Sitrep Operation Z: collapses and progress
The Saker Staff
http://thesaker.is/sitrep-operation-z-collapses-and-progress/
Does Economic Pain Mean NATO and the West Cut Ukraine Loose? (To me, this is the most likely scenario. By way of criticism, it also appears that Lt. Col. Davis is significantly underestimating Russian capability and resolve, as are most Americans who are analyzing the situation.)
Lt. Col. Daniel L. Davis (USA ret.), Senior Fellow and Military Expert for Defense Priorities
https://www.19fortyfive.com/2022/07/the-ukraine-war-could-end-with-western-discontent/
pressenza
One World
The New York Times Confirmed That Ukrainians Are Losing Their Military Confidence
Andrew Korybko, American geopolitical analyst and independent journalist based in Moscow, and member of the expert council for the Institute of Strategic Studies and Predictions at the People’s Friendship University of Russia
https://oneworld.press/?module=articles&action=view&id=3108
Reminiscence of the Future
Some Explanations Re: The Saker.
Andrei Martyanov, former USSR naval officer and expert on Russian military and naval issues.
Defense One
How NORAD Plans to Ward Off Cruise Missiles Fired at the US (in a few years. “We [Americans] need an understanding, a common understanding, of the threat, the vulnerabilities to our homeland and that the homeland is no longer a sanctuary.”)
Kevin Baron and Patrick Tucker
https://www.defenseone.com/technology/2022/07/how-norad-plans-ward-cruise-missiles-fired-us/374915/
Defense One
The Navy Should Assemble a Fleet for Littoral Campaigns (Really? What about the logistics, which determines outcomes?)
Bryan Clark
India Punchline
Black Sea and three musketeers
M. K. Bhadrakumar | retired diplomat with the Indian Foreign Service and former ambassador
Reminiscence of the Future
Some Explanations Re: The Saker.
Andrei Martyanov, former USSR naval officer and expert on Russian military and naval issues.
http://smoothiex12.blogspot.com/2022/07/some-explanations-re-saker.html
How NORAD Plans to Ward Off Cruise Missiles Fired at the US (in a few years. “We [Americans] need an understanding, a common understanding, of the threat, the vulnerabilities to our homeland and that the homeland is no longer a sanctuary.”)
Kevin Baron and Patrick Tucker
https://www.defenseone.com/technology/2022/07/how-norad-plans-ward-cruise-missiles-fired-us/374915/
Defense One
The Navy Should Assemble a Fleet for Littoral Campaigns (Really? What about the logistics, which determines outcomes?)
Bryan Clark
https://www.defenseone.com/ideas/2022/07/navy-should-assemble-fleet-littoral-campaigns/374898/
Black Sea and three musketeers
M. K. Bhadrakumar | retired diplomat with the Indian Foreign Service and former ambassador
https://www.indianpunchline.com/black-sea-and-three-musketeers/
“Spotlight” Interview: Update on the Week in Ukraine
Ray McGovern, co-founder of Veteran Intelligence Professionals for Sanity, and retired 27-year career CIA whose tasks included preparing and briefing The President’s Daily Brief and leading the Soviet Foreign Policy Branch
https://raymcgovern.com/2022/07/25/spotlight-interview-update-on-the-week-in-ukraine/
Oilprice
Russia’s New Gas Deals With Iran Are A Threat To The WestSimon Watkins
https://oilprice.com/Energy/Natural-Gas/Russias-New-Gas-Deals-With-Iran-Are-A-Threat-To-The-West.html
Exclusions And Sanctions Help 'Enemies' [China and Russia] To Build Their Own Capabilities
https://www.moonofalabama.org/2022/07/exclusions-and-sanctions-help-enemies-to-build-their-own-capabilities.html
CaitlinJohnstone.com
Warmongering Republicans Have Throbbing Hard-Ons For Pelosi’s Taiwan Trip
Caitlin Johnstone
Warmongering Republicans Have Throbbing Hard-Ons For Pelosi’s Taiwan Trip
Caitlin Johnstone
https://caitlinjohnstone.com/2022/07/26/warmongering-republicans-have-throbbing-hard-ons-for-pelosis-taiwan-trip/
Illusions of Superiority. What’s Next? (important backgrounder)
Alastair Crooke | founder and director of the Conflicts Forum, and former British diplomat and senior figure in British intelligence and in European Union diplomacy
Truthout
Chris Walke
https://truthout.org/articles/gop-should-be-party-of-christian-nationalism-greene-says-at-conservative-summit/
27 comments:
Pelosi wants to eclipse Helen of Troy.
