Today Feds drained $13 billion. How that happened? If you look at the bids the pigmen came with $13.5 bln of treasury collateral with bids ranging from 3.55% to 3.77%. The Feds are trying to defend the target rate of 4.25%, or at least somewhere close to it. But nobody is interested to borrow above 3.77%.
Well, how to put it simpler? Imagine that “helicopter” Ben is throwing the money out of helicopter but people collect those money into boxes and send them back to Washington. “We don’t need no stinking money”!
Why this happens? Start with the don comment here. The big banks are losing trust to small banks and prime brokerage clients are not meeting their margin requirements to borrow more, so broker-dealers are accumulating piles of money and don’t need to borrow unless the cost of money is below 3.77%. But even in that case they need only $13 bln, less than the drain.
What we’ve seen so far in the stock market is nothing. The real collapse is coming.
My opinion here is that the damn Feds must stop the damn drain! I also think that 50pbs cut is practically given
January 17, 2008 at 4:03 pm
When is the real collapse coming ? you can’t finish a blog without some explanation
January 17, 2008 at 4:54 pm
mark, how do I know, I’m not a Buffet-man
When it comes don’t worry, you won’t miss it. It will be something special, not seen in 7 years.
Remember, the market lost 20% in 6 weeks from February to March 2001, and that level of February was already far from the top.
Intermediate top of S&P in December was 1523. 20% down would be 1220. We are 1330.
Another 100 points it will give.
January 17, 2008 at 11:01 pm
Do you think the Ultra-short ETF funds will prove themselves a safe play when the time comes or better to sit it out in treasuries, cash, and gold?
January 17, 2008 at 11:08 pm
The R2k hit 20% down today from its high. It has a habit of going down 30%+ in these types of mkts. If you recall 1998, it dropped 40% in 5-6 months.
January 17, 2008 at 11:38 pm
I suspect the real problems will start by the end of the year, if not in the fall. Housing resets and tapped out credit lines will lead to dramatic pull backs by consumers. Poor Christmas sales were only the first warning shots. Wait until consumers start the real belt tightening later this year. Job loss is picking up. The people who need the money are unable to borrow from the lenders for fear of default. Those who do not need the money don’t want to borrow unless they can invest and make a profit. Profits are being squeezed at this point unless money is borrowed at a really low rate, so it makes perfect since with these lending rate bids.
By the way great post Theroxylandr. I enjoy reading your blog.
January 18, 2008 at 1:28 am
Yes, excellent post, thanks theroxylandr!
January 18, 2008 at 10:41 am
Thank you!
garyalan – agree. And nothing will recover until home prices stabilize, and we are not even half-way to the bottom in that, using official stats. By anecdotal evidences the home prices are much lower then the stats, but stats will catch up within few months.
January 18, 2008 at 11:58 am
Kosh:
If you have to ask that type of trading question on a blog,
go to cash