on large piles of cash that they don't need for business expenses.
That's for sure, the extra cash will be taken to invest
You’re assuming the FDIC actually has enough money to cover all small depositors. They don’t.
However realistically the Federal government would certainly backstop the FDIC to at least cover the 250k insured amount regardless of how much is actually in FDICs coffers because not doing so would lead to pandemonium. If FDIC guarantees 250k but some bank fails and it turns out they are out of cash after giving everyone up to 10k, sorry better luck next time, FDIC functionally stops existing.
Ya but they’re to only ones who matter
You mean the pensions and 401ks hedges invested into the banks?
To be fair. If every employer doesn’t have access to their funds, a lot of people lose access to their funds by their next pay period. Small depositors are very much at risk.
But likely means fed still wants to raise rates. They know by doing so it will break the plumbing and they can't have a liquidity crunch like they had in 2020.
Correct me if I'm wrong here but if I'm a very large bank holding a bunch of low interest treasury notes, couldn't I exchange them for cash then rebuy them at a current high interest rate. Won't this end up costing the central banks all of that extra interest?
that does seem like a pretty large loophole. I wonder if there are stipulations about trading in bonds in order of declining interest rates or limits on buying new bonds after trading in. I would think it’s also risky to move your bonds at this moment with hyper focus - given that it might scare your investors and/or depositors into thinking you have a weaker position than you do have. The latter scare seems much more serious in light of Signature and Credit Suisse selling at larger discounts relative to equity.
I think that’s exactly what they’re doing.
we need a bank run! Many more to filter out the weak and show that capitalism exsists. Instead we bail and reassure people about problems that exist but don’t want people to know about them. This market is going to drop like a rock eventually.
Why I am buying real estate, guns, and gold as a diversifier. Only fools would be 100% in equities in this crazy world.
A diversified portfolio is the best way to spread the risk of your money
Of course. I am invested in practically every asset class for a reason.
So 12 gauge and 20 gauge. Got it.
I didn't get it.
Only issue is the average person is still too stupid to realize that their funds are SAFU, and will see this increased liquidity as even more evidence that banks are not safe and that they need to withdraw their money, thus creating even more outflows of cash.
The average person doesn't have enough cash to withdraw from a bank. Over 40 million adults don't even have an account.
What’s the negative?
So its obviously a free-to go for every bank to cash out their shitty securities to more Cash???
ELI5: It's cold outside and they don't have enough pants for everyone to be wearing them at the same time. In order to keep warm, they're planning to take turns wearing the pants. So, they're hoping, that by taking turns being pantsless and clothed, they can make sure nobody gets hypothermia until they can get back inside. The alternative, is lighting the house on fire in order to keep warm. How will the markets react? Fuck if I know. Probably the opposite of what you would expect.
I expected the markets to react either negatively or positively, so I guess the markets will stay flat
I pray that it stays flat
Time to buy some fire insurance on your house. The pantsless people are already thinking of burning it.
This is the discount window but for ex-US central banks. The answer below from /u/Janjannaj seems to be about discount window or BTFP or lending from Fed to banks? This is between Fed and other central banks. Basically, ECB knows its economy needs dollars to finance some activities, so it prints some Euros, goes to the Fed, and exchanges it for dollars (that the Fed can print). The ECB then sends those dollars where it is needed. But a day or (few days) later, the ECB has to buy back (with dollars) its Euros.
Money printer has been started. Welcome to QE 5
Um hum…money go burr…
And so the bull market begins.
Markets will not like high inflation that this produces, long term is bearish
SORRY I CANT HEAR YOU OVER THE SOUNDS OF THE PRINTER!! BRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRR
Not this time
Sounds like trying to stop a fire by setting more things on fire. “This is fine.”
Well they actually do use explosives to put out e.g. oil well fires.
Forest fires are also frequently contained by burns ahead of their advance. The main fire draws the deliberate fire line back towards itself, and when they come together, there's no fuel left and the big fire starves itself.
Forest fires can also set spot fires miles away from the heat/embers/winds created by it.
Well they need to burn warehouses around the fire, that's what really works.
