Comments
Transcript
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KTI watched this in Feb 2020 and it's still massively informative. Please get Jeff Snider back on.
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FBwasnt may 29 2018 when 25% import tariff was announced?
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WAReal Vision I think it would be a really cool idea if you can get a couple of guys or gals who work in the Euro Dollar market, the "insiders" as Jeff describes them. And have Jeff do the interview so we can know what the heck is going on. I tried to do research on the The Euro Dollar market, but as Jeff has mentioned it so difficult to get proper info on it. Thanks.
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GRVery interesting information. I look forward to hearing from this person again. Agree music is bad, so is hidden voice.
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PJThat fu*king theme music drives me mad
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dpIf no one knows why, Shouldn't someone ask the banks why they are doing what they're doing?
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BDMilton. Please get Luke Groman back, as he has an additional explanation that makes this easier to understand.....Jeff Snider understands the plumbing, Luke understands the bigger picture. Together they provide the whole story......
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WMExcellent conversation with Mr Synder. I do believe he is one of the few experts who understand the system. I was a bit surprised about his expression about why the banking dealer system is doing what it is doing regarding REPO and the related interest rate spikes as I felt sure he would have a strong view. Nonetheless, I admire Jeff for actually saying that he doesn't know whats behind the curtain (I would have thought he could have asked some well place folks why they acting the way they are). Finally, I do not disagree with David R (Oct 8 0500 below) on his comment about the US dollar. But its all a question of time. Ultimately "bad for the US dollar" yes. However in the short to medium term it feels the US dollar could see rapid appreciation because what else can you choose... the Euro? There is simply not enough liquidity in anything else. No-one is going to flood into the Swiss Franc or sterling or the Yen. There is not enough gold or silver. So initially it "feels" like there will be an influx into the dollar. I am solidly with Martin Armstrong (and others) on this. It feels like the dollar will soar as "everybody" flees to the last financial system left standing...the USA and the worlds reserve currency. That flight and the soaring dollar will be the last straw for the last vestiges of Bretton Woods, the system will break. What comes out of it? Who cares.....because the fallout will be worse than 2008, globally. I feel sure that many financial assets will likely be trashed. Ownership of real assets may be the only option to maintain wealth, though there is likely to be a predatory environment against the "rich".
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MZThe underlying assumption here is that the players are all acting rationally based on having a reasonably clear overview of what is going on in the game - at least in each in their own little part of the sandbox - and if we could just get everybody together at the same table somebody really smart could figure out a solution. But it seems quite possible to me that the system has grown and evolved into something far too complicated and chaotic for ANYONE to understand on a macro level, even the insiders who are most positioned to profit from it. Everyone is viewing it from their own limited vantage point, circumscribed by their position, experience, self-interest and known and unknown biases. And that suggests that if the "spinning top" is indeed growing increasingly unstable - as evidenced by wobbles increasing in both frequency and severity - then maybe no one (least of all the blinkered, ideologically-bound central bankers) is capable of acting proactively to prevent its eventual falling over catastrophically. And even assuming they could somehow sort out what needed to be done, would they have the courage to act on that knowledge - knowing (or perhaps worse, not knowing) the consequences?
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JLHey Jay...give this man a job...your job
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AROne thing not clear to me is that based on this analysis, it appears that Treasuries should be pristine for collateral, but in other places, the burgeoning US debt is blamed as the reason. Does this mean that cash purchasing US debt is taken from the system and there is not enough cash around to meet reserve requirements? And since there are apparently excess reserves because the Fed is lowering IOER why wouldn't a bank accept US treasuries as collateral if it can get 10 percent in the repo market? Is it that you won't get collateral if another bank goes under or there is a fear that US treasuries are no longer acceptable collateral?
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VPI wanna short HYG so bad but,,,,,,,,I can't!!!! Talk about trust, don't trust the the casino, at least not yet. The money gambit still has legs.
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ENI have waited so long for this guy to come back, more than anyone honestly, brilliant as always. Please have him on a schedule on RV.
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MTGreat stuff! However I feel like I need cartoon visuals to map this thing out... kindergarten pedagogy I guess😊
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NLYou cannot be interviewed on a topic as expert and your message is that we don’t know what’s going on. 1/ banks don’t choose to hoard treasuries, treasuries or cash reserves qualify equally to meet their liquidity coverage ratios (how much high quality assets they must own versus their liabilities) 2/ spikes in primary dealer inventories correspond to times when foreign central bank have to liquidate their US Treasuries because they need cash and their USD reserves are dropping (2011, 2015), or when the pace of Treasury issuance picks up rapidly (2018/2019) 3/ Banks don’t engage in repo because of SLR, new regulations dramatically reduced velocity of collateral as well as make it uneconomic to lend inter-bank when money market dislocations occur 4/ Fed’s QT is what drove liquidity level low enough that limitations on collateral velocity reached a tipping point Jeff deserves credit for focusing on the plumbing of the system which clearly many, including as he pointed out some central bankers, haven’t been. However the argument that “banks know something we don’t That is really scary out there” is simply not true. In fact there is plenty of bank research which has forecasted that this repo rate spike would occur, and why. It is an important topic, but there would have been many much more qualified professionals with concrete answers to interview and give viewers answer to all the questions raised and left unanswered.
