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One More Word on Reverse REPOs

As almost all WSE authors posted their view on reverse REPO announcement, I think I have to post my take as well. Yes, in general I think it is a warning to some of the most leveraged carry-trade players. But my view is a small refinement in the same direction. First, I think this is a new (actually very old, but new for this year) instrument that will be used to punish some of primary dealers when they are too over-extended. For example, PDs are performing hedge funds financing in London, to bypass the much more strict US regulations. While Feds can’t reach them in London they can ping them a little bit here in NYC. Second, it means Feds are practically opening the trading desk to micro-manage the markets. If they want to dribble the oil price, for example, a little bit more – it will be quite easy for them. Just do a small REPO when oil is at resistance and see if it works. It should work, most of the time. If you have you opinion on that, please post it here or twit me at my twitter account @abebut.

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