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Bank Dividends Are a Sham and a Con

After taking 3 of 4 days off between March 10 and March 15 the Fed resumed daily pumping last week, and is scheduled to continue pumping about $25 billion a week into the market through April 11. Along with that the market will be getting the benefit of $25 billion a week in Supplementary Financing Program Cash Management Bill paydowns through March 24. Another plus appears to be a seasonal upsurge in bank purchases of Treasuries. All of this comes when Treasury supply will be light. No new supply will settle until the end of the month.

But there are problems inherent in the timing of all this. And data on the condition of banks suggests that the too big to fails are losing money again. The Fed’s decision to allow the resumption of dividends is a scam on the public.

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  1. ter

    My guess: they’re planning on issuing more stock soon The promise of a larger dividend, or the initiation of a dividend, will make the carrion easier to sell to those bereft of the sense of smell.

  2. slogic

    Just wanted to share an idea. I really appreciate your liquidity updates, Lee, but they are hard to follow in the narrative form. I was thinking, would it make sense to plot them on the graph? Like, forward-looking POMO and any other sources of inflowing liquidity into the market separately and then summarized into one single graph. Also, all outflows that you can track, such as new treasury issuance, MBS selling by treasury, change in bank reserves at the FED, adjustment for FCB buying. With a summary of cash outflows on another graph. Finally, the summarized graph of forecasted marginal liquidity in/outflow into the stock market. Would be really helpful, even if it was a rough approximation.

  3. Lee Adler

    Thanks for the kind words! Years ago I tried a one size fits all chart, but indexing them all to a single scale was next to impossible. In general I like the idea, but in practice, I’m not sure it can be done in a way that makes sense. But I will revisit it. I often get brainstorms about things that turn out to be quite illustrative. Hopefully, I can figure something out along these lines. In the meantime, stay focused on the SOMA chart. That’s the fountainhead.

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