Saturday, August 4, 2012

The Repo Man Cometh?

The market rose on Friday, and started when Europe opened and continued until an hour after our market opened.  The reason given was the good employment report.  That reason is obviously a deception, as we lost hundreds of thousands of jobs.  So what could it be?  My contention is the Fed started to add to reserves into the banking system Thursday/Friday (Repos). The last time this happened (Dec 2008) the miners and metals bottomed and then two months later the market rose.

So the market reacted to this, gold and miners showed strength, and as these repos continue, you will see a move to hard asset stocks and commodities, a move out of bonds, and then it will pressure non commodity assets as margin pressure will crush earnings.  But first we will make new highs in equities.

The Fed has no choice but to add reserves to the system or risk sovereign and banking collapses.  Reserves have been falling for a year, and the only reason the market is flat and not down is the volatility crush and short squeezes that forces risk on.  Both are done, volatility at lows and short interest down considerably. Jawboning promises of liquidity is done, and we are at peak earnings and margins, so reserve building is the next step.  Plus they must give the banks more cash to leverage up to buy gov't debt and to support the market price and their profitability.

Plus, who thinks Obama is going to allow a market crash before the election.

Anyway, this is what I am watching and thinking.  Now here are some charts and my comments.  Enjoy.


  1. BOB

    Great write up on the REPO MAN . I really enjoyed the whole article , comparing whats happening to the 2008 period and explaining that with "volatility at lows and short interest down considerably..." The need for them to act.

    Nice work!


  2. Nice charts, Bob. Looking forward to becoming a subscriber.

    1. Thanks, I am free towards the end of the week if you want to meet up.

  3. This makes a lot of sense. The BLS Job numbers are unreliable. The repo idea of the FED adding to its balance sheet is a good insight.