Update Matt:
Everyone is in pause as it is going to be a crazy week. The masters of the universe are getting ready to play the FED meeting. Play with the heads of the main street investors.
What matters is the rate of growth, not nominal growth between the Ying and Yang - reserves and TGA.
The printing money and unprinting of money Mike says in his videos. Is not based on volume but the rate of growth.
So they don't have to find that $70 Billion or whatever the figure was the other day. It is the rate of change.
https://seekingalpha.com/instablog/910351-robert-p-balan/5757942-waiting-for-motus-to-make-spurious-move-ahead-of-fomc-decline-in-10yr-yield-looks-like-decoy
I like the last paragraph as it massages my confirmation bias lol.
Anyhoo, see if it ties in with a lot of what you are thinking.
Spencer Hall, flow 5, Salmo
Or whatever you want to call him says
"Interest rates are still used as the FED's monetary transmission mechanism. Open market operations are being supplanted by the FED's new funding facilities [sic].
JANUARY 11, 2022 -- "How the Fed’s Overnight Reverse Repo Facility Works"
libertystreeteconomics.newyorkfed.org/...
JANUARY 13, 2022 -- "The Fed’s Latest Tool: A Standing Repo Facility"
libertystreeteconomics.newyorkfed.org/...
RPs add reserves, RRPs drain reserves. If the FOMC sets the brackets right, stability is presumed.
The nonbanks are using the O/N RRP facility because it provides higher rates of return. But at the same time, an increase in reverse repos drains the money stock. If repo rates rise, the nonbanks won't need to use the facility. So, the money stock will rebound.
Thus $ will fall.
The RRP pays less than the IOR…
IOR pays 1.65 and RRP pays 1.55
“ The first $2.1T of Balance Sheet runoff will have little effect in the funding markets (and asset prices) because it will be funded by the RRP.”
If I were at a bank I would work to make sure that didn’t happen…
I would keep directing would be depositors over to the RRP (like they are doing now) and take the reserve asset reduction on my bank balance sheet first because it will increase my leverage ratio and allow me to position higher yielding assets like loans on my balance sheet $4$… iow for every $ I could get in reserve asset reduction I could add a $ of credit assets..,.
This is what I am hoping will happen.,,, the increase in bank credit will be used to fund expanded industrial inventories and this increase in industrial supply will foment lower unit prices and the Art degree morons will think their “inflation!” has gone away…. So Fed then can stop the rate increases and we’ll get some more economic expansion with lower unit prices for industrial products…
We’ll see..,
Here from the Fed paper:
“ As reserves grow, banks’ willingness to take on additional reserves diminishes, and they reduce the rates they pay for deposits and other funding. In this environment, market rates trade below the IORB rate because nonbank lenders are willing to lend at such rates. For example, the Federal Home Loan Banks (FHLBs), which are important lenders in the fed funds market and not eligible to earn IORB, are willing to lend at rates below the IORB rate rather than leave funds unremunerated in their accounts at the Fed. To provide a floor under the fed funds rate, the FOMC introduced the ON RRP facility.”
All the banks have to do is offer a deposit rate below the RRP rate and USD savers will instead use the RRP to get the higher rate…
Then bank reserve assets will be where the QT system reserve reduction gets accounted for and bank systemLeverage Ratios will increase and allow more bank higher yielding risk assets like loans,etc…
So I don’t know if this guy is going to be correct that the RRP balance will be where the QT accrues to first….
This would not be most financially advantageous to banks.,,
"For example, the Federal Home Loan Banks (FHLBs), which are important lenders in the fed funds market and not eligible to earn IORB"
How can they be lenders in the Fed funds market, and not earn Interest on reserve balances?
Are there entities with Fed accounts who get 0%? And then the Fed wonders why the floor doesn't hold?
"The nonbanks are using the O/N RRP facility because it provides higher rates of return. But at the same time, an increase in reverse repos drains the money stock. If repo rates rise, the nonbanks won't need to use the facility. So, the money stock will rebound."
This makes no sense from an accounting point of view.
If a non-bank has a liability of $100 in a transaction account, that can be balanced with either a $100 loan to a lending bank, or a $100 loan to the central bank (via the RRP).
If the loan is via the commercial bank, then the commercial bank loans $100 to the central bank via the reserve account (and gets IORB on the balance). If the loan is via the RRP, then the commercial bank's balance sheet is reduced by $100.
The $100 used for spending in the non-bank remains the same regardless. All the changes is whether there is a middleman in the way or not.
