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Fed QE Daily – The Dealers Get Squeezed – April 27, 2020

The Fed has spent a couple gazillion over the past two weeks and the stock and bond markets have only been flat. Is that a good thing? I doubt it. Looking ahead, the Fed won’t be pumping enough to keep the dealers afloat. I go under the covers to get at the implications of this craziness a couple times a week at Liquidity Trader. Here’s the latest. Check it out risk free for 90 days.

Here’s an extended discourse on this as a brief intro.

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Now, on to the latest.

Friday, the Fed bought $15.3 billion in Treasury paper and just over $10 billion in MBS from the Primary Dealers. The Treasury settlements are next day. The MBS won’t settle until mid May. They’re not an issue right now. They will be when all the prior forwards settle May 13-20.

The Fed pays for these purchases by depositing newly imagined money into the dealers’ bank/trading accounts at the Fed.

The dealers can do whatever they want with that money. They use some to buy their next allotment of Treasuries. The rest they use to accumulate other inventory, mark it up, and distribute it to their institutional sheep customers.

In May, the bulge is set for the 13th to the 20th. The total will be gargantuan, around $185 billion. But until then, bupkiss. So sell in May — the day AFTER the Fed deposits that cash into dealer accounts. THEN go away.

The Fed has no policy now. It’s just guessing. Ad hoc, week by week, seat of the pants fakery. But the money that didn’t exist yesterday is real enough once it gets into dealer trading accounts.

And it’s real in the banking system when the US Treasury spends it. A mere trillion keeps the masses placated while surreptitiously using the other trillion or so to pad the pockets of the Regime’s plutocrat cronies and sponsors. They all get to have a good laugh with Trump at his next big soiree at Mar-a-Lago. When it reopens. 

Meanwhile, the Fed posts its purchase schedules for its MSO (Market Support Operations) on Friday afternoons.  

Today’s schedule is for $7.5 billion in Treasuries, and $8 billion in MBS. Only the Treasuries settle immediately. That cash gets deposited directly to Primary Dealer bank/trading accounts at the Fed.

Sounds great, huh? But what’s that gurgling sound? Oh, it’s the Primary Dealers choking on new Treasury supply that they’re drowning in almost daily. Not enough cash from the Fed and they can’t breathe. The Fed ventilinflator is suffocating them.

Here’s the problem. The dealers and other players need Fed cash to absorb new issuance of US Treasury bills notes and bonds. That’s the money that the US government needs to pay for the Pandemic Pandemonium Panic Relief and Crony Pocket Padding programs.

Today is a rare day. There are no Treasury paper settlements set for today. But tomorrow, $90 billion hits. And that’s just a down payment on the week.  Net settlements of $150 billion are scheduled for the rest of the week. So far.  Somebody has to pay for that.

Buyers of Treasury paper (TP) must either borrow the money via repo, or sell shit to pay for it. OK, no pressure today. But the rest of the week. Hoo boy. And every week after that too.  

Fed QEGet real time reporting, analysis and resulting tactical and strategic recommendations, at Liquidity Trader. Always illustrated with the famous real time Pandemic Pandemonium Panic QE chart, and other charts, with Lee Adler’s clear-headed, no punches pulled, straight dope you can’t get anywhere else.  Here’s the last episode of that soap opera. Try it today with a 90 day risk free trial. Access to all reports, present, past, and future! Get caught up, and then stay in the know! 

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

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