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LBJeff is very smart and a lone voice in the world of finance, it seems. As he says, who understands the monetary system today? Nobody! Not even the central bankers. It's all based on faith or beliefs. There is no system as such. But there is a lot of fiat paper, whether that's money or other financial securities such as collateral that keep the fiat architecture standing, for now. But cracks are clearly appearing at the seams.
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TCExcellent, just when we all were told and belived what happened in the repo market was technical ! Jeff raised excellent points, excellent questions and opens up a discuission on what's really is happening in the credit based markets. Will the repo issue and we-work failed IPO be seen as a red flag down the line ?
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PWWatched yesterday.................and low-and -behold the FED is jumping in with both feet! Thanks RV and Jeff Snider for the interview
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ELJeff is uniquely qualified to discuss global currency and it is obvious so many thought leaders including the Fed have no clue.
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AEOne of the best pieces in RealVision TV history. Getting what Jeff is saying, is like discovering the Earth is not flat.
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TSBrilliant guy!
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PDCan anyone recommend a book that would serve as a primer to this detailed material ?
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smIn my experience this was (probably) caused by bond trading desks simply arbitraging the difference between physical and futures. This would explain why it prevailed for a very short time. I traded Australian bonds/futures and not the USA. But if this is right (https://www.cmegroup.com/trading/interest-rates/stir/eurodollar_contract_specifications.html) then the eurodollar contract settles on "Second London bank business day before 3rd Wednesday of the contract month. Trading in expiring contracts terminates at 11:00 a.m. London time on the last trading day." When was the 3rd Wednesday of October? It was 16 October ... What was reported as an issue from around 16 September ... (https://www.bloomberg.com/news/articles/2019-09-19/the-repo-market-s-a-mess-what-s-the-repo-market-quicktake) ... "In the week of Sept. 16, a lot of cash flowed out of the repo pipes just as more securities were flowing in -- meaning that suddenly there wasn’t enough cash for those who needed it. " Are futures over-sold (Raoul would have it that way) and are bonds cheap versus futures? TBH I haven't looked as I am not currently trading (more money in property development but ymmv) ... but this would 100% explain what has happened. Further ... I was a graduate employee at my country's central bank ... and one of my fellow grad's jobs was to estimate the amount of Open Market Operations to target that day's cash rate ... i.e. targetting the overnight cash rate is a graduate level job with no experience and it is not important that it is not hit on a given day. The fact that there might be an arbitrage versus futures that a few dealers are taking a big position on is not news. And it doesn't signal the loss of control of anything. If bonds were cheap versus futures then 10% for 1-2 days wouldn't prise those bonds out of my cold dead hands. And it wouldn't signify any broader problems in the markets. I might be wrong ... I don't really care but I can see a very obvious set of facts that would befuddle anyone that hasn't sat on a desk.
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lyMacrovoices has a great discussion about the monetary system back in Dec 2018. Its free! Anyone who is interested can register and check it out: the Eurodollar system by Jeff Snyder, Erik Townsend, Mark Yusko and Luke Gromen https://www.macrovoices.com/aia/344-anatomy-of-the-u-s-dollar-end-game
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IAHow does what Jeff is saying of a shortage of collateral reconcile with Zoltan Pozsar's (CS) argument that it there is too much collateral and too literal reserves that is what is causing the spikes? And that a full allotment RP facility would address the issue, which Jeff says would not address the issue. Would be great if RV could bring on ZP to discuss this topic.
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RKCan someone care to explain the issue here; 1. Dealer A is not willing to lend his cash to Dealer B because Dealer A thinks that the collateral ( UST) is not worth the money he is lending ? But Jeff mentioned that everybody's hoarding USTs . I am bit confused. Unless collateral could be like junk bonds, HYG corporate bonds, MBS ( not valid any more) etc.... 2. When the FED does the REPO operation, could they accept any collateral other than UST ?
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WWThanks for this interview! Jeff has been talking about this for as long as I can remember and he always seems to be well ahead of the curve in pointing to oncoming stresses. Seems as though his comments merit more discussion and debate on RV.
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AHMy question after watching this was what happened on May 29th 2018? A quick search yielded... (https://www.nytimes.com/issue/todayspaper/2018/05/30/todays-new-york-times). Wonder which of those headlines might have been it.
