Cracks emerging in money markets?

Discussion of the Cash portion of the Permanent Portfolio

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ochotona
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Re: Cracks emerging in money markets?

Post by ochotona » Sun Sep 22, 2019 7:02 am

Doug Noland weekly commentary:

"With the collapse of Lehman setting off the “worst financial crisis since the Great Depression”, instability in the multi-trillion repurchase agreement marketplace generates intense interest. This crucial market for funding levered securities holdings is critical to the financial system’s “plumbing.” It is a market in perceived “money” – highly liquid and virtually risk free-instruments. If risk suddenly becomes an issue for this shadowy network, the cost and availability of Credit for highly leveraged players is suddenly in question. And any de-risking/deleveraging at the nucleus of the global financial system would pose a clear and present danger of sparking “risk off” throughout Credit markets and financial markets more generally."
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Re: Cracks emerging in money markets?

Post by pugchief » Sun Sep 22, 2019 8:22 am

Even Fidelity's "treasury MM fund" sweep account FZFXX is mostly repos
fzfxx.png
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If you really want safety, you need to manually move the money to FDLXX "treasury ONLY MM fund"
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Who knew?
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Re: Cracks emerging in money markets?

Post by sophie » Sun Sep 22, 2019 8:42 am

77% repos? That's gone up since I last checked (was about 60%). Crazy.

I only wish FDLXX could be used as a sweep account. It's not that hard to keep shifting cash into it though. With the smartphone app I can do it while walking to work, or while stuck in boring meetings. I also have 3 sets of T bills on autoroll, and it looks like you can add to those positions anytime with the "buy" button. Pugchief have you tried that?
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Re: Cracks emerging in money markets?

Post by pugchief » Sun Sep 22, 2019 8:48 am

sophie wrote:
Sun Sep 22, 2019 8:42 am
77% repos? That's gone up since I last checked (was about 60%). Crazy.

I only wish FDLXX could be used as a sweep account. It's not that hard to keep shifting cash into it though. With the smartphone app I can do it while walking to work, or while stuck in boring meetings. I also have 3 sets of T bills on autoroll, and it looks like you can add to those positions anytime with the "buy" button. Pugchief have you tried that?
Tried T-bills/autoroll? Yes, but I prefer the liquidity of a MM fund.

I didn't know about this whole repo thing until this thread, but I have held cash in other MM funds at Fidelity, and they do automatically pull funds if necessary to cover debits that can't be paid from the sweep fund, so I will be keeping most of my cash there in FDLXX going forward.
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Re: Cracks emerging in money markets?

Post by mathjak107 » Sun Sep 22, 2019 9:08 am

i use fzfxx as a sweep account
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Re: Cracks emerging in money markets?

Post by sophie » Sun Sep 22, 2019 10:30 am

pugchief wrote:
Sun Sep 22, 2019 8:48 am
sophie wrote:
Sun Sep 22, 2019 8:42 am
77% repos? That's gone up since I last checked (was about 60%). Crazy.

I only wish FDLXX could be used as a sweep account. It's not that hard to keep shifting cash into it though. With the smartphone app I can do it while walking to work, or while stuck in boring meetings. I also have 3 sets of T bills on autoroll, and it looks like you can add to those positions anytime with the "buy" button. Pugchief have you tried that?
Tried T-bills/autoroll? Yes, but I prefer the liquidity of a MM fund.

I didn't know about this whole repo thing until this thread, but I have held cash in other MM funds at Fidelity, and they do automatically pull funds if necessary to cover debits that can't be paid from the sweep fund, so I will be keeping most of my cash there in FDLXX going forward.
That's what I do now, except I have the FDLXX fund in a separate brokerage account and use the cash account only for ATM withdrawals. I put all the credit card auto-debits on the brokerage after an episode this past April where Fidelity's auto-transfer software failed, and a bunch of people got stuck with late fees from their credit cards. I went with the separate brokerage because you can't set up auto transfers into a money market fund in the cash account, and its sweep pays essentially no interest.
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Re: Cracks emerging in money markets?

