Seeking Alpha

Joseph Stuber

View as an RSS Feed
View Joseph Stuber's Comments BY TICKER:
Latest  |  Highest rated
  • The Fed Is Backed Into A Corner With No Way Out [View article]

    Seems to me you could be right about the Fed wanting the market to stay flat for the next year. In fact, my own view is that they are doing a pretty good job of keeping the market flat so far this year through their up one day/down the next overnight futures manipulation.

    A significant correction, on the other hand, is probably the last thing they want. The carry trade can come undone in two ways - the short term cost of money gets to expensive or a loss in the asset they buy with the money. It is my view they have vigorously defended stocks as they know all to well the consequence of a steep correction in stocks.

    Mar 26, 2014. 11:41 AM | 3 Likes Like |Link to Comment
  • The Fed Is Backed Into A Corner With No Way Out [View article]

    Not sure I understand your point on how shutting out the west would matter as far as China and Russia doing business in their own currency in lieu of the dollar. In any event that is what they are going to do going forward it seems. This is a really, really big deal to China/Russia and it is not just talk - it is happening in real time. As I have said they seem willing to accept short term pain for what they see as long term gain.

    As far as buying US stocks - why not? The traditional carry trade that directly exploits the yield curve in the bond market seems to have taken a back seat to more risky plays in equities. Not that the bond market doesn't have plenty of risk.

    Mar 26, 2014. 11:22 AM | 2 Likes Like |Link to Comment
  • The Fed Is Backed Into A Corner With No Way Out [View article]
    I don't know when rates have to move higher but the Fed seems to be preparing for a quick move by acclimating money funds to the reverse repo option. I think they could shift the curve rapidly and dramatically in very short order by using this tool.

    Of additional interest is the analysis BoA did on the risks associated with a flattening of the yield curve by raising the short end. My own view is that a move to do this would be much more devastating than many can imagine as it would create havoc with the economy and the carry trade although it may be the Fed's only response to the weak dollar.

    Mar 26, 2014. 10:44 AM | 3 Likes Like |Link to Comment
  • The Fed Is Backed Into A Corner With No Way Out [View article]

    I tend to agree that the hedge fund community is not a part of the manipulation leaving the only other explanation as large banks and central banks.

    I do think the group of players that these manipulators can't overwhelm is the China led contingent that is moving away from the dollar. Russia and China are apparently going to enter into a bilateral agreement in May on energy that deals a significant blow to the petrodollar. They are also going to propose new arrangements that exclude the US in the IMF.

    All these things create a real problem for the Fed and for the carry trade itself. Why so few discuss China's moves is beyond me but there is no doubt in my mind that the Fed's policy shift is in response to these things that are pushing the dollar down. So, the Fed either defends the dollar and halts the fragile economic growth or they allow the dollar to seek its true level and mess up the carry trade.

    Not a good set of choices in my mind but the Fed's Plosser is commenting on Fox right now and assuring everyone that the status quo is likely to continue.

    Mar 26, 2014. 10:18 AM | 7 Likes Like |Link to Comment
  • The Fed Is Backed Into A Corner With No Way Out [View article]

    ". . .couldn't the NY Fed or a proxy hedge fund just roll $10 or 20 billion in S&P futures . ."

    I don't have the answer to that question. Anyone who observes the markets necessarily must conclude the efforts to keep US stocks aloft by manipulating overnight futures is a strategy that is being employed and has been for some time. And it makes sense as the relative cost to ramping futures going into the open is minimal.

    Make no mistake - these guys are good at manipulating price and seem willing to use a large array of tools to prevent a panic sell off. Again, I don't have an answer to the question but suspect the huge levels of leveraged positions offer both incentive to maintain the status quo and huge risk if they lose the battle.

    I have a question for you - if you were in charge of risk management at a large bank or hedge fund and observed what is occurring today would you continue to add to your leveraged trades?

    It seems to me that these players are no longer adding to positions - at least in the aggregate - as we really haven't managed to push higher this year. So far the market seems to be propped by nothing more than low cost manipulation of the futures market as you note.

    Again, what do you think? Can they keep the markets propped with these strategies forever?

    Mar 26, 2014. 08:00 AM | 9 Likes Like |Link to Comment
  • Weighing The Week Ahead: Yellen Takes The Stage [View article]

    I wrote the piece avolossov refers to and I am certainly not confused about the difference between temporary and permanent reverse repos. In fact, a reverse repo - by definition - is never permanent as it wouldn't be a reverse repo if it were.

