(For Those That Want To Know) what I’m watching.
There’s certainly a lot of differing news items swirling about the entirety of the media, from the political to the financial/bushiness press. Stories abound like: Just who did what and why, to: who wore what and why. There are so many perspectives, from both sides, saying why they have the correct viewpoint, using so much spin, it’s making washing machines envious the world over.
If you are one that aspires to keep their critical thinking skills honed and polished? You can’t ask for better stones to work your craft. So take it all in and sort through the best you can, for you just may be living in that period of time that history will look back thousands of years from now, to this precise moment, and ask: “WTF were all these people smoking?!”
Curious and/or strange times, indeed.
However, on a serious note, I would like to point out one very singular piece of information I’m watching or listening for closely, that could completely derail all of the above in ways most do not understand, let alone comprehend.
I am concentrating my attention, almost to the exclusion of all others, if (or when) the Federal Reserve announces they will raise the interest rates paid on excess reserves for the Reverse Repo Operation (RRP) – again, which they just did back in July, in what many described as an emergency measure, but the Chair described as “a tweak.”
I have a very distinct feeling that “tweak” (which was told/sold as a one time thing, for it was nervously viewed to be far higher than anyone thought remotely prudent) is going to need a whole lot more tweaking in very near future. Here’s why…
With the possible debt ceiling becoming an issue the possibility, if not probability, of it turning into an utter and complete debacle raises by the day.
I contend, it is quite possible since the Treasury account balance is now down to a point that counts as a rounding error from prior heights. The implications are that the talk of default will suddenly become vociferous. However, that’s all it may be – just talk. But that doesn’t mean there aren’t other, much larger issues afoot.
What I’m watching is: If the Treasury suddenly finds itself hand-bound and can not issue more debt with immediacy. It may roil the Money Markets and other places with liquidity issues – again, aka “Uh…Oh!” moments. If that happens things can go from “Happy-Land!” to, “WTF is happening!” in a heartbeat or less.
I am not saying that it will. I am saying that if there is anything that “Could upset the apple cart.” as the old saying goes. It is that.
Remember: this (roiling Money Markets) are what truly exacerbated the Great Financial Crisis. The real crisis today, is that most believe it can never ever happen again.
May be, but then again, what else are we now witnessing in the realm of “Not suppose to happen again?”
Hint: When the RRP was first at $200Billion just months ago and going higher, everyone said, including the Fed., that it going higher was well within their expected norms. That was when the idea of $500Billion was considered extreme and probably not gonna happen.
Then it hit $500Billion just weeks later and I said not only was it going higher, but they’ll have little to no effect of holding it down and it would cause consternation, which it did just that as the Fed. made what many called “an emergency action” (aka Tweak) and jacked the interest rates they pay on reserves in an effort to cool or settle down that market.
Then it went to $750Billion.
It is now well over $1Trillion ($1.2+) and still rising.
Again: Will it happen?
Who knows. And let me also make clear, there is many a wild-card still present that can have ground shaking implications to also roil markets on their own (China’s Evergrande default on its bond payments is just one) and could come from anywhere, for they are manifold. However…
What I’m now focused on, to almost the exclusion of all others, is a possible re-adjustment for interest paid on excess reserves because, in my purview, that is a signal-of-signals that something may be going terribly awry in the financial plumbing.
To reiterate, in my view, it’s the only one that matters because, it can change – everything.
As always, we shall see.
© 2021 Mark St.Cyr
Note: This is not trading or investing advice of any sort. This commentary is for “big picture” discussion purposes only. Please read, or re-read the “About This Site” page for any questions or clarifications.