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Fed’s Margin Calls To Primary Dealers Pressure Market- WSE Pro

They did it again. For the third time this week the Fed drained liquidity from the market. If the Fed doesn’t add liquidity after a day like yesterday when the stock market broke a major, widely recognized, critical support level, then this Fed has no interest whatsoever in propping the market. Click here to download complete report in pdf format (Professional Edition Subscribers). Try the Professional Edition risk free for thirty days. If, within that time you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.

6 Comments

  1. Lee Adler

    Oh, they will, but they are obviously going to pick their spot very carefully. Have to wonder why they have waited this long. Greenie would have pulled the trigger at or just below 1365.

  2. kahunabear

    I was shocked that they didn’t come in with guns blazing this AM, but I guess they have already played that card. It all seems pretty inevitable. I wish they would just get it over with. But, who knows, maybe they really are concerened over inflation. They darn sure should be.

  3. Lee Adler

    It is simply mind boggling that they have sucked $86 billion out of the SOMA over the past month. The TAF only put back $50 billion of that, and it runs an end around away from the Primary Dealers. This is a key point that I have emphasized in these daily Fed Reports. (I would hope that those of you who are thinking about it would go ahead and try it risk free for 30 days.)

    The biggest change in this market is that the pigmen are now the ones lying on the Street bleeding out. They are in no condition to prop the market. They’re the ones who need propping, and they certainly aren’t getting it from the Fed. And what they’ve been getting from the Sovereign Bagholder Funds is like a Bandaid on an arterial hemorrhage.

  4. jim

    Lee….total Fed Reserve Credit is unchanged(at 867 Bill) on the week in spite of a considerable reduction in the Repo levels…the Soma account is unchanged(small uptick) at 715 Bill(no redemptions)….FCB’s(mostly UK) have come back big….Bank Credit continues to ratched up sharply….Discount borrowings are massive….then of course, the Taffy Pulls(at lower stop rates)…can you acount for the “securities” difference between overall Fed Credit at 867 & Soma at 715?…all these “bouncing balls” got this cuzz mighty confused…thanks

  5. Lee Adler

    Jim-

    Yes, Wednesday to Wednesday there was no change in total Fed credit. Thursday they did another huge drain. And yes, over the past month the Fed has been draining the SOMA while doing an end around the market via the TAF injections, which are of virtually no help to the financial markets because for the most part they do not flow through the Primary Dealers.

    These are the kinds of questions I address daily in the Fed Report. It’s really not that confusing. The Fed’s tightness is clear and, at least, “interesting.” I chart the monetary base daily and the FCB input weekly and analyze what it all means daily. The cause and effect relationships between these factors and market behavior are generally fairly easy to see.

    As for bank credit, it is simply a shift from commercial paper to bank paper. Remember, Citibank put billions in SIV credit on its books recently also. Total credit outstanding is certainly shrinking, but the rate at which that will be recognized will not be consistent with the actual loss.

    Since Professional Edition subscribers are paying for this information and ananlysis I limit the amount of detail that I am willing to share publicly. For the past week or two I have been pulling back the curtain a bit so that folks who may be interested can get a taste of how I approach these critical issues. I invite you to try the service risk free for 30 days and see if it doesn’t clarify some of these issues for you.

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