We Are Now Approaching the “Lehman” Moment… PREPARE NOW!
Someone or some people are in MAJOR trouble.
Back in September 2019, the Fed announced it would begin implementing a number of repurchase “repo” programs.
If you’re unfamiliar with repo programs, these are programs through which the Fed allows financial banks/institutions to park assets at the Fed in exchange for cash.
At the time the Fed announced this, it claimed that it was performing these programs to help with a capital crunch due to tax season. However, that excuse was soon proven to be total bunk – the repo programs were extended from September through October and finally through January.
At the same time, the repo programs grew in size from $75 billion for overnight repos and $30 billion for term repos, to $120 billion in overnight repos and $45 billion in term repos.
Why would the Fed be doing this?
After all, the economy was growing at the time. And there were no indications or systemic risk in the U.S. financial system.
Lehman-like Liquidation is Coming to the Markets
The Fed was NOT doing this to help out with tax season…
The real reason the Fed was doing this?
A financial institution or institutions were in BAD SHAPE and desperate for capital. By bad shape, I mean “Lehman Brothers” type failure.
Now, we do not know who it is. But considering the fact that the Fed announced an emergency round of $1.5 TRILLION in repos last week… and that it stopped the market from collapsing… suggests it’s a very LARGE institution (think the size of Deutsche Bank or UBS).
With this in mind, it doesn’t matter what happens with coronavirus or with the economy. If a large, systemically important financial institution or bank fails, we could get a Lehman-like liquidation in the markets.
My Bear Market Trigger Says It’s CRISIS TIME
If you think I’m being dramatic here, consider that the EIGHT largest U.S. banks just announced they are going to start accessing the Fed’s Discount Window: a means through which the Fed gives banks access to capital overnight.
The banks haven’t done this since 2008.
Again, a large financial institution or institutions are in MAJOR trouble here. The fact that even $1.5 TRILLION in repos didn’t fix this issue means it’s truly a systemic problem.
THIS – not the coronavirus – is the issue to focus on. The Everything Bubble has burst, the coronavirus was just the pin.
Today, the market is up a bit, providing us much needed relief from the panic.
But don’t get too comfortable.
Yesterday I hopped on a call with Laissez Faire Publisher, Doug Hill to explain the real risk the market is dealing with right now.
And those who listen get a pick to play the fear happening in the market.
Click the image below to listen in on the call.
Editor, Money & Crisis