    As to the matter of fully transparent, that is certainly the case with the Fed. As you rightly note, the detail for the reverse repos is found on the NY Fed's own website. That said, an operation the size of this one should be the focus of more journalistic interest - if for no other reason than its medium term implications regarding interest rates.

    The Fed has been very public with information from FOMC members on the matter of QE but completely silent on this unprecedented reverse repo exercise. I never said they were engaging in a "secret reversal" - just that they haven't told us they are engaging in a policy that is without precedent unlike their steady flow of Fed FOMC member comments on QE.


    Mar 26, 2014. 07:15 AM | Likes Like |Link to Comment
  • The Asinine Gold Sell-Off? [View article]
    In the world of manipulated markets one must understand the most important manipulation of all - the yen carry trade. So why would gold be slammed for absolutely no reason at all - at least no apparent reason - for the same reason VIX gets slammed.

    VIX has an inverse correlation to stocks and gold has an inverse correlation to the dollar in a normal market. After a knee jerk spike in the dollar relative to the yen after Yellen's remarks last week - a statement that should have sent the dollar into the stratosphere all things being equal - the dollar stalled out and started to show weakness again.

    The problem with slamming gold is that it didn't produce the desired bounce in the dollar. So much for that strategy. Now one would assume the pressure on gold will subside for awhile. We will see.
    Mar 24, 2014. 11:17 PM | 3 Likes Like |Link to Comment
  • The Fed's Reverse Repo Actions In 2014 Means QE Effectively Ended In December But They Forgot To Tell Us [View article]

    "Reverse repo transactions conducted by the Fed year-to-date through March 15 ADDED liquidity on net rather than withdrawing it as you allege. Dave Kantzler again makes the point I made much earlier that the transactions are reversed on the next business day."

    Surely you don't think you are lending a degree of understanding to the matter by noting that the reverse repos have one day terms. The January 2nd reverse repo was less than the $197 prior days repo which does leave the one day impact as positive but the point you seem to choose to overlook is that when reverse repos are done on a daily basis and assuming that the dollar amounts are all equal for example purposes - the net reduction in liquidity would be that average amount and it is an overall reduction in liquidity - not an increase in liquidity. That is just not debatable - it is fact.

    Bottom line - as the Fed continues to taper back on QE the Fed's reverse repo program is also withdrawing liquidity. The reason - the dollar is weak and has remained weak in spite of Fed taper. The consequence of a dollar crash seems more disconcerting for the Fed than supporting bond prices or the economy and that should be their greatest concern.

    Most of the readers here get that point at least.

    Mar 20, 2014. 06:28 PM | Likes Like |Link to Comment
  • The Fed's Reverse Repo Actions In 2014 Means QE Effectively Ended In December But They Forgot To Tell Us [View article]

    "You simply don't understand the way our monetary system works."


    "Instead of educating yourself, you spew conspiracy theories and nonsense."


    I suggest you are not the one to make a case against me regarding my understanding of our monetary system. Even those who disagree with me recognize the level of my knowledge on this and it is extensive.

    Mar 20, 2014. 05:53 PM | 1 Like Like |Link to Comment
  • The Fed's Reverse Repo Actions In 2014 Means QE Effectively Ended In December But They Forgot To Tell Us [View article]

    I will add that your remark - "I'm not sure how this write-up got passed the SA editors. Your repo analysis is patently incorrect." - expresses your opinion of what is going on.

    I disagree with that opinion for reasons stated above but the idea that SA should not have allowed an article that deals with a monetary policy that is without precedent implies that you think this particular policy should be kept under wraps and not exposed to the public for consideration as to it's meaning or significance.

    Whether you agree with my analysis is beside the point. Investors need to be aware of what is going on and also why it has gone unreported. Analysis of policy intent and implications is subject to interpretation and no doubt some will have views that differ from others. That is fine as so much of what is written is mere supposition anyway but to suggest that readers not be made aware of this seems to be more than a little inappropriate.


    Mar 20, 2014. 04:24 PM | 1 Like Like |Link to Comment
  • The Fed's Reverse Repo Actions In 2014 Means QE Effectively Ended In December But They Forgot To Tell Us [View article]

    I agree that the number should be $80 billion total - at least on average - and not $80 billion a month. I have said so to a few others who made this point and will repeat again - you are right and I am wrong on that matter.