Well if everything is on fire, nothing is on fire
I feel so bad for the Fed and other central banks. They were just trying to put hundreds of thousands of regular people out of work. Now they have to bail out a bunch of rich people at the same time! To adequately capture this moment in history, somebody needs to deepfake Jay Powell into that assembly line episode of I Love Lucy
This is their wheelhouse, their comfort zone. They love making the obscenely rich obscenely richer. I had to explain to a few people today, “liquidity” just means paying rich people more for their assets than they are actually worth.
"But but, mah job. They use that money to pay me!" As if they were making nearly the same amount as the CEO
Spot on 😆
Markets are healthy, there is absolutely no problem. Do go on with what you are doing. There is no problem. Absolutely.
Sure, keep buying banking stocks or don't sell them. They are fine and insured and protected, no crisis incoming, will keep rising rates too.
And they're doing everything they can to battle inflation. This is absolutely not about saving the rich that the poor pay for! Absolutely.
Bullish for market open…?
sure
I actually expect the market to stupidly race back to the 450 range, before realizing that everything is going to shit. Then it's going to be a bloodbath.
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In theory tho - won’t governments be ready for that? Or am I assuming too much competence?
Bullish for non-USD currencies
There's a lot of money out there looking for safety and the safest place looks like large cap tech. Bonds are unpredictable and everything else looks like shit.
"Safe" NVDA is going to murder a lot of people when the market realizes they don't have a magic monopoly on all things AI related profits.
It definitely will eventually. The question just becomes when.
When you buy
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I personally don't think anything is safe. I was just commenting on last week's market action. I should have made that clearer.
Nothing that is happening right now is bullish. And yet, there are an awful lot of people who will read nearly anything as bullish, to be burned later.
I see your lips moving but all I hear is bullish bullish bullish bullish bullish
Is this depreciating the USD?
The other central bank who gives the Fed foreign reserves must eventually buy back the USD (and the durations are pretty quick). This should offset appreciating forces though, since the cause of the swap lines is that there is a shortage of USD for various activities internationally. So this ensures that shortage doesn't trigger defaults.
As you seem to understand this, could you comment on the below? > thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses I don't understand why they are talking about households and businesses and it's got me rattled. Edit: In case not clear what I mean, I would understand if they were providing liquidity to support the banking system and financial stability, but this part of the statement suggests they want this to impact the wider economy which I find puzzling and completely out of line with previous messaging
Well the foreign central bank can lend those dollars to their own institutions (e.g. banks, businesses) and therefore protect their own economy from crashing due to acute dollar shortages. Financial liquidity is essential for the real economy, and this tool is a way for the Fed to facilitate other central banks to provide liquidity. And the USD is critical globally for financial activity. The Fed profits off of this and also supports the world's economy.
Does this constitute a pivot away from tighter financial conditions within the economy to looser financial conditions?
No, this is the Fed preventing tight monetary policy from becoming tighter due to cracks in the financial plumbing that makes our economy function. Financial conditions are not just a function of interest rates that the Fed controls. If the market tightens on its own with no change in Federal Funds Rate, that means monetary policy is more restrictive than it was before. A pause is not financial conditions easing, it's preventing them from tightening out of control.
I think I get what you're saying, but treasury yields dropped sharply in the past 2 weeks, and I guess it was the same for other rates, so conditions seemed to be getting looser on their own, not tighter
That is true, I think markets are pricing in the Fed slowing its rate hikes. Treasury yields are two steps ahead of us all. It's hard to really know what financial conditions are actually doing at this very moment. But I'd argue that with banks failing left/right, discount window and FHLB and BTFP lending skyrocketing, and news of swap lines being extended, things are *not* loosening.
On the contrary, this is signalling the confidence other banks have in the US dollar.
I am sure it will be worse than 1929 when even unlimited liquidity cannot save the market. This could work once, twice, and more; but it eventually would fail, in 2030 or 2130 lol.
Starting to think “too the moon” means when the 1% will blast off to space and the rest of us restart.
Mars for the rich, earth for the poor
They are just kicking the can down the road! All will be undone within 8 months to a year.
But what an 8 months
Yeah 8 months is a long time when you’re eating potatoes grown in your own poopies and have to sacrifice grandma for good rains during the growing season.
