re: Discussion of Fed Liquidity’s Impact on Equity Markets

I haven't checked the swap line balances lately but once spreads were under control you didn't really have to, but everybody I listen to infer that funding markets calmed down. I'm sure the speed that the Fed used helped quite a bit, I think that was an issue that caused the second drawdown in the spring of 09 so they learned their lesson.

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inverted chart of bank excess reserves from 2014 to today, its the same chart as the dollar. As Zoltan Poszar said back in 2016, excess reserves are no longer excess. The regulators themselves made the biggest global dollar demand come from US banks and foreign subs. Oh btw - that was right around the time that the Fed ran off its balance sheet. Everybody could see the September repo blow up coming. We just didn't know when.

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LOL I've never thought to look at that chart. I'll check it out but it's not surprising at all. You aren't the first person I've heard mention that the Repo madness was inevitable. I remember reading an article back in the June/July timeframe that laid out some whackiness in overnight lending rates if I remember right. After the fact people were saying it was fairly obvious due to quarter end activities.

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he regulators themselves made the biggest global dollar demand come from US banks and foreign subs

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Dodd-Frank, right? I have been getting a kick out of this. Regulators always one step behind. From what I've read their liquidity requirments prevented banks from taking on collateral for absurd rates. I think I might have mentioned it earlier in this thread but I have a feeling some draconian Wall Street/corporate regulations are around the corner. The leverage in the system the Fed had to unload is going to be a political target even though government financing is forcing those trades to squeeze out any yield. I'd be curious to know if reflating bonds pushed leverage back to pre-March levels.

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Next on the regulators' docket is asset manager leverage. Risk parity and global RV did themselves no favors in March.

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This I'd be interested in. Is there anything currently in the works? What are they going to do force reserve requirements or limit leverage? Or both? That would seem like a hilarious thing to do when our pension system is desperate for yield and not capitalized as it is.


Edit: I just found something curious. I was listening to a guy saying the Fed is dispensing QE through the banking system in the U.S. while they are trying to unwind. Is the trend of reserves from $2.3t in 2016 to $1.3T on 9/2019 proof of that thesis? And if that's true wouldn't QE have no effect on inflation/deflation since we know that cash isn't leaving the banking sector making these problems worse?

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If you track the inverted chart of bank excess reserves from 2014 to today, its the same chart as the dollar. As Zoltan Poszar said back in 2016, excess reserves are no longer excess. The regulators themselves made the biggest global dollar demand come from US banks and foreign subs.

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That really is interesting.

There could be a better dollar proxy to use. I didn't see DXY on FRED. But I think that tells the story he described decently well.

Will come back on all that later but here is a chart from the FT.

Democrats Propose Requiring the Fed to Fight Inequality



I used to make jokes about the Fed having dual interest rates for minorities and wypipo. Less than a decade later here we are

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As I see it, the unintended consequence of this legislation will be banks will have to raise rates on loans to lower risk borrowers in order to subsidize the lower rates, and loan losses, on loans made to higher risk borrowers.

That will tend to stifle lower risk business borrowers from expanding and investing in their business, thus likely increasing unemployment and lowering economic expansion.

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Henry Hazlitt, with his COBS* approach to economics, would have had a field day with this one. If they started using his Economics in One Lesson to swear people in instead of the Bible, I think even God would find the substitute reasonable, given the financial foolishness that comes from Washington.

*Common, ordinary business sense

Howard Marks' Latest Memo to Investors

Some good stuff in here, but also a few head scratchers.

Stephanie Kelton is in control of the Fed

We are in the works of testing the logical conclusion to Keynesian economic theory. I'll post flows later I actually had to work the last few days

This was on my reading list for a while and I just got around to it. It's dated by a month or so, but helps put some additional pieces together in terms of the framework previously established.

LINK

This, too:

LINK /