Tonight I am posting today’s Santelli and Harris exchange (click on the image at the end of the post). (It is with gratitude that I thank Rick and his wonderful producer Lesley McKeigue for they keep providing me a with a platform to express views that are based on almost 40 of trading experience.) The Santelli Exchange has allowed me to meet and share views with some of the most respected minds in the financial community: Art Cashin, Jim Bianco and the list continues to go on and grow. Thank you my readers for allowing me time to deal in dialectic exchange and be challenged in a constructive method to enhance my knowledge. Remember, it is not validation but dialectic that I strive for in Notes From Underground.
Posts Tagged ‘balance sheet’
Every once in a while I entertain the fantasy of being at the helm of the Federal Reserve. In a moment of megalomania I am proposing this solution to situation that the FED finds itself: The velocity of money is extremely low as zero interest rates have led to a massive buildup of overnight reserves at the FED. Money’s low velocity is compounded (pun intended) by the bloated balance sheet that the Fed has attained through its massive QE program. Certain voices are maintaining that the severe flattening of the yield curve is precluding domestic banks from making greater profits, which results in less lending activity. It is not only the low profits impeding bank lending but also the massive amount of high quality collateral controlled by the FED that diminishes financing activity from the shadow banking sector via the REPO market. IF THE FED WERE TO BEGIN SHRINKING ITS BALANCE SHEET BY SELLING TREASURIES OF A 10-YEAR OR LONGER DURATION, THE YIELD CURVE WOULD STEEPEN AND THE REPO MARKET WOULD SPRING TO LIFE AS MORE HIGH QUALITY COLLATERAL WOULD CIRCULATE IN THE MARKET.
In the Beatles Album “Let It Be” John Lennon introduces the phrase, “Doris Gets Her Oats.” It’s supposedly just typical Lennon gibberish. But in a nod to the Beatles, Janet Yellen got her oats and the Fed did not LET IT BE. The “oats” that Janet got was that the FED increased its interest on excess reserves (IOER) to 50 basis points and overnight reverse repo (O/N RRP) rate to 25 basis points in order to pull the fed funds into the corridor. The most astounding outcome was that FOMC vote was unanimous, 10-0. With the recent über-dovish comments from Fed Governors Brainard and Tarullo, how could they have voted with the Fed Chair? Some commentators remarked that the “historic” occasion of Yellen presiding over the first Fed hike in almost nine years needed a unanimous vote. Question: What did Chair Yellen have to promise the über-doves in order to garner their votes and suffer the wrath of the Shadow Fed Chairman, Larry Summers? This will be an important question going forward for it may mean that Yellen may have compromised herself to lower for longer.