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Lawrence Fuller

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  • Of Course The Market Is Rigged! [View article]
    That's the beauty of Seeking Alpha in my mind! We can put the truth on the table and it circulates through out the information markets.
    Apr 11 01:46 PM | 5 Likes Like |Link to Comment
  • Of Course The Market Is Rigged! [View article]
    Thanks for reading scarkmott,
    In the financial world, regulation boils down to expecting people and institutions to do the right thing, which is a false premise. We don't need more regulation, just smart regulation, and more severe penalties for wrongdoing. These fines are just a cost of doing business for everyone from banks to hedge funds to HFT firms.
    Apr 11 01:44 PM | 5 Likes Like |Link to Comment
  • Yellen Opens Six-Month Gate [View article]
    There are lots of different types of funds in the $2 trillion hedge fund industry. You have everything under the sun, but i wouldn't say that hedge funds are looking to lend for repo rate interest, if that's what your suggesting. The big "lenders" are money market mutual funds and broker/dealers and investment banks that are meeting daily liquidity needs for customers. I think hedge funds would primarily be the borrowers, as they are the ones using leverage and both the long and short side.
    Mar 31 07:08 PM | 1 Like Like |Link to Comment
  • Yellen Opens Six-Month Gate [View article]
    Hi Brian,
    To the contrary, I'm not calling for a collapse in the stock market, or even a bear market (although I think the fundamentals could easily rationalize a 20% drop).

    The repo market is a $2 trillion market. It has gradually recovered since the financial crisis. This market is necessary and serves a purpose, as does rehypothecation to some degree. It facilitates things like selling short a stock. Repos are a good source of short term liquidity for the financial system.

    Yet in the case of leveraged investing, institutions can easy borrow very inexpensively to fund longer term investments just by rolling over the daily repos. What the Fed is doing it raising the cost of this short term borrowing mechanism by offering a rate higher than what is/was prevailing. So in a sense it is making it more costly to fund leverage investing, but the real purpose is to attract private sector funds (mostly money market funds) and pull that money out of the banking system so that it can't be used to invest on a leveraged basis. They are borrowing this money, but using Treasuries as the collateral that cannot be re-used by other institutions, as with other repos.

    Its like a margin call for the shadow banking system, where this investing takes place. I think it is what has led to a relatively flat year so far. I'm watching for a pick up in the daily amount of reverse repos in the weeks ahead.
    Mar 30 09:22 PM | Likes Like |Link to Comment
  • Yellen Opens Six-Month Gate [View article]
    I'm prepared for it, and I'll keep digging for info that might be useful. Thanks for reading and commenting.
    Mar 30 01:57 PM | Likes Like |Link to Comment
  • Yellen Opens Six-Month Gate [View article]
    I'm in agreement, and you clearly get credit for bringing it to the table. I always assumed that the shadow banking sector that led to the last crisis would be a part of the current mania. What else were they going to do to replace the mortgage backed security buffet they feasted on a few years back, now they have had the benefit of QE to lubricate the investment pipelines....instead of leveraging on debt securities, which is still going on, they are leveraging on higher risk assets. Very hard to quantify this, but its clear to me. You have to be careful, because it easy to draw conclusions based one what we want to happen, or think is happening.

    When I look at how fast tri-party repos can be conducted, fully automated, tied in with algorythms, in concert with a open operation by the Fed and see immediate blast off around 10:15 or 10:30 in the S&P futures, its no wonder.

    Yes, I think the Fed is trying to slowly send a signal to ramp down the speculation.
    Mar 30 01:55 PM | Likes Like |Link to Comment
  • Yellen Opens Six-Month Gate [View article]
    Boy, isn't that the 64k question...the market has attempted to decline several times when the Fed backed off from QE, as is evident from the S&P/QE overlay chart, but obviously, the Fed understanding this relationship, and knowing its only chance of "propping up" GDP growth is through the wealth effect, as twisted as that approach may be, it has restarted the program. I honestly think they view this market as fairly valued, and some segments clearly over-valued, even bubble like in the case of junk bonds/farm land ect. So I think they are trying to ease on the brakes in stealth manner. The investment public doesn't pay attention to what I've discussed in this article. No one cares about reverse repos, hypothecation or the shadow banking system. BUT HEDGE FUNDS DO, and Investment banks like Goldman, Morgan, JPMorgan ect.DO. These are the parties that drive the market, and I think the fact that THEY understand the Fed is withdrawing liquidity is resulting in a reduction in leveraged risk asset investing. That's why we are seeing biotechs and social media stocks crumble. That's why the Russell 2000 is starting to lag. When you get a margin call, you don't sell your GE or Apple or Coke. You sell your Facebook or you Twitter.

