Bloomberg reports JPMorgan Warns U.S. Money-Market Stress to Get Much Worse.
JPMorgan Chase & Co. says the money-market stress that sent short-term borrowing rates surging last month is likely to get much worse despite the Federal Reserve’s attempts to inject billions of dollars into the financial system.
JPMorgan says it’s not convinced the Fed has resolved the issues in the funding markets, according to a note from analysts led by Joshua Younger in New York. Funding pressures resurfaced last week even after primary dealers, firms approved to trade directly with the Fed, took all of the available overnight liquidity from the central bank and sold it as many T-bills as possible.
“Given the benefits of our newfound perspective, we recommend viewing these moves as highlighting the limitations of the Fed’s chosen solution to their operational issues,” the analysts wrote. “With year-end coming up, this is all likely to get much worse, in our view, before it gets better.”
JPMorgan’s note follows similar warnings from Bank of America Merrill Lynch and Goldman Sachs Group Inc., who have also attributed September’s funding stresses to factors including post-financial crisis bank regulation. Even after the Fed’s latest moves to ease the log-jam in funding markets, “intermediation bottlenecks remain,” Goldman Sachs said.
Not QE Revisited Again
Overnight rates spiked to 10% in September prompting the Fed to claim the spike was due to end of quarter funding issues.
At the time the Fed stated a “Need to Resume Organic Balance Sheet Growth“.
One to three billion would be “organic”.
On October 4, I noted At Least $250 Billion In Short-Term Repos Through Oct 17.
On October 8, Federal Reserve Chairman Jerome Powell said the Fed Will Increase Supply of Bank Reserves, but it’s not QE.
Amusingly the Fed said these emergency operations were neither QE nor monetary policy.
I wondered how the heck can operations designed to control interest rates not be monetary policy.
More Wonders
Apparently, I am not the only one wondering.
JP Morgan, Bank of America, and Goldman Sachs are all questioning the Fed.
Meanwhile the Fed is doing $60 billion a month in emergency repos to control rates yet a “big squeeze” happened again.
“Overnight” Operations Oct 17
If the Fed keeps repeating “overnight” operations (and they are) it’s not “overnight”.
Pain Killers
Through November 4
Then till when?
Pertinent Question
https://twitter.com/Halcyonharbingr/status/1184975142163746823
Not in Control
If you think the Fed is in control, think again.
Mike “Mish” Shedlock
The lines between big banks and the Fed are blurred enough to the point where they dont exist. This is stealth modern monetary theory. One day we will wake up and Ray Dalio will be right about MMT.
Beyond the massive levels of official credit market debt outstanding, unofficial shadow banking is estimated to be $52 trillion, and then there is the $600 trillion notational value of various derivative contracts outstanding.
It’s clear someone has taken a hit and is hemorrhaging badly – the question is who and how large? And it’s also clear that they want to keep their issues under wraps. Perhaps we will wake up one morning and be surprised.
“During the latest earnings call JPMorgan CEO Jamie Dimon told analysts that the bank had $120 billion in cash on deposit at the Fed during the repo blowout.”
$120 billion is twice the size of the US monthly trade deficit, yet considered small change for JPMorgan. I don’t know, maybe the biggest risk is in clear sight: the size of the financial industry is out of whack with the real economy.
The real question is who’s paying the high interest rates? Who desperately needs cash? Hope it’s not my bank.
Who needs overnight funding and why? Can’t the borrowers fund in a longer term way? Do the borrowers have a viable business model without the Fed?
Why should we care?
Exactly, who is it?
The other question is whether or not JP Morgan et al are deliberately withdrawing funding from the market to cause a crisis so that they can profit from it in some way. Enron pulled a similar stunt in California, only with electricity rather than money. Lack of transparency allows things like this to happen and we simply dont know what is going. Others get rich at our expense behind that veil of secrecy.
Transparency!
Daily publish who took what liquidity overnight.
“Who needs overnight funding and why?”
It’s the nature of fractional reserve banking. Suppose the Fed requires you to keep a 10% fractional reserve. To use round numbers, say your reserve is $1 million. $1 million is 10% of $10 million. That means you can make a loan of $10 million, which is money you just create out of thin air.
Here comes the problem. That 10 mill may get deposited in a different bank, and they’re going to want you to give them the actual money, which you don’t have. So you borrow it that night to settle the account.
Hopefully, someone else created a loan for 10 mill that got deposited in your bank. So you can pay the loan back at that point. Generally a large portion of banks are borrowing nightly to settle their accounts.
Mish is not a fan of fractional reserve banking.
“Why should we care?”
We shouldn’t.