That change in the 'money stock' has zero impact on spending balances or capacity to spend. So where's the impulse coming from?
The difference between IORB and RRP payments is tiny.
That change in the 'money stock' has zero impact on spending balances or capacity to spend. So where's the impulse coming from?
How can they spend reserves when reserves are only for between banks?
Is what I never get and why Mike always goes on about Liquidity and what Liquidity really is. But they look at that also in the models.
So the only way I could come up with is rebalancing. There are millions of portfolios managers rebalancing their portfolios. The number of different savings and investment products out there is staggering.
Santander have over 2000 on their investment Hub. Stocks and shares ISA's hundreds of them. Then you have short savings products from 1-2 years, structured products for 4-5 years and fixed rate products.
When you go on the hub you actually get a middle account between what is in your current account and what is in your investments.Easily buy, switch or sell your investments. Ability to transfer in stocks and shares ISAs and investments you hold elsewhere, so that everything can be viewed and managed in one place.Access to your investments with your mobile, tablet or laptop.
Every transaction, swap , funding, exiting goes through that special middle account they set up for you. Like a bridge that connects everything up.
So the question is when savers move all their savings around when the markets drop like this and panic ( watched them live while they do it) portfolio managers are rebalancing over 2000 products to keep the product within the risk profile.
What are banks doing on their side ?
No idea. Never got to see that operation.
Is it their reserve balances they use ?
That middle account acts exactly like their own personal reserve balance.
A bridge that they can never take funds from. Some investors leave money in that account. Sitting there between their current account, other savings products they can access and their investments.
As soon as so saw it. I thought that looks like customers have been given their own reserve balance. That can only be used for transfer and not access.
Non banks must be the same.
What are the banks doing when all of this frantic action takes place in all of these different types of investment products ?
When you look at when the overnight facility was added look what it did to the $ ?
Could be the reason what everybody was missing as the media was trying to explain the $ strength. None of it made sense.
Be interesting to watch if the volumes drop going through that overnight facility and the repo rates rise significantly and the $ falls.
Even if the volumes drop that go through it and the $ falls will be interesting.
Billions maybe even trillions must have moved since January as everybody rebalanced both their length of time and risk.
Depends on what instruments the banks and non banks use to do it behind the scenes.
If everyone is running to safety and reducing length of time and risk of their investments no wonder they say it is a tightening of liquidity.
As they move on mass out of stocks and into bonds in their portfolios and move money from their current accounts to 1 year fixed rate bond.
They are not talking about the liquidity we talk about.
Savers are looking at every stock market fall and inflation everywhere.
Jumping into whatever they think is safe.
Inflation below 2% bonds are a good hedge risk against stocks.
2.5% threshold in 5y inflation expectations the negative correlation property quickly disappears.
It is a double whammy not only did inflation rise but every stock market dropped. Compounding the losses in portfolios.
https://themacrocompass.substack.com/p/time-for-bonds#details
Knowing what the plumbing does on the other side of that is key to understand what is going on at the FED.
The problem the MMT view has even it makes sense or not. Is you have to know how players will react. What will they do ? Mike's zombie trading concept.
If 2 out of every hundred players take the MMT liquidity view. The other 98 take the MMT liquidity plus this liquidity view.
How is the market going to react ?
That's what you need to know. Why I think it is a good idea to keep an eye on them. Just as a check and balance on your own thinking.
Right or wrong doesn't even come into it. These guys can kill you there are so many of them.
The reason for me why The MMT view struggled was the focus on deficit, taxes and bank lending.
Whilst everyone else were pulling their hair out looking and the effect the double whammy was having on their saving portfolios. That hold billions if not trillions worth of investments.
Look on the brightside , if what they say about the overnight facility is true and the effect it has on the $.
You bank that store it in the memory banks. Wait until the next time they bring it out in a few years time.
You make a fortune going long the $.
:)
Even if it is not true you already know their behaviour.
So you go long the $ anyway
Chalk that up as a win.
Whenever you rebalance your portfolios you gain capital gains tax.
Santander used to be the last to give these out and it was July. Everyone else shortly after April.
You get the bill and pay it.
Why everyone ISA wrapped there investments 20K at a time every year using their ISA allowance until they got their whole investments ISA wrapped.
But millions don't and those that do and who have large investments it can take years to get everything wrapped.
Could bec one of the many reasons why tax take was so high this year ?
The amount of rebalancing that must have went on between April 2021- April 2022. First because of the inflation whammy above 2.5% then when stock markets began to fall in January.
