PPS: Repo Madness

Commentary

Hey folks, David from AMS Trading here. I thought I could wait to write and submit this until next week but too many things happened on Monday that tell me it’s time.

if you have not guessed by now, “day trading” is not my thing . . . never really was. Give me the good old macroeconomic theory behind “what’s really happening” out there in the world of “cash” flows then leave me alone with debt, currency and currency reactive commodities.

News that’s filtered out over the last couple weeks looks to be true; massive repos are about to hit the NY Fed and we’re not talking “chump” change. Danny and I named the last time the Fed took action and handled one of these QE4 . . . this is going to be more like QE5 & QE6 wrapped up and found under the tree for Christmas. After all, when the Fed throws money into the market interest rates go down, right . . . wrong and that is where our signal is coming from.

Fed flooding money into the banking system normally helps to lower interest rates. Today’s trading in the 10-year proved differently, as did the 5-year / 2-year complex. Bond prices dropped; interest rates increased. Surely the Dollar did the “right” thing. Let’s think through that, more Dollars on the market should take the value down; and it did. OK, I feel better now.

Folks, there’s a roller coaster coming to the NY Fed the likes of which it has never seen. They do seem prepared but when you are dealing with the major banks doing overnight repos sheer problems with size arise. Let’s hope the Fed is well ahead of this; my sense is that they are.

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