Over the past two weeks the Fed has been doing a series of overnight repo market operations, that some have suggested are just routine end of the quarter maneuvering by the banks. Yet as the operations continue on now two weeks later, and have grown in size, that premise is starting to seeming less and less likely.
Unfortunately at this point it remains unknown exactly why the transactions have been taking place. But it is the type of transaction that occurs when there is a reluctance to lend within the banking system, or if assets pledged as collateral are no longer being accepted.
Additionally, when the procedure is just once, and for just one evening, that’s overnight. Although if it continues to go on, and at some point becomes unending, it starts to become incredibly similar, if not exactly the same as quantitative easing.
Jerome Powell again stated that the economy was in good shape at the last Fed meeting and press conference. Yet the Fed again cut interest rates, and you have these liquidity transactions taking place for “some” reason. It’s unfortunate that the institution given the trust of the world’s reserve currency is not more forthright, but history is what it is, and remember that this is the same group that told the world how subprime was contained. Right before it imploded.
But I was fortunate to be joined by Dave Kranzler of Investment Research Dynamics this week on my show to discuss the moves by the Fed, what might actually be going on, and what investors would be well served to know.
The developments are reminiscent of 2007 – 2008, and to find out more, click to watch the interview now!
October 2, 2019