Structured products is income tax if everything has not been wrapped and bonds is income tax and you can't wrap bonds. They get that Bill every May.
“ How can they be lenders in the Fed funds market, and not earn Interest on reserve balances? Are there entities with Fed accounts who get 0%? And then the Fed wonders why the floor doesn't hold?”
Neil they would not get IOR from the Fed but I suppose if they would lend reserves to another bank that bank would pay the IOR rate…
This is kind of funny and shows how stupid these Art degree people are for instance.., back in Sept 2019, the Fed had a RRR of 10% of deposit liabilities and system deposits were about $13T, so collectively the banks would need 10% of that to comply, or $1.3T…
So at the same time, they were doing the QT and “removing accommodation “ by lowering system reserves so banks had “less money to lend out!” in their typical reification of the accounting abstractions… they did a survey of banks and the survey results said that they could do with about 600b of system reserves to conduct normal settlements etc..,
So they were reducing system reserves to 600B meanwhile they had a RRR of 10% which would require 1.3T… so you could see where this was going… like a slow motion car wreck…
So on Sept 15 when the quarter taxes were due, everyone paid their taxes and reserves accrued away from the banks and into the TGA and they ran the depository reserves balances below their own 10% minimum required… went below the 1.3T that day…
So the FF market had zero offers… and all hell was breaking loose… moron Art degree journos were like “the system has froze up!”…
So if all of this Art degree moron hijinks isn’t funny enough… this is funny they went to the mortgage GSEs who had reserve balances to lend, and understand now those same GSEs are OWNED BY THE TREASURY now .,, so everyone here is working for Steve Mnuchin… and the GSEs demanded 4% when the rate was supposed to be like 2% or something!
So they tried to loan shark their own depositories for double the going rate!
I’m not making this up…
Well at that point the Fed had to stop the QT dead in its tracks and start adding reserve balances back in to get back up over the 1.3T and things calmed down immediately…
And then if these Art degree moron escapades aren’t bad enough… You have all the Art degree leftists here and in MMT still who think these dummies are all smart and conducting a clandestine “vast neoliberal conspiracy!” against the poors!
I don’t know who is more stupid???
"Neil they would not get IOR from the Fed but I suppose if they would lend reserves to another bank that bank would pay the IOR rate…"
With the alternative to lending being zero, it would drop down towards zero. Why would the bank pay more in an excess reserve environment? Plenty of non-banks with excess reserves to choose from.
Then they get a tax payment day and the whole thing gums up.
Does anybody there know how the plumbing works?
It may be that the operators know how it works, but the politicians won't let them do what is required.
Well back in 2019 they were doing QT so system reserves were being reduced… so there was not excess reserves…
“ It may be that the operators know how it works,”
Doesn’t look like it.., after that Sept 2019 debacle a few VPs were let go and they put in a female diversity hire to run it, but now it looks like even she just got sent to Siberia and they aren’t starting to do the QT as per the published plan…
Something bad might be up there.,, could just be the political appearances but I don’t know..,
Maybe Powell can clear it up this week in the Q&A but I doubt he’ll volunteer anything… Powell seems content to sweep everything bad under the rug..,
Their view:
April 2016: "Due to the magnitude of the excess reserves in the banking system—a legacy of the Fed’s large-scale asset purchases—traditional open-market operations to adjust the so-called federal funds rate (FF) were viewed as insufficient. As such, the central bank has made use of overnight reverse repurchase agreements, a tool dubbed the Death Star, to further drain liquidity from the financial system."
The markets fell because of another accounting error by the Federal Reserve. O/N RRPs aren't considered a subtraction from the money stock:
See: WSJ Aug 5th, 2021
"The notion that a trillion dollars in reverse repos has reduced the money supply by even one dollar is nonsensical. Reverse repos are a liability of the Fed and an asset of the banks and money-market mutual funds (MMMF) that loan funds to the Fed via reverse repos. Deposit liabilities of both banks and MMMFs are constituents of the money supply. These liabilities remain unaffected by the choice banks and MMMFs make about whether to place their assets in the Fed’s reverse-repo facility, Treasury bills or elsewhere. Contrary to the Gramm-Saving analysis, the Fed’s reverse-repo program has no effect on the money supply."
That of course is wrong.I don't believe that the FED is subtracting O/N RRP volumes from the money stock. I believe that the O/N RRP volumes were responsible for the financial markets sell off.
