Repo, Not Repo, Repo… but no, we are not in Wonderland [w/ edit]

[edit] Thanks again to Dylan, here is more that may make your head explode (don’t let it, you are going to need it on the other side of FOMC): Repo Madness

I am no expert on the Fed’s operations in the bond markets; the whats, the whys and the how to’s. I am the ‘keep the noise level down’ guy because I already know that this market, overseen and managed to such extremes by the Fed for nearly two decades, is and has been off the charts of what dad and grandpa (not to mention Peter Lynch) used to consider normal.

I was going to make an update for subscribers but instead decided I’ve already increased their noise level enough heading into this much more important than normal FOMC release. But this is increasing the focus on today’s FOMC meeting, as the Fed Fund Futures fly all over the place.

Click for the NY Fed’s Statement:

new york fed

See from Zero Hedge (thanks to subscriber Dylan for forwarding)…

$53.2 Billion In QE Lite: Fed Concludes First Repo In A Decade Amid Liquidity Panic

See all the sordid plans, scrapped plans and plans put on again. See the kind of behavior that can rattle a market (gold is up but the broad market is barely on a blip). ZH brings you the ghost stories that I am not able to. Check out the whole article and see what you think.

Update 4: It’s over: after a torrid 30 minutes in which the NY Fed first announced a repo operation, then announced the repo was canceled due to technical difficulties, then mysterious the difficulties went away just minutes later, at precisely 10:10am, the Fed concluded its first repo operation in a decade, which while not topping out at the $75 billion max, was nonetheless a significant $53.15 billion, split as follows:

  • $40.85BN with TSYs as collateral at a 2.1% stop out rate

  • $0.6BN with Agencies as collateral at a 3.0% stop out rate

  • $11.7BN with Mortgage-backed securities as collateral at a 2.1% stop out rate.

Personally, I believe the system is and has been broken for a long time. I believe that the Bernanke ZIRP blight and QEs 1-3 were desperate attempts to keep a gambit going. But I have succeeded thus far by not jerking with every alarming event. That is why you might keep physical gold or make other risk management moves. But if you’re playing the markets it’s best to keep the ghost stories in their place as long as they keep the system stitched together.

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