    As for geopolitical events, I don't see them as driving factors long term. They are usually excuses. I don't think we will see a 2008. I think it is much more likely to be a 2000-2003 where part of the market gets crushed, like social media for example, while other parts actually do ok, but there is a gradual decline in broad index value, though not as dramatic as 2000.
    Mar 30 09:59 AM | Likes Like |Link to Comment
  • Yellen Opens Six-Month Gate [View article]
    I agree with you Ryan, monetary policy has had NO meaningful impact on broad economic growth, with exception to the very top, and since 40% of consumer spending is a result of the spending by top 10%, the wealth effect does have a very small impact, but only furthers wealth and income disparity. We are likely to see 1-2% growth for a very long time.

    BUT the Fed is raising rates, at least for Wall Street. That's my point with this article. They are increasing the borrowing costs for leveraged investing, and in turn boosting the yield on money market accounts modestly. That is a signfiicant reason for the stall in market performance in my view.
    Mar 30 08:35 AM | 1 Like Like |Link to Comment
  • Yellen Opens Six-Month Gate [View article]
    I'd say brown weeds for the market, not green shoots, as in I do see how shrinking the available collateral thru shinking the money supply is good for the market, but i'm not sure that is what you were talking about...
    Mar 29 10:10 PM | Likes Like |Link to Comment
  • Yellen Opens Six-Month Gate [View article]
    hedge funds are not any different than investment banks or money market funds or broker dealers from the standpoint of borrowing and lending capital, as well as creating credit in the banking system, but in this case shadow bank system, because it is not regulated. They are an investment product like a money market fund - a money market fund is an investment, but also one that provides/creates credit in the repo market, and a hedge fund does the same thing.
    Mar 29 10:09 PM | Likes Like |Link to Comment
  • Yellen Opens Six-Month Gate [View article]
    Great question Diego, thanks for reading.
    Rehypothecation is not necessarily a bad thing, but it is abused. If you hold a stock in a margin account, your b/d can lend that stock to someone that wants to short the stock, even though you still own it, so in essence the b/d is re-using it so that someone else can sell it. Now when it is re-used over and over again, as it is in shadow banking, you create a dangerous daisy chain.

    This is similar to when you deposit $1 in a bank account, and the bank uses that dollar to make a loan to someone else. This someone else deposits the borrowed dollar in their account at a different bank, and that bank lends it to a third person, and on and on.

    I could write 10 pages about rehypothecation, as there are limits to how much you can borrow in the US, but there is no limit in London, which is why most banks have London subsidiaries!!!! Where did AIG lose all its money, in LONDON!! Where did the whale lose $6 billion at JPMorgan - LONDON!!!

    We have a limit here, and it also depends on what the collateral is as well, which impacts the rate that you are borrowing at, ect... lots of details, but it can still be borrowed and lent, borrowed and lent, ect. The Fed assumes that actors will be responsible, as usual. I've read several NY Fed research papers on the subject. They have no idea who is borrowing and what the proceeds are invested in, what the rate is, ect. Its a mess. But it is a HUGE money maker for banks, investment banks, and private entities like money market funds depend on the repo market (connected to rehyo) to earn returns.

    Looking forward to doing more research. Fed is clearly clamping down on speculation with this tool- as can be seen in market performance.
    Mar 29 06:45 PM | 1 Like Like |Link to Comment
  • Yellen Opens Six-Month Gate [View article]
    You might be right Michael, but regardless, if they continue with the reverse repos, especially if they increase, then it doesn't matter. Friday was a 128B, largest to date. These reverse repos are far more significant as it relates to the market. They are pulling private sector funds from the shadow banking system where institutional investors borrow and invest w leverage. The QE dollars are different dollars all together.
    Mar 29 05:28 PM | Likes Like |Link to Comment
  • Yellen Opens Six-Month Gate [View article]
    Thanks Petersmond,
    Joseph Stuber is the only one that I know also writing about the reverse repo subject, and while I think it is having a slightly different impact, we are in agreement that this is sucking speculative capital out of the market. I think when you delve into repos, hypothication and shadow banking you lose a lot of people, but to me this is the major source of speculation. It is alive and well today, and it was THE leading cause of the last financial crisis. Yet no one seems to care. CNBC won't be doing a special on it, I can tell you that for sure.

    I intend to keep focusing on this issue, and writing a lot more about it as I come across more info. Thanks for reading.
    Mar 29 10:46 AM | 2 Likes Like |Link to Comment
  • Yellen Opens Six-Month Gate [View article]
    You are correct kimboslice,
    When Clinton signed the Commodity Modernization Act of 2000 as one of his last acts as President, at the bequest of Summers, Rubin, Greenspan, Gramm it opened the floodgates to what we have today. It gave us the Enron disaster for starters, but it allowed these investment banks to trade derivatives OTC and snowballed into the cess pool we invest in today.
    Mar 29 08:18 AM | 3 Likes Like |Link to Comment
  • Yellen Opens Six-Month Gate [View article]
    I don't think that any of them really know when our how they back out of this, but the reverse repo strategy is very stealth, and it has not attracted a lot of attention, except from shadow bank participants. It is putting upward pressure on short term interest rates, the reverse of QE, and limiting speculative market activity.
    Mar 29 08:15 AM | Likes Like |Link to Comment