Really quick, I want to congratulate the Dodgers for winning the World Series, but the Blue Jays gave them a tough series. It’s the off season now, and now we can focus on football (or Mariners offseason personnel moves, if you can’t get your mind off of baseball)!
There are some weird things happening in the ‘repo market.’ The what you ask? The repo market. Yeah, here is what the repo market is (not the car repossession market, though that’s a busy place too)…
This is usually a sign of some stress in the system. Here is a chart going back to 2000 that shows periods of stress. This period doesn’t really show up yet, but could it be a precursor?
You can see that 9/11 was a period of stress (no kidding!), but also things started getting funky in 2019, prior to COVID. You can also see that there wasn’t much of an issue since, but in the lower right corner of the chart, there are a few small bars there. It barely shows up but here’s why it might be a problem - we are now officially out of money in the repo market.
The FED has been tightening up money since COVID, when they put $7 trillion into the system. It looks like about $2.5T was injected into this repo market. Now there’s basically nothing there.
On Friday the FED injected the most that it has since COVID into the repo market – $29.4 billion.
If you want to read the whole article from the Economic Times, click here.
For those that are only somewhat curious, the FED just had their meeting last week and decided to cut rates by 0.25%, which was as expected. But the interesting thing is that Jerome Powell in his speech afterwards was decidedly hawkish.
Immediately after the conference, market-based rates started going back up again. Based mostly on Powell’s hawkish tone.
The hawkish tone is based mostly on inflation coming from tariffs. There’s been no real signs of that, though we are told they are coming. This is in the face of slowing consumer spending, based on rising indebtedness, and a slowing labor market (based on ADP numbers since the government is shut down and can’t provide them).
This doesn’t mean the world is coming to an end, but it is a yellow flag at this point. One part of our model is starting to pick up on that too. Again, it’s early but may be another yellow flag.
That’s it for this week. Please let us know if you have any questions or comments about this or any other topic. We will be happy to have a conversation.