Reverse REPO Market Brewing Financial Crisis Black Swan Danger
Stock-Markets / Financial Crisis 2021 Jul 29, 2021 - 05:20 PM GMTBy: Nadeem_Walayat
Financial Crisis 2.0 - You Don't Know How Big of a Bubble Your in until AFTER it BURSTS
A handful of stocks are driving the indices higher, Apple worth $2.3 trillion, Microsoft $2 trillion, Amazon $1.8 trillion, Google 1.8 trillion, Facebook $1 trillion even that over priced pile of poop Tesla came close to being valued at $1 trillion, we are definitely in a bubble, you only need to go onto youtube and watch the to the moon videos of Cathy Wood, literally everything's going to go to the moon because her barely out of puberty Quants decree it to be so. This is clearly a major warning sign of a unsustainable trend when indices are ruled by such a small clique of tech stocks where the greatest similarity is with the dot come bubble in terms of the valuation of stocks that actually produce revenues unlike the largely worthless dot com's of that time.
REPO Market Brewing Financial Crisis Black Swan Danger
The REPO market, where banks are buying short-term treasuries on an epic scale, on face value this can be explained that the banks are reluctant to lend and so Banks awash with cash are parking their excess deposits with the central banks so that they do not have to increase their capital reserves to cover the excess deposits as the following graph illustrates which is the opposite to the financial crisis when the banks were short on liquidity due to a run on the banks that were seeing liquidity / deposits withdrawn on an epic scale.
Where the mainstream press is concerned this is nothing to worry about and in fact they see it as the banks being an in healthy position, excess cash unlike the financial crisis when there was a run on the banks
Which to me reeks a lot like the mantra going into the financial crisis of a housing market soft landings etc.
So what's the problem if the banks have too much cash, why could it trigger a black swan crash event?
Because just like the financial crisis it is sucking liquidity OUT of the financial system that fractional reserve banking and then the shadow banking system magnify mani-fold. Maybe somewhere between X20 to X40 the reversed REPO amount.
You can see the hidden impact in the financial system as we see a sharp drop off in the commercial loans, as businesses are not borrowing ahead of what? A recession?
Its akin to a run on the banks underway that is sucking money out of the banks for reasons that won't become apparent until after the fact. I could guess at reasons by looking back at what the bankster's did last time i.e. sliced and diced mortgage backed securities and selling CDO's that they could not honour, which they likely have been upto similar tricks of the trade since, hence the demand T-Bills as collateral in what is happening in the the reverse repo market we are probably seeing the early warning signs of Financial Crisis 2.0. A panic rush to hold T-Bills for what ? Not for the 0.05% interest rate! It could be to slice and dice collaterised debt obligations with the Tbills required to give junk bonds a Triple BBB rating.
Anyway sucking money out of the banking system is not good for ASSET PRICES. It is DEFELATIONARY i.e. every asset that has responded to rampant money printing since covid began could now see itself undone in a far shorter period of CRASH time. For at a time of lack of liquidity then which assets do you think will be first to be sold? That's right the most liquid assets, that's your Apples, Google's, Facebook's, and Amazon's.
Stocks, crypto's, bonds, housing, and maybe even gold , everything that has been inflated and leveraged could now quickly deflate in a market panic event when the cookie finally starts to crumble, perhaps when the CDO's and other derivatives markets start to seize up demanding liquidity to be raised from elsewhere..
So whilst currently everything is relatively calm with stocks trading near all time highs, the reality maybe that we are at precipice of a tipping point that could soon snowball into a full blown market panic event with likely economic consequences, of which the reverse repo markets could be the canary in the coal mine because we won't know exactly the hell the banking crime syndicate has upto behind the scenes until AFTER the event! But I can guess that just as the Financial crisis of 2008 was built on bets on top of bets on top of bets then so will it be so this time.
This analysis is an excerpt from my recent extensive analysis evaluating the prospects for a Financial Crisis 2.0 - Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! the whole of which has first been made available to Patrons who support my work.
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Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
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