The Fed gives Primary Dealers money every day now. The dealers use that money to buy Treasury paper from Uncle Sam. Whatever they don’t need for that purpose, they use to create mischief in the financial markets.
Yesterday, the Fed bought $7 billion in Treasury paper and $9.6 billion in MBS from the Primary Dealers. It pays for that by depositing newly imagined money into the dealers’ bank/trading accounts at the Fed.
The Treasury settlements are next day. So that cash is immediately available to the dealers. They can do whatever the flock they want with that money. They use some to buy their next allotment of Treasuries.
But they also use whatever isn’t needed for that to buy and mark up their other inventories, particularly stocks. They love stocks because it’s so easy for them to manipulate their customers, the herds of instititutional sheep, into buying more and more at higher prices.
They have two in-house marketing arms to do that. One is print. It’s called the Wall Street Journal. The other is video. It’s called CNBC. Both are wholly owned subsidary marketing arms of Wall Street.
They are just one part of the Street’s vast marketing and distribution network, employing armies of publicists, sales agents, lobbyists, and politicians, whose sole purpose is a massive skimming operation ultimately designed to separate the public from its money a little at a time.
But I digress.
While the Fed settles and pays for its Treasury purchases the next day, the MBS are forward contracts. The Fed schedules them for the following month or the month after that. They always settle in the third week of the month. So each month we get a huge bulge of cash hitting dealer accounts in mid month.
In May, that’s set for the 13th to the 20th. Until then, bupkiss. Just the meager flow of $75 billion a week in Treasury purchases. Did I say meager? That was nearly a month’s worth of old QE. But it’s meager in relation to the $400+ billion a week when the Fed started Pandemic Pandemonium Panic QE last month. On some days in March, the Fed did as much QE in a day as it did in a month under the original QE1 in 2009.
No wonder the stock market rallied.
Meanwhile, the past week was the big MBS settlement week for April. Because of the pile of MBS the Fed bought when it started Pandemic Pandemonium Panic QE, the Fed deposited a cash whopper into dealer accounts in payment on April 15 ($116 billion) and April 21-22 ($65 billion).
Is it any wonder that stocks rallied the following day both times?
Next month’s total will be similarly gargantuan. So sell in May. The day after the Fed deposits that cash into dealer accounts.
The Fed has no policy now. They’re just guessing. Just ad hoc, week by week, seat of the pants fakery. But the money is real enough, once it gets into dealer trading accounts.
The Fed posts its purchase schedules on Friday afternoons. Yesterday they scheduled $7 billion in Treasuries and $10.5 billion in MBS. They came up a little short.
Today’s schedule is for $21 billion in Treasuries, and $10 billion in MBS. Only the Treasuries settle immediately.
Sounds great, right?
But here’s the problem.Today, the market must pay for $91 billion in T-bills that the US Treasury auctioned this week to pay for Pandemic Pandemonium Panic relief programs.
Let’s see. $91 billion in payments due the US Treasury, but only $21 billion in cash advanced by the Fed. A few weeks ago, the Fed was advancing about double what the market needed to pay for the Treasury issuance. Now it’s just a fraction.
Wall Street, we have a problem. Buyers of Treasury paper (TP) must either borrow the money via repo, or sell shit, to pay for it. They sure weren’t selling yesterday. Maybe today’s the day.
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