It’s a blatant error. Contrary to the accountants at the Board of Governors of the Federal Reserve System (in contradiction to the presupposed Generally Accepted Accounting Principles, GAAP, e.g., the cost principle, the matching principle, the time-period specific principle, the recognition principle), the sale of securities by the FRB-NY’s trading desk decreases both the assets and liabilities of the Reserve Bank. It is not just an “exchange in liabilities”. The asset reflects an exchange in ownership ( a debit on the left to the recipient of RRP’s remuneration).
Otherwise how would the funding facilities even work?
O/N RRPs are an unrecognized subtraction from the broad money stock:
Apr ,,,,, 0069
May ,,,,, 0290
Jun ,,,,, 0673
Jul ,,,,, 0848
Aug ,,,,, 1053
Sep ,,,,, 1211
Oct ,,,,, 1425
Nov ,,,,, 1445
Dec ,,,,, 1600
Surreptitious tightening.
And
" The remuneration rate on interbank demand deposits, IBDDs, is higher than all money market rates. The money market is differentiated by its position on the yield curve (i.e., short-term borrowing & lending with original maturities from one year or less). In turn, money market paper funds the capital market (earning assets greater than 1 year).
It is the "Interest Rate Fallacy" - "low rates lead people to borrow more and expand credit..."
“After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead.
Apparently, old fallacies never die.”
The O/N RRP volumes destroy the money stock dollar for dollar (as most counterparties are the nonbanks seeking higher yields than Treasuries, e.g., MMMFs).
As I said: The FED is too tight now. The FOMC should grow the money stock by at least 100b every month.
May ,,,,, 186.1
Jun ,,,,,, 257.7
Jul ,,,,,,, 132.3
Aug ,,,,, 073.1 shortfall
Sep ,,,,, 004.4
Oct 2021.
The FED is surreptitiously tightening monetary policy. The FOMC needs to reduce the remuneration rate @.15% on IBDDs. The remuneration rate is above all money market funding rates (which will negatively impact T-Bill issuance). The money market is differentiated by its position on the yield curve (i.e., short-term borrowing and lending with original maturities from one year or less).
The Fed’s administered policy rate, inverts the short-end segment of the retail and wholesale nonbank funding yield curve (reversing maturity and credit transformation). This destroys money velocity and induces nonbank disintermediation (where the volume of available credit is reduced).
Link Zoltan Pozsar:
research-doc.credit-suisse.com/...
The bond market is not clairvoyant. Negative real rates of interest are here to stay. Incomes will never catch up with prices. Hard assets are where its at, and for a long time.
Mosler doesn't know a credit from a debit. None of the MMTers do. The remuneration of IBDDs is a credit control device. It skews interbank demand deposits relative to commercial bank demand deposits. It lowers the real rate of interest. It produces subpar real economic growth. It is the fastest way to destroy America. "
All of these portfolio managers must have rebalanced by now otherwise they are in for the chop. Not keeping their portfolios in the risk category promised and forced to change to lower risk by their customers.
If risk moves by 10% They have to act it is in the small print.
They'll be sitting their holding new short term bonds waiting for the market to bottom before they flood the stock markets again. Moved right down the risk scale.
FACT SHEETS
santanderassetmanagement.co.uk/drafts/fund-center
You can view the charts.
In 8 months I dealt with £2b Billion worth of maturing structured products. Which was 70% of the total book of Santander UK structured products. You can easily double that in stocks and shares investments. Never mind what's in retail investments on top of that.
That's just one bank and just UK customers in that one bank lol.
Think of that worldwide ??
It has got me thinking that if inflation goes above 2.5% threshold when bonds no longer hedge risk against stocks.
Does anything show in the markets in the past to reflect what portfolio managers do at that point ?!
Because one thing is certain they will all do the same thing. If you can identify what they do. Whenever inflation goes over the 2.5& threshold. You've hit the jackpot.
Do they sell stocks, do they swap bonds for something else to hedge risk, or ride it out and take the hit.
Because we have just seen what happens when inflation is over 2.5% and stocks drop on top of that. Carnage.
If you take the time to download the fact sheets after the market bottoms and read everyone thereafter you'll figure out what they did.
And what they do under times of stress.
I'd forget about the FED as there is nothing too can do about it.
Concentrate on the Super bowl Index that captures what the FED does anyway.
https://themacrocompass.substack.com/p/tmi-2-the-macro-compass-is-trying
Alf won't be far off with how portfolio managers react in his macro compass. They are like the dark inventory in the oil markets. $trillions of worth. When they act as one you better get out of the way or they will crush you.
It's easier to tie in with the MMT viewpoint.
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