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BNAbsolutely Great interview on the sorcery of the bank repo market. Thank you very much. Here’s an IMF Working Paper Proposal on Enabling Deep Negative Interest Rates from April 2019. Proposed while C Lagarde was head of IMF, currently head of ECB. https://www.imf.org/~/media/Files/Publications/WP/2019/WPIEA2019084.ashx
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ASI think a great quote from Jeff's talk would be: "there's a lack of curiosity of the global monetary system" referring to people in gov. I think. Certainly a 'live' interviewer like [imagine] Luke Gromen ;) would be awesome
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DSExcellent discussion. Does this melt down to a crisis in counterparty risk - no one trust anyone else? If banks cannot use this mechanism is there another current system, or would a new system need to be developed? Banks are not the only financial corporations that need daily counterparty integrity as we saw in 2008. Is this the next effect as the counterparty risk goes financial market wide? This should drive the US treasuries down as they can always print less valuable currency and gold. DLS
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usFeel like liquidity shortage is mostly due to upcoming fed funds rate cut, that would make bond more valuable. All the liquidity has pretty much flown to Treasury bills and banks holding to them dearly as they would get good return on investment from falling yield next few month and expanding cycle in Q1 2020.
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JBIsn't this liquidity problem due to IOER set on the upper bound of the Fed Fund rate post 2008 explained by George Selgin in his paper Floored? George Selgin should most definitely be interviewed on this topic.
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PGExcellent. Appreciate these more educational segments on niche topics like the repo market!
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USMilton please interview a dealer to explain why they are not doing anymore what they used to do? What exactly is worrying them? Why are they keeping the collateral? It's strange they are not selling it at a profit? Is collateral just treasuries and therefore with expectations of Interest rates going lower they think they will sell it at a higher profit? Is this how they always behaved - keeping the trade on longer when conviction is high? Or they used to rinse and repeat pretty much daily in the past over and over again and they abruptly stopped doing this recently?
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JGHurrah! Hooray! Jeff Snider on Real Vision. I haven't even listened yet but know it will be interesting and helpful for my macro thought process.
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DSThe big omission on the part of the interviewer is failing to discuss with Jeff repercussions of the liquidity / repo collateral shortage on the long eurodollar trade.
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DFThanks you Jeff Snider. I agree that 2008 wasn't a one-off event but most probably a systemic warning that didn't get addressed as we all witnessed. I am a bit confused because it seems to me that all currencies are stuck in some sorts of financial assets and not "needed" in the economy. In the end there is no "real" exponential growth of any kind as we are leaving the exponential growth phase and entered the transitional phase of a more sigmoid growth a long ago . As a consequence, the credit creation mechanisms became ill-suited as well as the risk management methods. My intuition would be that the economic engine is experiencing a violent slowdown in front of our eyes, and that historically, the repo market is kind of a leading indicator of systemic risks. The losing probability for the big players just grew exponentially overnight because of a sudden convergence. Although you said not knowing what is/are the cause(s), I assume you probably have few hypothesis ? What is the weakest point in the plumbing of the international banking system ? What is your thesis ? Thank you again
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RARV once again illustrates their “Curation” ability by getting a great guest to us on this timely “Repo” topic...which apparently goes much deeper into the Global financial system than most think. John Burbank has been sniffing some of this out in his Euro dollar trade/position and Raoul has been banging on a potential US $ shortage for a long time. I would be really curious to hear Raoul’s reaction to Jeff’s presentation (when he gets back from his honeymoon, of course).
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MSI appreciate these talks on Repo etc. An area I find a bit confusing. More would be appreciated moving forward. Thanks for doing this and the one with AK
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PJIMO probably the most important message from any VID on RVTV to date. Jeff, has done a whole series of podcast presentations with slides on the Eurodollar on the Macrovoices site in conjunction with Erik Townsend that covers Repo. There are a couple of hours worth of presentations in total, but well worth the listen IMO. It really opened up eyes to the potential impact of the Eurodollar system on global macro.
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SGvery interesting... Could listen to him for hours... clearly, know his chosen area of speciality back to front and inside out. Pity he doesn't run the Fed... ha ha
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TJThanks for bringing Jeff back. I love his global macro analysis and unique understanding of the eurodollar system that will probably be the catalyst for the next global market collapse. Reading his daily blogs has become an absolute necessity over the last few years! Somebody should suggest Jerome and his colleagues at the Fed read them too, or the repo scare of last month will be far from the last!
Chapters
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WHY DID YOU START TO FOCUS ON THE EURODOLLAR MARKET?
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WHAT HAPPENED IN THE REPO MARKET?
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WHAT WAS THE FED TRYING TO DO BY LOWERING IOER?
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WHY AREN'T BANKS ENTERING THE REPO MARKET?
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A CLOSER LOOK AT COLLATERAL
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HOW HAVE CHANGES IN REGULATIONS EFFECTED THE REPO MARKET?
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CAN THE FED FIX THIS PROBLEM WITH A STANDING REPO FACILITY?
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WHY ARE PEOPLE OVERLY FOCUSED ON THE SYMPTOM INSTEAD OF THE CAUSE?
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THIS ISN'T A NEW PROBLEM
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WHAT IS CAUSING THE REPEATED DOLLAR SHORTAGE?
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IS THE SYSTEM BROKEN?
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WHAT IS THE CONCLUSION?