Repo Market

Watched a great interview on RealVision with Jeff Snider regarding the Repo market and there are currently some very strong under currents in the global financial system.

The repo market works as follows; basically banks loan cash over night in exchange for securities offered up by companies, the only metric the Fed tracks is if the interest rate breaks out and overnight rates did in a massive way.

A lot of BS in the press about "seasonal factors" (which are as predictable as the sun rising) causing the cash shortage. Jeff Snider understanding of the Repo market leads him to believe that the banking system has increased the quality of security that they are willing to accept to loan cash against overnight, Banks have the best visibility on the quality of the security being offered, and was was acceptable only a month ago, is no longer accepted. Similar to 2007 when CDO where no longer accepted in the repo market.

Banks are aware of what happens if the securities you hold aren't up to snuff, it put Bear Sterns out of business, and even though the Fed said that was a great success.

RV:If you're looking at it from an overview perspective, going back to 2008, the system was never ever fixed. That's the real point here is that there's really survivability at stake here, because that's what we saw. Bear Stearns went out of business. Yes, Bear Stearns was merged and as far as the Fed was concerned, that was a successful rescue. If you're a manager at Bear Stearns, you're a shareholder at Bear Stearns, that's not how you view it. You lost everything. The partners of Bear Stearns and shareholder of Bear Stearns, they saw what the downside of this is. That message was transmitted to all the rest of the banks. They understand post-crisis, there's no Fed behind everything, liquidity is shaky, you know what, we don't really want to do this anymore. Even when the repo rate is 10%, that's not really enough, because we're aware of the potential downside and the potential risks that could be out there. Oh, by the way the Fed isn't.

Another good reason to have exposure to gold and gold miners.