    Mar 20, 2014. 03:11 PM | 1 Like Like |Link to Comment
  • The Fed's Reverse Repo Actions In 2014 Means QE Effectively Ended In December But They Forgot To Tell Us [View article]

    The fact that it includes money market funds in no way changes the dynamics of liquidity in the system. If a money market fund bids at auction on the reverse repo the money flows out of the banks and into the Fed. Third party transactions don't change that dynamic at all except that with a 3rd party M2 is reduced whereas with a direct bank arrangement only bank reserves are impacted.

    Your argument only goes to further strengthen the basic premise of this article - the Fed is doing all they can to support the dollar through a process of withdrawing liquidity to counter the negative impacts of abandoning the dollar as a reserve currency.

    If you think otherwise you necessarily must ignore the message the Fed is sending with QE taper and forward guidance on interest rate hikes. Do you really think they are doing that because the economy is on fire? Please. They are doing that because the dollar is under attack and for no other reason.

    Of interest was Yellen's comments on the need to curtail the carry trade. The best way to dampen the carry trade is to offer alternatives to money market funds that attract those funds - funds that would otherwise go to finance more carry trades - and the Fed indeed does have a useful tool here.

    The only impact the reverse repos can possilby have on short term rates is to increase them by competing for money market funds with those who would use them to finance high risk carry trades and when they do compete it does have the effect of withdrawing liquidity.

    I am interested in any valid explanation for these massive levels of reverse repo's other than the basic premise I have set forth but you have failed to offer one.

    Mar 20, 2014. 03:09 PM | Likes Like |Link to Comment
  • Seeking Alpha Crowd Wisdom Predicts Future Stock Returns [View article]
    I resent the implication in this statement :)

    "Overall, the findings fit with prior analysis in other fields on the way crowds can outsmart, or at least be just as smart, as professionals. Studies have shown, for example, that Wikipedia accuracy is similar to that of Encyclopedia Britannica."

    What defines professional? I wouldn't put the aggregate sophistication level of SA contributors in the "crowd" category. There are some pretty smart people who write on SA with diverse backgrounds and many - if not most - are, or have been in the past, professionals within the industry.

    Mar 20, 2014. 10:11 AM | 2 Likes Like |Link to Comment
  • The Fed's Reverse Repo Actions In 2014 Means QE Effectively Ended In December But They Forgot To Tell Us [View article]

    Per Wikipedia:

    "In the UK, there is no limit on the amount of a clients assets that can be rehypothecated,[2] except if the client has negotiated an agreement with their broker that includes a limit or prohibition. In the US, re-hypothecation is capped at 140% of a client's debit balance."

    Here's the link.

    Here is another comment from the same article on the degree of shadow bank churn:

    "In 2007, rehypothecation accounted for half the activity in the shadow banking system. Because the collateral is not cash it does not show up on conventional balance sheet accounting. Before the Lehman collapse, the International Monetary Fund (IMF) calculated that US banks were receiving over $4 trillion worth of funding by rehypothecation, much of it sourced from the UK where there are no statutory limits governing the reuse of a client's collateral. It is estimated that only $1 trillion of original collateral was being used, meaning that collateral was being rehypothecated several times over, with an estimated churn factor of 4."

    Think about what happens to highly leveraged carry trades if they lose the positive metrics for the carry trade in another situation where the amount borrowed to buy stocks is leveraged at 4 times the value of the collateral. And and that is not necessarily where the rehypothecation stops. My guess is this time is much larger than 2007-2008.

    Mar 17, 2014. 08:53 PM | 2 Likes Like |Link to Comment
  • The Fed's Reverse Repo Actions In 2014 Means QE Effectively Ended In December But They Forgot To Tell Us [View article]

    Wow. Thanks so much for these comments.

    I do recognize my hastily written article left a lot to be desired and only served to bring some attention to this issue. That said, the comments have pushed me to carefully consider the Fed's stated reason for engaging in the reverse repo program.

    I've come around to the idea that the strategy does in fact make sense as it relates to what the Fed suggests is their reasoning. Your comments above only move me further in that direction.

    One thing seems certain to me - the Fed is legitimately concerned about the dollar's weakness, they are taking steps to protect the dollar and they are not really being very open in terms of their public statements as it relates to their concerns.

    Thanks again.

    Mar 17, 2014. 08:38 AM | 2 Likes Like |Link to Comment