Replies to post #68464 on Savvy Trades and Investments

[wadegarret]

Nelson- the Fed continues it's asset purchases

of around $50B/month. Powell said this would continue to at least April. Investors perceive this as QE just as much as when they lower the in Fed funds rate.

[michael t]

The Fed is still in QE4 mode.

The issue that no one seems to care about is why QE 4 remains necessary. The repo market is normally a highly liquid market where an investment banking institution sells an asset (typically fully guaranteed US government securities) to another bank with an agreement to repurchase those assets. These agreements are usually very short term (overnight to a week). This market has always functioned very efficiently, yet back in September of 2019 it suddenly stopped functioning and rates spiked all the way to 10%. Banks at the time were estimated to have $1.5 trillion in liquid assets available to fund this market, yet it stopped functioning.

Everyone thought this would be a very short term issue that would quickly correct itself, yet 6 months after the fact the fed is still providing liquidity.

The most plausible theory I've seen is that there is possibly a financial institution that is in trouble and there is a lack of trust whether they will be able to repurchase the assets being sold. The second issue is that they may be selling something like mortgaged back securities that may be worth less then their stated value.