Buy the dip has been the trade. Well, there you have it everyone: a dip!
But there's a massive risk, of course....
The fed is closing most of its Covid crisis emergency facilities!!
FT, "Federal Reserve to close most Covid crisis emergency facilities", MARCH 8 2021
And there's still much uncertainty about SLR forbearance, which if cancelled, could add trillions back to SLR calculations.
“The biggest forbearance measure was a move by the Fed in May to exclude treasury bonds and central bank deposits from the leverage exposure measure. That wiped $2 trillion off the SLR denominator, including $619 billion at JP Morgan alone."
"Just one of the regulatory changes implemented by the fed in the response to the economic shutdowns would have reduced the denominator (total assets) for calculating the SLR by $3 trillion for the 6 largest banks (regulatory balance sheets)..."
"...without three critical forbearance measures, some banks such as Citigroup or Goldman Sachs would have been just 30 basis points away from the minimum, which would prompted the Fed to restrict their trading and lending activity.”
--Risky Finance, November 2020
Mnuchin also surprised markets back on November.19th when he requested that all unused feds offered by the treasury be re-appropriated, something that many market participants did not see coming.
“With respect to the facilities that used CARES Act funding (PMCCF, SMCCF, MLF, MSLP, and TALF), I was personally involved in drafting the relevant part of the legislation and believe the Congressional intent as outlined in Section 4029 was to have the authority to originate new loans or purchase new assets (either directly or indirectly) expire on December 31, 2020. As such, I am requesting that the Federal Reserve return the unused funds to the Treasury. This will allow Congress to re-appropriate $455 billion, consisting of $429 billion in excess Treasury funds for the Federal Reserve facilities and $26 billion in unused Treasury direct loan funds,” said Secretary Steven T. Mnuchin.
Might update later..And just an idea of course! Invest @ your own discretion!
But there's a massive risk, of course....
The fed is closing most of its Covid crisis emergency facilities!!
FT, "Federal Reserve to close most Covid crisis emergency facilities", MARCH 8 2021
And there's still much uncertainty about SLR forbearance, which if cancelled, could add trillions back to SLR calculations.
“The biggest forbearance measure was a move by the Fed in May to exclude treasury bonds and central bank deposits from the leverage exposure measure. That wiped $2 trillion off the SLR denominator, including $619 billion at JP Morgan alone."
"Just one of the regulatory changes implemented by the fed in the response to the economic shutdowns would have reduced the denominator (total assets) for calculating the SLR by $3 trillion for the 6 largest banks (regulatory balance sheets)..."
"...without three critical forbearance measures, some banks such as Citigroup or Goldman Sachs would have been just 30 basis points away from the minimum, which would prompted the Fed to restrict their trading and lending activity.”
--Risky Finance, November 2020
Mnuchin also surprised markets back on November.19th when he requested that all unused feds offered by the treasury be re-appropriated, something that many market participants did not see coming.
“With respect to the facilities that used CARES Act funding (PMCCF, SMCCF, MLF, MSLP, and TALF), I was personally involved in drafting the relevant part of the legislation and believe the Congressional intent as outlined in Section 4029 was to have the authority to originate new loans or purchase new assets (either directly or indirectly) expire on December 31, 2020. As such, I am requesting that the Federal Reserve return the unused funds to the Treasury. This will allow Congress to re-appropriate $455 billion, consisting of $429 billion in excess Treasury funds for the Federal Reserve facilities and $26 billion in unused Treasury direct loan funds,” said Secretary Steven T. Mnuchin.
Might update later..And just an idea of course! Invest @ your own discretion!
Comment:
And this is very dangerous, so don't bet the ranch!
Comment:
Recent selloffs in the Nasdaq, SPAC's, and other speculative tickers may not mean so much by themselves. Selloffs happen. But mixed with the fed signalling its intention to end many of the Q/E programs legislated in response to the economic shutdowns, you're left to wonder if this could be a signal of something more than just simple profit taking.
FT, "Federal Reserve to close most Covid crisis emergency facilities", MARCH 8 2021
For a world in the middle of a global pandemic, Wall Street had a Parade in 2020, raising more money in the equity markets than in any other year besides 2007, if you can believe that. Merger's and acquisitions also saw increased activity in the second half of 2020, up 88% compared to first half, and totaling $3.6tn for the year, surprising many experts..
“If you told me we would have a pandemic and that global M&A would still be flattish compared to last year, I would have been astonished.”
--Peter Orszag, chief executive of Lazard’s financial advisory business
“I think that when I look back, I don’t think I could have ever imagined any acquisitions happening this year“
--Marc Benioff, CEO of Salesforce, Financial Times, December.31st
At one point last year, follow-on offerings were even outperforming the Nasdaq by almost 40% POST offering..
"Yet while the staggering amount of follow-on offerings is not news, the performance of companies selling their stock is nothing short of shocking, because whereas in a normal world the association dilution with new equity sales would in theory result in depressed stock prices, the reality of the past few months has been anything but. ...stocks sold in 2020 secondary offerings closed on Tuesday 39% above their offering price on average. That’s outpacing the year’s 28% gain in the Nasdaq Composite Index, a 40% outperformance."
