vincecate wrote:They are calculating money velocity after figuring out GNP and money supply. But to figure out real GNP you need a deflator or inflation level. So we will see inflation first, then later we will get reports of money velocity going up.Higgenbotham wrote:Money velocity is falling as the Fed withdraws from QE.
John wrote:Hope springs eternal in the human breast. - Alexander Popevincecate wrote:They are calculating money velocity after figuring out GNP and money supply. But to figure out real GNP you need a deflator or inflation level. So we will see inflation first, then later we will get reports of money velocity going up.Higgenbotham wrote:Money velocity is falling as the Fed withdraws from QE.
http://www.bloomberg.com/news/print/201 ... -soar.htmlBond Anxiety in $1.6 Trillion Repo Market as Failures Soar
By Liz Capo McCormick - Jul 7, 2014
In the relative calm that is the market for U.S. Treasuries, a sense of unease over a vital cog in the financial system’s plumbing is beginning to rise.
The Federal Reserve’s bond purchases combined with demand from banks to meet tightened regulatory requirements is making it harder for traders to easily borrow and lend certain desired securities in the $1.6 trillion-a-day market for repurchase agreements. That’s causing such trades to go uncompleted at some of the highest rates since the financial crisis.
Disruptions in so-called repos, which Wall Street’s biggest banks rely on for their day-to-day financing needs, are another unintended consequence of extraordinary central-bank policies that pulled the economy out of the worst financial crisis since the Great Depression. They also belie the stability projected by bond yields at about record lows.
“You have a little bit of a perfect storm here,” said Stanley Sun, a New York-based interest-rate strategist at Nomura Holdings Inc., one of the 22 primary dealers that bid at Treasury auctions, in a telephone interview June 30.
Smoothly functioning repo trading is vital to the health of markets. The fall of Bear Stearns Cos., which was taken over by JPMorgan Chase & Co. in 2008 after an emergency bailout orchestrated by the Fed, and the collapse of Lehman Brothers Holdings Inc., whose bankruptcy in September of that year plunged markets into a crisis, were hastened after they lost access to such financing.
There is a few billion in collateral missing in China whereas in the repo market it is a percentage of a $1.6 trillion market that has grown to $197 billion in failures in one week in June 2014. The 2008 crisis started with the failure of a couple Bear Stearns subprime mortgage hedge funds in July 2007 that were a few billion each and progressed to runs on large amounts of cash in money market funds 14 months later. I've been wondering if what is coming might compress in time to just a few days. I recall you had written quite a few articles in 2007 about the lockup in the Asset Backed Commercial Paper markets and that the paper couldn't be rolled over because there were no bidders. This caused people who had obligations like house closings not to be able to meet them. I'm thinking perhaps the reason that situation was able to be periodically unthawed for months before it became worse was the Fed still had the ability to lower rates. It seems like we simultaneously have some situations that resemble 2007 and some that resemble 2008 occurring simultaneously. And some that are even more distorted, like paying minus 3% for a certain treasury that is in short supply due to the consequences of QE.John wrote:You and aedens have also posted several ZeroHedge articles indicating
that the same thing is happening in China, at least with commodities.
It's hard to remember now, but in the 2007 "credit crunch," credit was completely
frozen, almost overnight.
John
This is really something else.Negative rates happen when certain Treasuries are in such high demand or short supply that lenders of cash are actually paying collateral providers interest so they can obtain the needed securities. Traders said that is a big reason why repo rates on desired Treasuries have recently gotten as low as negative 3 percent.
Now, more repo trades are going uncompleted, or failing, because it’s either too difficult or expensive for the borrower to obtain and deliver Treasuries. Such failures to deliver Treasuries have averaged $65.6 billion a week this year, reaching as much as $197.6 billion in the week ended June 18, Fed data show.
Uncompleted trades averaged $51.6 billion in 2013, and $28.8 billion in 2012, according to the Fed. In those cases, the borrower pays a 3 percent penalty.
Liquidity Issues
“The effect of all the collateral issues we see now is an indication of not so much how things are, but how bad things will be when you really need liquidity,” said Jeffrey Snider, chief investment strategist at West Palm Beach, Florida-based Alhambra Investment Partners LLC, in a telephone interview June 30. “That’s when you get into potentially dire situations.”
The conditions for repo stress were on display last month. The 2.5 percent note due in May 2024 reached negative 3 percentage points in repo in the days preceding a June 11 Treasury auction of $21 billion in notes to finance government operations.
http://www.zerohedge.com/news/2014-06-2 ... your-bondsHiggenbotham wrote:I'm not pounding the table that there was a top in the market today. This was an area of interest but the bears didn't get much done.
Young, Alexander. The Sogo Shosha: Japan's Multinational Trading Companies. Boulder, CO: Westview Press, 1979.Higgenbotham wrote:The zh article spells it out well. The credit markets have been giving warnings for over 6 months (and the muni bond market longer than that). However, I would go on to say that in looking at the specifics being unveiled things are a lot more screwed up than I could have imagined.
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