Post by pugchief » Sun Sep 22, 2019 12:03 pm

mathjak107 wrote:
Sun Sep 22, 2019 9:08 am
i use fzfxx as a sweep account
And are you concerned that it is 77% repos?
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Re: Cracks emerging in money markets?

Post by mathjak107 » Sun Sep 22, 2019 2:24 pm

Nope..not concerned at all..repurchase agreements are standard fed action whether a fund takes part or not
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Re: Cracks emerging in money markets?

Post by jhogue » Mon Sep 23, 2019 11:55 am

mathjak107 wrote:
Sun Sep 22, 2019 2:24 pm
Nope..not concerned at all..repurchase agreements are standard fed action whether a fund takes part or not
I think a lot of investors would have described buying and selling in the large secondary market in collaterized mortgage obligations-- the sort held by Bear Stearns prior to 2008 -- as a standard action for all the TBTF investment banks on Wall Street.
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A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Cracks emerging in money markets?

Post by Tortoise » Mon Sep 23, 2019 1:33 pm

Exactly. All the articles I've read state that the Fed's current intervention in the repo market is not typical and hasn't happened since 2008. That seems like cause for at least a little bit of concern and scrutiny.
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Re: Cracks emerging in money markets?

Post by Kbg » Mon Sep 23, 2019 3:35 pm

https://www.pragcap.com/three-things-i- ... o-madness/

Good article.

PS: if you have a brokerage that you can see futures quotes with and monitor stocks, T-bonds, currencies, gold and large industrial commodities it’s pretty easy to see if something is up. I haven’t seen anything to suggest a problem.
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Re: Cracks emerging in money markets?

Post by Tortoise » Mon Sep 23, 2019 5:29 pm

I still don’t quite understand. Has the Fed been injecting billions of dollars into the repo market each day (e.g., giving it to the banks like “free money”), or has it simply been lending that money to the banks at below-market interest rates?

If the repo lending rates spiked this past week because the banks lack sufficient reserves, then doesn’t that mean the reserve requirements are doing their job, i.e., maybe the banks should dial back their lending a bit to correspond to the reserves they actually have?
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Re: Cracks emerging in money markets?

Post by Kbg » Mon Sep 23, 2019 11:30 pm

Its way complex...but the bottom line is it isn’t the liquidity being injected but the spread that matters. Wide spread basically means trust is breaking down.
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Re: Cracks emerging in money markets?

Post by boglerdude » Tue Sep 24, 2019 1:43 am

https://fred.stlouisfed.org/graph/?g=mc6A

Looks like a lot of e-cash sitting around compared to before 08. Thats still not enough liquidity?
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Re: Cracks emerging in money markets?

Post by shekels » Tue Sep 24, 2019 8:23 am

boglerdude wrote:
Tue Sep 24, 2019 1:43 am
https://fred.stlouisfed.org/graph/?g=mc6A

Looks like a lot of e-cash sitting around compared to before 08. Thats still not enough liquidity?
Exactly Kbg
"Wide spread basically means trust is breaking down."


"The increased role of non-bank institutions in providing credit means that an increasing proportion of international finance comes from unregulated sources. Effectively, this means that these institutions, including money market funds, investments banks, etc., have unwittingly assumed even bigger risks in their lending practices than commercial banks. This also means that when the downturn comes, the share of non-performing and/or defaulted loans will grow higher than before."

I can hear them asking ..What's in your Wallet I mean Portfolio/Collateral?
¯\_(ツ)_/¯
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Re: Cracks emerging in money markets?

Post by jhogue » Tue Sep 24, 2019 8:37 am

Kbg wrote:
Mon Sep 23, 2019 11:30 pm
Its way complex...but the bottom line is it isn’t the liquidity being injected but the spread that matters. Wide spread basically means trust is breaking down.
+1

For even more detail and analysis, see "Securitized Banking and the Run on the Repo," by Gary Borton and Andrew Metrick, a National Bureau of Economic Research working paper available on-line:
https://www.nber.org/papers/w15223

For me, the bottom line is that Uncle Harry's wisdom still prevails. Own each asset in the purest form possible, with the fewest pieces of paper between you and your money. Avoid the repo market. Buy Treasurys.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Cracks emerging in money markets?