So you're left to wonder: how much longer can this continue?
Bank Appetite for Bonds Fueled by Capital Holiday, March.3rd, 2020
"However, banks are a key source of demand for Treasurys and if the exemption ends, big banks will likely significantly reduce their buying just as issuance grows in support of the government’s growing spending plans, according to Blake Gwinn, head of U.S. rates strategy at NatWest Markets.
“Banks have absorbed more than their ‘fair share’ of increased Treasury supply the last year, which has inarguably helped to keep yields in check,” he said."
March 9, 2021, 7:00 AM Banks Press Fed to Preserve $600 Billion in Balance-Sheet Leeway
Analysts have also said recent bouts of wild trading in the $21 trillion Treasury market could be tied to concerns that banks will be forced to hold less government debt, even selling some of their holdings.
“We estimate the potential for about $200 billion in Treasury selling, with the potential for it to be even larger,” said BMO Capital Markets strategist Dan Krieter. He added that the outlook remains “extremely uncertain” because it’s not clear what banks’ capital demands will be going forward.
According to Bloomberg, the D's are calling for an end to SLR forbearance measures, while the R's are pressuring for an extension
"The lobbying has put the Fed at the center of a political firestorm, one of its first tests in the Biden era of seeking to support a fragile economy while fending off attacks from Democrat lawmakers who oppose any backpedaling on regulations adopted after the 2008 financial crisis. Progressive Senators Elizabeth Warren and Sherrod Brown have already fired a warning shot about doing the banks’ bidding.
Meanwhile, Republicans repeatedly pressed Fed Chairman Jerome Powell at recent congressional hearings with industry-encouraged requests to grant an extension. Powell responded that the Fed hasn’t decided what to do, and the regulator has continued to decline to comment on its plans."
Delete
FT, "Federal Reserve to close most Covid crisis emergency facilities", MARCH 8 2021
For a world in the middle of a global pandemic, Wall Street had a Parade in 2020, raising more money in the equity markets than in any other year besides 2007, if you can believe that. Merger's and acquisitions also saw increased activity in the second half of 2020, up 88% compared to first half, and totaling $3.6tn for the year, surprising many experts..
“If you told me we would have a pandemic and that global M&A would still be flattish compared to last year, I would have been astonished.”
--Peter Orszag, chief executive of Lazard’s financial advisory business
“I think that when I look back, I don’t think I could have ever imagined any acquisitions happening this year“
--Marc Benioff, CEO of Salesforce, Financial Times, December.31st
At one point last year, follow-on offerings were even outperforming the Nasdaq by almost 40% POST offering..
"Yet while the staggering amount of follow-on offerings is not news, the performance of companies selling their stock is nothing short of shocking, because whereas in a normal world the association dilution with new equity sales would in theory result in depressed stock prices, the reality of the past few months has been anything but. ...stocks sold in 2020 secondary offerings closed on Tuesday 39% above their offering price on average. That’s outpacing the year’s 28% gain in the Nasdaq Composite Index, a 40% outperformance."
So you're left to wonder: how much longer can this continue?
Bank Appetite for Bonds Fueled by Capital Holiday, March.3rd, 2020
"However, banks are a key source of demand for Treasurys and if the exemption ends, big banks will likely significantly reduce their buying just as issuance grows in support of the government’s growing spending plans, according to Blake Gwinn, head of U.S. rates strategy at NatWest Markets.
“Banks have absorbed more than their ‘fair share’ of increased Treasury supply the last year, which has inarguably helped to keep yields in check,” he said."
March 9, 2021, 7:00 AM Banks Press Fed to Preserve $600 Billion in Balance-Sheet Leeway
Analysts have also said recent bouts of wild trading in the $21 trillion Treasury market could be tied to concerns that banks will be forced to hold less government debt, even selling some of their holdings.
“We estimate the potential for about $200 billion in Treasury selling, with the potential for it to be even larger,” said BMO Capital Markets strategist Dan Krieter. He added that the outlook remains “extremely uncertain” because it’s not clear what banks’ capital demands will be going forward.
According to Bloomberg, the D's are calling for an end to SLR forbearance measures, while the R's are pressuring for an extension
"The lobbying has put the Fed at the center of a political firestorm, one of its first tests in the Biden era of seeking to support a fragile economy while fending off attacks from Democrat lawmakers who oppose any backpedaling on regulations adopted after the 2008 financial crisis. Progressive Senators Elizabeth Warren and Sherrod Brown have already fired a warning shot about doing the banks’ bidding.
Meanwhile, Republicans repeatedly pressed Fed Chairman Jerome Powell at recent congressional hearings with industry-encouraged requests to grant an extension. Powell responded that the Fed hasn’t decided what to do, and the regulator has continued to decline to comment on its plans."
Delete
Comment:
Just from a quick eye test, it definitely looks like this could be the beginning of more of a protracted downtrend than we are used to seeing these days, but we shall see..
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Currently $129 in the AH.
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