Softechie.....here ya go
The Feed added $2 billion in overnight repos today, on top of Friday's $2.1 billion in 6 day repos. The also did a coupon pass of $1.5 billion. That's about $4.3 billion in net new money since Thursday. Pretty aggressive. Definitely a bit of a change from their stinginess in weeks prior.
Last week Doc noted that the Fed added $13.8 billion in T-bills maturing on May 9 that he could not account for. It turns out this was the result of a matched-sale purchase the prior week. This was hidden away in a footnote in the Fed's weekly System Open Market Account statement. The previous week the Fed had sucked this money out of the system by the sale, but had made a deal to put it back the following week. And exactly when did that $13.8 billion go back into the system? Why, May 8, of course. And let me see, did anything special happen on May 9? Only a triple digit gain in the Nasgap and 300+ points in the Dow, that's all.
But it was just a coincidence, of course.
Just so you understand the mechanics, the Fed buys and sells securities through its primary dealer network, a group of 22 small firms no one's ever heard of, like Golden Sacks, Mohel Lynch (Oy do we got tips for you!), SlimeySmithBorkedMe, Moogan Stoogley, JP Moogan, et. al. So, the week before the Fed sold these bills to the Gang of 22, whoosh, suck, suck. Out of the banking system came the $13.8 billion. When it came out, all the markets shuddered. (Coincidentally, of course.) That was May 1.
But, aha! It was only a trick, because Al and the Gang of 22 had made a deal to give them back the money on May 8. Boom, all at once, $13.8 billion in the hands of Golden Sacks, Mohel et. al. to do with as they please. Which they leverage by something like 8 to 1. And we do know what they did with that money, don't we?
Yes we do.
It gets a little complicated because those bills expired the next day. The US Treasury then has to write a check to the Fed for $13.8 billion. Now the Fed has the wherewithal to buy more securities. (which they have any way by running those presses down in the basement at 33 Liberty Street.) And we know the gummit will be selling more and more because of ballooning deficits. The Fed will either buy that debt, and thereby monetize it, stoking inflation fears and sending bond yields through the roof. Or they won't buy it, and short term rates will skyrocket.
It gets even more complicated because sometime during the week ending May 1, the Fed did another matched sale-purchase for bills maturing May 16, for $8 billion the week before, and $14 billion last week. While the Fed makes it fairly easy to find some of what it's doing through its daily announcements of repurchases and coupon passes, these matched sale-purchase deals do not get reported every day, and are buried in the footnotes of the weekly System Open Market Account statement. These moves tend to be much larger than the daily repos and coupon passes that the Fed makes public daily. Do they have something to do with the rocking motion in the markets week to week? Uhhh....
The footnotes revealed that the Fed did total matched sale-purchases of $21 billion the week ended May1, then $18.6 billion the week ended May 9. They bought back $13.8 billion of the first week's deal last week. $8.1 billion comes back this week, and $4.6 billion next week. We'll be in the dark about any sales done this week until Thursday's weekly releases. If there are none, then the $4.6 billion will be a net addition.
On balance, given the coupon pass and repos added today, the Fed appears to be feeding a little more aggressively this week than over the past few weeks. The stock market is stabilizing as a result, but the bond market is beginning to act poorly again, in response to the inflationary fears that excess money creation and ballooning government deficits cause. Under the circumstances, the trendless uncertainty and day to day volatility in all markets is likely to continue until the bond market forces the Fed's hand. That could be a week, or it could be six weeks, but the day of reckoning is coming. Dr. Stool
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