Post by ochotona » Tue Sep 24, 2019 6:57 pm

The Fed said they will inject liquidity until October 10-ish. So what happens after then???
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Re: Cracks emerging in money markets?

Post by Kbg » Wed Sep 25, 2019 5:44 pm

Fuhget about it, it don’t mean nuthin.
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Re: Cracks emerging in money markets?

Post by dualstow » Mon Sep 30, 2019 10:33 am

I hope Pug won’t mind if I add a WSJ link. Actually, the link in the OP is from the WSJ.

Fed Adds $63.5 Billion to Financial System in Repo Transaction
https://www.wsj.com/articles/fed-adds-6 ... 1569846438
Feels like the end of the everything rally.
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Re: Cracks emerging in money markets?

Post by pugchief » Mon Sep 30, 2019 8:31 pm

dualstow wrote:
Mon Sep 30, 2019 10:33 am
I hope Pug won’t mind if I add a WSJ link. Actually, the link in the OP is from the WSJ.

Fed Adds $63.5 Billion to Financial System in Repo Transaction
https://www.wsj.com/articles/fed-adds-6 ... 1569846438
Why would I mind?
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Re: Cracks emerging in money markets?

Post by dualstow » Tue Oct 01, 2019 7:32 am

pugchief wrote:
Mon Sep 30, 2019 8:31 pm
dualstow wrote:
Mon Sep 30, 2019 10:33 am
I hope Pug won’t mind if I add a WSJ link. Actually, the link in the OP is from the WSJ.

Fed Adds $63.5 Billion to Financial System in Repo Transaction
https://www.wsj.com/articles/fed-adds-6 ... 1569846438
Why would I mind?
I thought you always asked for a non-paywalled alternative. I’m probably thinking of someone else, then.
Feels like the end of the everything rally.
In Britain they have made burglary a safe occupation. It's like OSHA for burglars.
- Thomas Sowell on gun control
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Re: Cracks emerging in money markets?

Post by pugchief » Tue Oct 01, 2019 2:06 pm

dualstow wrote:
Tue Oct 01, 2019 7:32 am
pugchief wrote:
Mon Sep 30, 2019 8:31 pm
dualstow wrote:
Mon Sep 30, 2019 10:33 am
I hope Pug won’t mind if I add a WSJ link. Actually, the link in the OP is from the WSJ.

Fed Adds $63.5 Billion to Financial System in Repo Transaction
https://www.wsj.com/articles/fed-adds-6 ... 1569846438
Why would I mind?
I thought you always asked for a non-paywalled alternative. I’m probably thinking of someone else, then.
Maybe I did. Always better for the masses. But I have a subscription now, which I probably didn't back then.
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Re: Cracks emerging in money markets?

Post by shekels » Tue Oct 15, 2019 10:59 am

When is QE not QE?
The new-new-new plan.


https://wolfstreet.com/2019/10/11/10-ye ... ury-bills/
¯\_(ツ)_/¯
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Re: Cracks emerging in money markets?

Post by ochotona » Tue Oct 15, 2019 2:54 pm

shekels wrote:
Tue Oct 15, 2019 10:59 am
When is QE not QE?
The new-new-new plan.

https://wolfstreet.com/2019/10/11/10-ye ... ury-bills/
Through Q2 2020. I wonder if they can really stop at that point.
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Re: Cracks emerging in money markets?

Post by Tortoise » Tue Oct 15, 2019 6:39 pm

Sounds like a de facto standing repo facility, which the Fed proposed earlier this year.

If so, maybe at some point they'll just "make it official" and replace their current ad hoc repo market interventions with a standing repo facility.
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