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With so much attention being paid to the liquidity problems in the repo market, where the Fed has injected over $350BN in term repos alone in the past month... The Fed has injected $351 Billion in liquidity via Term Repos in the past month, of which $131BN are "turn" repos into the new year. pic.twitter.com/aN3zAo5fhM — zerohedge (@zerohedge) December 19, 2019 ... ignoring hundreds of billions in overnight repos and T-Bill purchases courtesy of " NOT QE ", it is easy to forget that there is a far more illiquid market out there. Problematically, it also happens to be the world's most "liquid" equity market in the world, the S&P500 . Conveniently, a recent note from BofA's equity derivatives team, reminds us that just because the repo market may have been fixed thanks to a year-end Fed liquidity panic that has backstopped $490 billion in liquidity, the S&P remains as problematic as ever. As BofA's Benjam...

In the peak days of the European financial crisis, when Spanish banks were on the verge of collapse and were desperate for depositor funding as the ECB scrambled to come up with a viable rescue scheme, one bank - the soon to be insolvent Bankia - had a "clever" idea: offer a Spiderman Beach Towel in exchange for a €300 deposit. Fast forward 7 years when the cash-strapped banks of another country have come up with a similar trick to entice depositors: a growing number of small local banks across China have conceived of a "brilliant" scheme to lure new depositors: handing out servings of expensive pork as a reward for opening an account, the SCMP reports . As we discussed in recent months, China's smaller banks were hit by a perfect storm of falling rates and declining state support, which culminated in bank runs and the nationalization of several small and medium banks. And since there is little hope that the status quo will change any time soon, Chinese...

Chinese premier Li Keqiang was quoted on state television by  Reuters  on Thursday as saying the economy could face tremendous downward pressure in 2020. Li said the downward pressures could be even greater than what was seen in 2019; he made no mention of the possible trade resolution with the US would correct economic growth. He said the government would implement monetary and fiscal policies to keep the economic expansion within a consistent range throughout 2020. This could be the latest confirmation that China's GDP could slip  underneath  6%. A similar warning was  echoed  by an advisor to the People's Bank of China (PBoC) last week, who said China's economy might not recover for the next five years. Liu Shijin, a policy adviser to the PBoC, said the country's GDP will decelerate through 2025 and could print in a range of 5 to 6%. Shijin warned that excessive monetary policy is failing to stimulate the economy and could cause i...

Economists, conservative investors, and market observers have been issuing stern warnings for years regarding the severe impact of the current monetary policy direction. The ECB's Poblems In a recent statement, European Central Bank (ECB) Vice President Luis de Guindos warned of potential side effects and risks to the economy resulting directly from the central bank's policies. He outlined how a decade of extremely aggressive monetary interventions have resulted in an erosion of financial stability and now pose a threat to the eurozone's economic outlook. While he defended the bank's negative interest rate strategy as "supportive" of the overall economy, he did admit that, because of it, "we also note an increase in risk-taking which could, in the medium term, create financial-stability challenges". This is a point that was also highlighted in the ECB's latest financial stability review, which found that the ultra-low interest rates ...

https://www.ft.com/content/7d4b2159-915f-4be4-a947-f77e1b019314 Inviato da iPhone

It's not just the US which is facing an unprecedented liquidity crunch as a result of a shortage of reserves, which threatened to lock up the all-important repo market: China is also facing a potentially destabilizing "liquidity hole" of 2.8 trillion yuan ($400 billion) in January according to Guotai Junan Securities, as people across the nation will withdraw cash for the Lunar New Year holiday . That, according to Bloomberg , means bond traders expect the central bank to unlock funds to avoid the liquidity-driven panic seen in October, when the benchmark 10-year yield spiked the most in six months. And just like in the US, where the Fed responded by backstopping nearly $500 billion in liquidity in the form of term and overnight repos to help dealers and banks bridge the gap to 2020, some analysts expect the People's Bank of China to ease aggressively in the coming weeks, by cutting the RRR rate, reducing the amount of cash lenders must hold as reserves. It could al...

from IFR: Markets, despite their collective expertise, are apparently destined to repeat history as irrational exuberance is followed by an equally irrational despair. Periodic bouts of chaos are the inevitable result. Financial crises have been an unfortunate part of the industry since its beginnings. Bankers and financiers readily admit that in a business so large, so global and so complex, it is naive to think such events can ever be avoided. A look at a number of financial crises over the last 30 years suggests a high degree of commonality: excessive exuberance, poor regulatory oversight, dodgy accounting, herd mentalities and, in many cases, a sense of infallibility. William Rhodes has been involved in the industry for more than 50 years and has lived through nearly every modern-day financial crisis, many of which are detailed in his book, "Banker to the World". As he puts it, there is a common theme of countries and markets wanting to believe that they are different and...

In this issue of The Institutional Risk, we feature a timely conversation with Dr. George Selgin , senior fellow and director of the Center for Monetary and Financial Alternatives at the Cato Institute and Professor Emeritus of Economics at the University of Georgia. He is the author of a number of books, including Floored! How a Misguided Fed Experiment Deepened and Prolonged the Great Recession (The Cato Institute, 2018) and writes frequently on monetary policy, payments and related topics for Alt-M . We spoke to Dr. Selgin last week from his office in Washington. The IRA: George, thank you for taking the time to speak with us today. Let's start with the snafu in the world of repurchase agreements and short-term money markets and then move to the equally important question of payments. First thing, how do you explain the liquidity problems seen in the REPO market over the past year to ordinary citizens and particularly members of Congress? More important, how do you link the po...

Two weeks ago we saw what we said would soon be a D-Day for China's bond market, as a massive commodities trader and Global 500 state-owned enterprise was set for an "unprecedented" bond default in dollar bond market. And as of last week, this historic default is now in the history books after Tewoo, the closely watched Chinese commodities trader, became the biggest dollar bond defaulter among the nation's state-owned companies in two decades, in what  Bloomberg called  a  "moment of reckoning"  for Beijing as China struggles to contain credit risk in a weakening economy, and as bond defaults hit an all time high and are set to  keep rising in the coming years . Last Wednesday,  Tewoo Group announced results of its "unprecedented" debt restructuring, which saw a majority of its investors accepting heavy losses, and which according to rating agencies qualifies as an event of default.  As a result of the default, until recently seen as virtuall...