1/ Repo Signals depression -Hedge funds, pension funds and corporate go to repo to borrow CASH in exchange for their collateral junk debts of CCC and BBB. -The lenders say, no way I lend you CASH for your junk bonds at Fed rate. The repo rate changes to 10%
2/ Corporate junk bonds gone up 60% - If the borrower don't accept the higher rate, they have to sell their junk corporate bunds in the market at significantly lower price and some will default on their massive debts.
3/ Fed prevents nightly GFC - Fed knows this and injects billions of dollars every night essentially bailing out many institutions to avoid nightly GFC - Lenders already know this, don't care about the Fed and keep on demanding higher rates as they know what is coming
4/ Fed can't keep up -The US corporate junk debts is over $5 trillion five times more than CFD $1 trillion that caused GFC - Fed can't buy the actual junk bonds or dollar will collapse
5/ More lenders stop lending - As Fed cuts rate, the value of junk debt increases to a point that more lenders stop accepting worthless corporate bonds at the Fed low rate
6/ This is what Fed not telling us - Forget about recession, depression is coming - Fed is in panic state, desperately trying to prevent a mother of all depression.
Pento: "The Fed Is Panicking To Stop A Depression" | Why the sudden burst of money printing when we are being told the economy is fine?
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Thanks for your great response on Fed repo dirty secret. Major media avoiding to release this public information afraid of panic selling.
Fed repo can blow up any weekend without warning causing a black Monday. No one knows when, could be next week or next month.
The US treasury and Fed know the trouble they created and trying to put a lid on it.
This irresponsible cover up will cause a total collapse of global monetary system not just the US. The GFC will be a blip in comparison.
Many US pension funds have borrowed money using junk bonds to buy more of the expensive equities and pay for their cost.
When they default on their loan or have to pay higher interest to borrow they will loose the entire pension funds of their ordinary people.
Here is a simple proposition to protect your investment.
Let say the repo doesn't blow up till 2020, then stock market may go higher another 5%. However if repo blow up, then stock market goes down 50%.
Since investment is not gambling, if you hold your stocks, then upside is 5% but if it goes down you loose half of your wealth and possibly more.
So what if you took the profit now, stay in cash or buy gold and wait. When stock market collapses, get back in with 50% discount. You would have avoided big loss and made a huge gain
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Recent rally had a very low volume for Oct and if a seller with big volume comes in it will crumble like a house of cards.
I think some trading institutions are fuelling the rally with low volume at low cost.
When they are ready to off load their long position, they can sell it at a higher price.
Trump's tweet "it is a good day for S&P" was dubious at best.
So the idea is, they know stock will collapse before the end of the year in Dec and try to sell their holdings from the top of the pyramid.
The Feds repo issue is an exact mirror of GFC. GFC didn't happen overnight as people would believe. It started small, when some lenders refused to accept collateral bonds in exchange for cash. At first CCC bonds holders went out of business then BBBs and so on.
Before GFC, if some said Lehman Brothers with 100 years history will collapse, people would have laughed, but it did happen. Richard Fuld LB CEO refused to sell LB's bonds to bail out till 11:59 pm Sunday before GFC happened and went bankrupt .
Dr Michael Lewis made $700 billion by shorting the mortgage bonds when the rest of the world was bullish and they lost trillions.
Following the crowd never pays off.
One of economist I study said, "in the current market you have to decide to sell now and look foolish or sell after market falls and look foolish". When a house is on fire, everyone rush for the exit and the window for keeping even fraction of your portfolio will close.
"Loss Aversion Theory" applies in current market when potential upside is arguably much lower than potential downside. So, a prudent approach would be to sell, keep the cash and wait it out. Then go back in and buy the same portfolio at a discount. Peace of mind
Before GFC, if some said Lehman Brothers with 100 years history will collapse, people would have laughed, but it did happen. Richard Fuld LB CEO refused to sell LB's bonds to bail out till 11:59 pm Sunday before GFC happened and went bankrupt .
Dr Michael Lewis made $700 billion by shorting the mortgage bonds when the rest of the world was bullish and they lost trillions.
Following the crowd never pays off.
One of economist I study said, "in the current market you have to decide to sell now and look foolish or sell after market falls and look foolish". When a house is on fire, everyone rush for the exit and the window for keeping even fraction of your portfolio will close.
"Loss Aversion Theory" applies in current market when potential upside is arguably much lower than potential downside. So, a prudent approach would be to sell, keep the cash and wait it out. Then go back in and buy the same portfolio at a discount. Peace of mind