And wouldn’t, if we weren’t forced to at, ultimately, asymmetric gunpoint.
Hence why our freedoms to effective decide whether to care or not (as well as any other freedom), has been taken away. Again at, ultimately, asymmetric gunpoint.
Such that now, our role is to work ever harder. So that there is more loot available for The Fed to debase away, and hand to the completely worthless and incompetent idiots who comprise all of JP Morgan and similar dumbeffatories. Despite not one of them being competent enough to contribute anything of any value whatsoever, to anything at all, in return.
Recent comments have got me thinking, did Jamie Dimon have a meeting like that scene from “Margin Call” where Jeremy Irons sat at the head of the table and told everyone, “There are three ways to make money at this business: be first, be smarter, or cheat…” Is JP Morgan going first and in doing so bringing the problem to a head? One wonders…
Hey, the edit function on this site appears to be working! Thanks for fixing it.
How can there be Tr$1.4 in reserves, but the nobody wants to swap cash for Treasuries for a night to earn 10× the going rate? One of the following must apply:
I”l take #3 for $1.7 Trillion, Alex.
“then begs the question: just why are banks so scared of lending money to each other”
…
FASB 157
The problem is overnight lending (at FFR) between banks … which is done with no collateral. The repo operation re-instituted to alleviate that problem. In 2009 Congress strong armed FASB to switch from Mark to Market to Mark to Model on illiquid assets (anyone with a shred of cynicism guessed that banks were allowed to price crap at par. Meaning no more write downs/offs or large set asides for losses boosting profit …. IMMENSELY). Almost to the day stock market started it relentless surge upward.
Fast forward to today. These same banks KNOW that the other guy is holding garbage … because they themselves are holding garbage. For it to get to this point must mean the rug can no longer hide what has been swept under it.
When it blows up – and it will – even those jaded will be surprised by how bad. But, hey, it kept the “recovery” going a few years longer than it had any business lasting.
General collateral in the repo market is mostly treasures which you get back the next day. The amount of garbage banks have on their balance isn’t really germane; the garbage isn’t sudden, and Treasuries are not considered garbage.
You are conflating overnight lending and repo operations.
Two entirely different things.
You are right that repo collateral consists of treasuries and GSE securities.
Treasuries can be garbage if they’ve been pledged as collateral in other loans. If a repo loan defaulted, the lender would have to compete with everyone else who has rights to those treasuries and everyone gets screwed.
I believe that is called “re-hypothecation” and I’ve no doubts that there is a lot of going on out there.
Ah yes…FASB 157
Below is a key excerpt from an ’09 Reuters article about FASB 157
“Investors and some former regulators take a different view, saying that more flexibility with the rules would let big banks hide the real value of their troubled assets.”
“I think it’s a mistake. If it’s too cold in the room, you don’t fix the problem by holding a candle under the thermometer,” William Poole, former Federal Reserve Bank of St. Louis president, told Reuters at a conference in New Orleans.”
“It may increase reported bank earnings by 20 percent, but it has nothing to do with the reality of bank earnings. It’s very important to maintain that distinction,” Poole said.
Source https://www.reuters.com/article/us-marktomarket-fasb/u-s-rulemaker-eases-mark-to-markets-bite-idUSN0235590020090402
“JPMorgan says it’s not convinced the Fed has resolved the issues in the funding markets,”
…
Duh.
Especially, since weeks ago the rumor was that JPM at epicenter of shortage.
In 2012 President Obama had this to say (on The View):
“JPMorgan is one the best managed banks there is. Jamie Dimon, the head of it, is one of the smartest bankers we got”
If the Fed isn’t in control, why do they park their money there?
Because the alternatives are as dependable as the valuation of WeWork?
If you are a bank, and somebody opens an account with a check for $1,000,000 from a different bank, you have to have an account with the Fed to actually get that $1,000,000. It is very good for actual business.
“The Fed isn’t in control”
is always and everywhere simply Newspeak for “The Fed needs to print even more money, and hand it to me and my equally useless, worthless, pointless and incompetent at anything aside from squaking like chiclets for debasement obtained loot, fellow banksters.”
“Otherwise, we’ll scare the United Idiots of America into their customarily childish and illiterate frenzy, by having The Man on TV bombastically proclaim that The Syyyystem wiiiilll colllllaaaaaapse!!!”
And, being nothing but an undifferentiated mass of well indoctrinated, abject idiots, those guys can be relied on, 100% so far, to keep falling for the scam that the current system, built on nothing at all whatsoever aside from crass theft, collapsing, is some sort of bad thing. That’s what being a well indoctrinated idiot is all about, after all.