Why Is This Supersafe Bank Scaring the Fed?

By Anthony B. Sanders

Arbing The Federal Reserve

The Federal Reserve did it to themselves. The have one rate at which banks can store deposits with The Fed (currently 1.95%) and another rate for institutional investors (1.75%). If this isn’t a riskless arbitrage opportunity, I don’t know what is.

(Bloomberg Businessweek) — The Federal Reserve is, among other things, a bank for banks: They keep deposits there and earn interest at a rate currently set at 1.95 percent. Big institutional investors that aren’t banks can also deposit money at the Fed, but they use a different program with a lower interest rate: 1.75 percent.

This suggests an obvious trade. An institution could deposit money with a bank, which would then turn around and deposit it with the Fed. The Fed pays the bank 1.95 percent interest, the bank collects a fee for its trouble, and the institution gets the balance—say, 1.9 percent.

Continue reading Why Is This Supersafe Bank Scaring the Fed?

Why the Fed Denied the Narrow Bank

By Keith Weiner

It’s not every day that a clear example showing the horrors of central planning comes along—the doublethink, the distortions, and the perverse incentives. It’s not every year that such an example occurs for monetary central planning. One came to the national attention this week.

A company called TNB applied for a Master Account with the Federal Reserve Bank of New York. Their application was denied. They have sued.

First, let’s consider TNB. It’s an acronym for The Narrow Bank. A so called narrow bank is a bank that does not engage in most of the activities of a regular bank. It simply takes in deposits and puts them in an account at the Fed. The Fed pays 1.95%, and a narrow bank would have low costs, so it could pass most of this to its depositors. This is pretty attractive, and without the real estate and commercial lending risks—not to mention derivatives exposure—it’s less risky than a regular bank. According to Bloomberg’s Matt Levine, saving accounts for large depositors average only 0.08% interest.
Continue reading Why the Fed Denied the Narrow Bank

Fed Shed: Balance Sheet Down $245 Billion Since September ’17

By Anthony B. Sanders

10-Year T-Note Yield UP From 2.06% To 2.90%

The Fed’s Quantitative Tightening (aka, Fed Shed) has resulted in a decline of their balance sheet of $245 BILLION since September 2017, about one ago.

fedshed

And the 10-year Treasury Note yield has climbed from 2.06% in September 2017 to 2.90% today.

Shedding Dog

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Fed May End Taper This Year Amid Regime Rethink, Says Zoltan!

By Anthony B. Sanders

(Bloomberg) — America’s growing debt pile may force the Federal Reserve to stop shrinking its balance sheet before the year is out, according to Credit Suisse Group AG analyst Zoltan Pozsar.

With bank reserves at the Fed being pared, the U.S. central bank will soon have to make a choice between activating an overnight facility for repurchase agreements or halting its balance-sheet reduction earlier than many market participants expect, the former U.S. Treasury adviser wrote in a note Monday.

He indicates that policy makers are unlikely to pursue the option of a new facility until alternatives have been exhausted, meaning a premature end to the taper is the most likely outcome. Royal Bank of Canada analysts said last month the balance-sheet runoff could end as early as 2019, while Goldman Sachs strategists in May said they’re assuming an end around April 2020.

Continue reading Fed May End Taper This Year Amid Regime Rethink, Says Zoltan!

‘I Fully Support Jerome Powell’: At G-20, Steve Mnuchin Swears Trump Respects Fed Independence

By Heisenberg Report

This weekend, Steve Mnuchin is in Buenos Aires for the G-20 meeting, and much like his first trip to the summit earlier this year, he’s under pressure to defend the Trump administration’s adversarial approach to global trade.

It’s a tough sell, to be sure. Trump is effectively trying to roll back decades of progress on globalization and free trade. As BofAML’s Michael Hartnett recently put it, “new tariffs are set to boost US protectionism to highest level since mid- 1970s”.

Tariffs

Continue reading ‘I Fully Support Jerome Powell’: At G-20, Steve Mnuchin Swears Trump Respects Fed Independence

Mulvaney Tells Fox Trump Didn’t Say What Trump Said About The Fed

By Heisenberg Report

It’s been a rough week for Trump administration officials.

The problem for the President’s advisors, aides and apologists is that Trump insists on taking the most controversial position possible on every single issue that has the misfortune of landing on his plate.

From international relations to domestic issues to economic policy, he revels in controversy. He seemingly views everything as an opportunity to “prove” his “disruptor” credentials, even when it’s not necessary. Here’s how I described it earlier on Friday:

Continue reading Mulvaney Tells Fox Trump Didn’t Say What Trump Said About The Fed

Still Easy After All These Years

By Kevin Muir

The other day I was listening to some hedge fund manager or market strategist making the bearish argument for risk assets. He went through his points and then finished with what he deemed as the final knife to the heart of the bulls – “to top it all off, you are now getting paid 2% in cash. We haven’t seen that level in years.”

Continue reading Still Easy After All These Years

If It Pleases The Court, Jerome Powell Would Rather Congress Didn’t Ask Him About The Trade War

By Heisenberg Report

Jerome Powell is on Capitol Hill on Tuesday (it’s Humphrey Hawkins week, in case you forgot),  and his testimony will be scrutinized heavily in light of the trade frictions and the prospect that a trade-related downturn in global growth could spill over and put the brakes on U.S. economic momentum.

Last week, in an interview with American Public Media’s “Marketplace” program, Powell was non-committal on the trade issue, but his comments in Sintra as well as the June Fed minutes reflect some consternation about the balance of risks.

Generally speaking, his assessment of the economy will be characteristically upbeat, but as BofAML notes, “the more interesting take may come from his assessment on the risk to the economy, especially around tariffs.”

Continue reading If It Pleases The Court, Jerome Powell Would Rather Congress Didn’t Ask Him About The Trade War

A Look at SOMA Changes Influence on SPX Since Quantitative Tightening Began

By Rob Hanna

The chart below is from this weekend’s QE subscriber letter. It is one I have updated frequently the last few months. It looks at compound performance of two opposing strategies. The blue line represents a strategy that is invested in the market during weeks that the Fed’s SOMA account value rises. During weeks where the SOMA declines, the blue line is sidelined (earning no interest). The red line takes the opposite approach. It is in the SPX during SOMA contraction weeks, and it is sidelined when the SOMA expands. (The SOMA is the Fed’s System Open Market Account that contains all of its bond holdings.) SOMA changes are released each Thursday, and look at a Thursday – Wednesday reporting week.

2018-07-16

Continue reading A Look at SOMA Changes Influence on SPX Since Quantitative Tightening Began

Why The Fed Will Be Forced To Halt QT Early And Expand The Balance Sheet In 2020, According To Morgan Stanley

By Heisenberg

The longer the current U.S. expansion drags on, and the more unapologetic Jerome Powell’s Fed comes across, the more obsessed the market becomes with curve inversion.

And when I say “curve inversion”, I mean “pick a curve, any curve.” Swaps, corporates or the old standbys in the Treasury complex. It all works if you’re running down stories. Anything to put the word “inverted” next to the word “curve” in a headline. “It’s provocative. It gets the people goin’!

2s10s

On Thursday, Morgan Stanley is out with an expansive new note that flags mid-2019 for inversion. To wit:

Continue reading Why The Fed Will Be Forced To Halt QT Early And Expand The Balance Sheet In 2020, According To Morgan Stanley