Jim Sinclair’s Commentary
Relevant to article below.
Term Repo Record Oversubscribed As Market Liquidity Craters
March 5, 2020
Yesterday, when discussing the most oversubscribed overnight term repo operation yet, in which dealers scrambled to obtain $111.5BN in liquidity from the Fed’s $100BN overnight repo operation, we said that it was “the second day in a row the overnight funding repo operation was oversubscribed (and it is virtually certain that tomorrow’s downsized term-repo will be oversubscribed as well).”
We were right, because moments ago not only did the Fed announce that the latest 14-day term repo was indeed oversubscribed, but it was in fact the most oversubscribed term-repo on record, surpassing even the funding needs indicated at the start of the repo crisis last September.
While the Fed tapered the size of the term-repo operation from $25BN to $20BN as we entered March, the demand for the liquidity it unlocks has not only refused to go down, but has in fact soared, and rose to an all time high of $72.6BN consisting of $45.25BN in Treasurys, $2.5BN in Agency and $24.8BN in MBS tendered to the Fed.
Bill Holter’s Commentary
WOW! The “Bond King” Jeff Gundlach says gold is going a lot higher, doesn’t that mean bonds…and ALL other paper is going “a lot” lower? Do you understand? We assure you, if there is a “seizure” anywhere in credit, there will be a seizure everywhere. Please remember these words!
“Gold Is Going A Lot Higher” – DoubleLine’s Gundlach Warns Of “Seizure In The Corporate Bond Market”
March 5, 2020
The bond market is rallying because The Fed has reacted the seizure in the corporate bond market – which is not getting enough attention.”
That was the sentence that sparked a chin hitting the table moment for anyone watching DoubleLine CEO’s Jeff Gundlach being interviewed on CNBC today. Until now, amid all this equity market carnage, various talking heads – who clearly are not ‘in’ the bond market – have confidently claimed ‘yeah, but it’s different this time, there’s loads of liquidity and credit markets are not showing any signs of pain’… Well that all changed today as the world was told the truth.
Credit spreads have exploded wider in recent days… “the junk bond market is widening out massively…”
Bill Holter’s Commentary
They’re not doing this already? I think this qualifies as a giant “C’mon man”!
Boston Fed’s Rosengren Says Fed May Soon Have To Buy Stocks
March 6, 2020
Three weeks ago, former Fed Chair Janet Yellen incepted the idea that during the next crisis, the Fed should consider expanding the range of assets it would purchase, most notably buying stocks. Our comment to this was that “thanks to Janet Yellen, we now we know that before the current fiat regime of central banks finally ends and before stocks go limits up as the revolution starts, the Fed will order a POMO of, well, everything in one final, last ditch effort to keep social stability by creating the impression that stocks are stable and rising even as society implodes.”
Well, thanks to experiments conducted in a Chinese P-4 biolab, the next crisis appears to have arrived in the form of the coronavirus pandemic, and the idea of the Fed buying stocks is now on the agenda, case in point Boston President Eric Rosengren, who echoed Yellen, and said the Fed should be allowed to buy a broader range of assets – either by change of mandate or through a facility that allows it to buy stocks – if it lacks sufficient ammunition to fight off a recession with interest-rate cuts and bond purchases. In such a scenario, the US Treasury should indemnify the Fed against losses, Rosengren said in the text of remarks scheduled for delivery Friday in New York.
In a situation where both short-term interest rates and 10-year Treasury rates approach the zero lower bound, allowing the Federal Reserve to purchase a broader range of assets could be important.
Excerpt: “In such a case, as Marvin highlighted in his 1999 article, we should allow the central bank to purchase a broader range of securities or assets. Such a policy, however, would require a change in the Federal Reserve Act. … Alternatively, the Federal Reserve could consider a facility that could buy a broader set of assets, provided the Treasury agreed to provide indemnification.