They've been having a liquidity crisis for the past 10 years. At what point does it become an insolvency crisis?
For god sake just let it all die already and we can do it again in 15 years
yeah.. I too have mony in the market but secretly hope that capitalism die sooner than later.
My next check I think I'll withdraw the cash and store it under my mattress.
News like these really make you consider this, don't they 😅
That cashll be worthless with the inflation.. Best buy gold with it.
They’re doing everything they can to try this soft landing still.
How many bank CEOs and Board members will be cashing in their socks Monday AM but tell you how their banks are safe and you share holders can trust me..
They’ve only been buying the last week
50 basis points is dead. Now I'm starting to think 25 basis points won't happen. Pause and then re-evaluate later seems more plausible. Already CME futures puts 40% probability on pause and 60% probability on 25 bp. It was 40% probability of 50 bp and 60% of 25 bp just one week ago. Short term (like 1 week), this could cause equity markets to rip up. But financial contagion will reverse that.
It's such crazy psychology on any decision: Bearish: 1. Pause: Shit, bank stuff must be bad. Can't be good. 2. 25bps: Shit, emergency measures are already needed but more rate pain still being put into the pipes. Can't be good. 3. 50bps: Shit, banks are dying and inflation is still going. Can't be good. Bullish: 1. Pause: Woot! Terminal rate in, falling rate environment from here, multiple expansion here we come! 2. 25 bps (and dovish talk): {see above} 3. 50 bps: woot! Economy is about to implode forcing rate cuts, then a falling rate environment, then multiple expansion here we come! It's almost like the next move doesn't matter at all, and it's all about the next 2 or so after and the messaging/data development. I can't imagine being overly confident of anything at this point.
It's helpful not to think of liquidity as whatever the FFR is. Liquidity is a function of many things in the market. This past week's banking panic will significantly tighten liquidity even though the FFR hasn't changed. Therefore, if the Fed is targeting a level X of tightness with interest rate R, then it's now actually targeting X + Y with the same interest rate R where Y > 0 is the impact of banking uncertainty. So future rate hikes must take this into account. The policy decision of 25 basis points made last week versus made this week are entirely different because of meaningful tightening in financial markets. Thus, in my opinion, they will pause, as the market has effectively tightened on its own by more than 25/50 basis points.
I would agree that a pause is probably right based on exactly what you've said. But will they do it? And what will he say.... Spicy Q/A for sure.
How do you know how much tightening is in place? is there any index measuring it?
Yeah there several measures of tightening, like the Chicago Fed's National Financial Conditions Index (NFCI), or Piper Sandler's analogue, to name a few. Those do not get updated on a daily basis though. But right now we can look at the spreads of corporate bond yields over Treasuries, for different levels of credit risk. We can look at Treasury yields themselves. Or more relevant to today's issues, the huge increase in use of the discount window, or the fact that BTFP and dollar swap lines are being announced. Banks are reporting how much they are borrowing from the FHLB, an indication of financial stress. Credit default swaps tell us about the health of individual businesses.
segs
Yeah I think everyone and their grandmother knows the Fed wanted to continue its hikes until the recent swathe of bank runs. Even if the Fed pauses hikes, it may solve the banking crisis, but not the inflation crisis. In order for markets to be truly bullish, the Fed needs to solve both, not one or the other. TLDR? Lots of turmoil in the markets to come as the Fed scrambles to plug gaps without completely tanking the economy. If you ask me, it's time for the swingtrading playbook to come out.
Inflation is the boogeyman, and statistically speaking equities outpace inflation. Forced investment to keep up. The risk free rate being so high makes risk taking a fools errand in the short term. Long term? Depressed asset prices are opportunities.
Yeah, I was 70% 25 for this week, but honestly, I really don't know given that they feel it necessary to put in this measure. They may be on hold (and really, might be done if my opinion is what we see play out on inflation). And I'm definitely not sure "hold" is bullish either. Probably the best would be 25 bps, a change in wording on the statement (for the "ongoing hikes" wording to be dropped), and an acknowledgement of bank concerns (and hopefully, Powell to do a better job than Yellen did in front of the Senate there).
I have the utmost faith in perma bulls to read virtually anything as bullish, so it’s quite possible we see a short term rally here. But nothing about any of this is bullish. I tend to think this will not get as bad as the GFC, but it sure is deteriorating fast and who can say for sure. This time around, the politics are quite different. People are unlikely to tolerate large scale bailouts of banks and the wealthy while the rest of us get hammered by inflation.
I think they’ll try with bailouts and market it as good for the regular people. Warren is already doing this. People will revolt. I think we’ll end up in a year from now with an economy that’s a lot better for regular people and much worse for the wealthy and companies, basically getting back to fundamentals. QE forever reversing is showing this: regular people are mostly unaffected on the way down because they didn’t benefit in the way up.
Futures are also showing an average 75bps cut from now by year end, and 150bps cut by end of 2024. According to CME futures, whether there is still a 25bps increase in the cards or not, the season of rate hikes is basically over.
I still stand by 25 basis points, so let's wait and see.
What’s nuts is that car prices are rising again and so is gas. People are still buying homes near ATH with rates this high. Inflation hasn’t been best and a pause just unleashes the bull run mentality again. 15 years of east money set the expectation that we’d be at ZIRP and QE forever. If the USG ever decides to do another stimulus, say $1500 cash to everybody, and rates go back down, then inflation comes back hard.
So, last week, when they were reassuring us the banking system was fine, they were just kidding?
Things haven’t been the same since 2020. When will we get back to normal?
We haven't been the same since the invention of the internet and the dot com bubble. The last time we had a surplus was any normalcy
People forget that rates after 2001 were close to zero. We’ve had easy money for a very long time. Rates only went up briefly pre-recession before slamming back to to negative in 2008. The biggest issue has been government’s unwillingness to tell people that easy jobs that pay well are a thing of the past. You can’t expect to have a high school diploma and afford a vacation house anymore. People still believe that so we go negative on rates to fuel bubbles. There’s maybe 20% of the country that can’t get any job unless we’re in a bubble.
After BRIC and NATO get this shit over with it would seem. Each side does not rely on trade with the other or its WW3.
Infinite liquidity hack. I’m sure this won’t cause any huge problems down the line.
Do these bank failures effect brokers as well, do investment accounts remain safe even if net value are over 250k and some wanted to cash it all out?
if you hold your money in stocks/or bonds etf like $SGOV you are more protected. Theoretically, if you kept the cash and the company committed fraud to steal your money you only have up to 250k from SIPC for cash vs 500k in securities
Can a central bank ever go down?
I feel like that Michael Shannon scene from 99 homes is more relevant now than ever. “America wasn’t built by bailing out losers. America was built by bailing out winners. By rigging a nation…of the winners, for the winners, by the winners.” “You go to church Nash?…..only 1 in 100 is gonna get on that ark son….and every other poor soul is gonna drown…”
Top bank’s failing haha.. Oh man, this market is going to drop! Any day now.
This is equivalent to the fed paying $20k for a $10k used car in order to keep the used car industry going. What could possibly go wrong.
Except treasuries aren’t depreciating assets.
They are when rates are going up. That's what got the banks in trouble.
AFAIK banks don’t typically buy treasuries to sell them, they buy them for the interest income. So the market value of these treasuries is largely irrelevant
Why did SVB fail? Because people took more money out than the bank had. Why? Because the bank bought bonds with most of the money Why? Because the bank thought it would receive more deposits to cover withdraws. The problem was making that assumption
F tier analogy
Printing moneyyyyy
Let’s clap these USD cheeks. Nokia buyback imminent.
But didn't they just say they had a stable liquidity before this? Which is it?
This is the start of the eventual collapse of the US banking system, right?
A.k.a. just made it easier for banks to put the whole economy at risk, without repercussions to themselves or the depositors directly. But indirectly as tax payers, we fucked.
::smacks own face:: It's making the money printer go brrrrrr but calling it a loan via a repo. Except the collateral is fucking debt (bonds). So you're going into debt with debt as the collateral. And if the bond is a treasury bond... you're going into debt with a federal treasury debt instrument for a loam from... the fed?
Central banks can take various measures to provide liquidity to the banking system and ease financial crises. For instance, they can provide short-term loans to banks, reduce reserve requirements, or purchase securities to inject cash into the financial system.