YouSaid · the spoken record

Joseph Wang

lines on the record: 111
first: 2022-01-14
most recent: 2022-01-14
sittings or episodes: 1
sources: podcast

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“There's the markets and there's the Fed's actual mandate full employment and price stability. So it will, I think, 40s will hurt the markets. Maybe or maybe not, it will cool actual inflation, but it has to do something. There's a political aspect as well. Fed only knows one thing. Maybe it'll work for me. So we'll hike crates.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“So, you think the Federal Reserve is behind the curve, and yet you think that for-rate hikes it will crash the markets. So do you think in between is Goldilocks? And it's like not too hot, not too cold.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“I think of it as just behind the curve as in the rest slow to act. That's all. That's how I perceive it to be. They're just slow to act. Listen, what's the defensive end bait for inflation? Where's inflation at now? Where are rates? Doesn't make any sense.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“I've heard the phrase behind the curve so many times, the Federal Reserve is behind the curve. They're hopelessly behind the curve. That's typically said by Hawks who want the Fed to raise rates. What do they mean when they say behind the curve? Do you think that, do you agree that the Fed is behind the reserve? And if so, do you think that, yeah, the Fed is behind the curve and it should. It shouldn't be in front of the curve. What are your thoughts?”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“You can hike grid, but there are some conditions for this. You can roll out yield recurve control and then hike grates that provide stability for the debt market. There's some guy in the ECB, some senior person in ECB actually mentioned this. So the ECB is like the Fed. We're going to hike first and then we're going to QT. And there's this guy in the ECB, senior person like, hey, maybe we could change that sequence. We keep QE and hike rates. So I think there's some understanding that when you change the interest rates, you are basically destroying the value of the debt market, which could be destabilizing. So rolling out your curve control, putting out a floor on the asset prices of treasuries helps do that in a stable way. Unfortunately, that suggestion was shut down very obviously by Isabel Schnabel, another very senior person at ECP.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“So it sounds like if you were the chair of the Federal Reserve, you would not hike rates as much as the Federal Reserve is indicating that it will and also what the market is pricing in. You would be more dovish.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“So there is a way that this can come out and be okay, but I'm not sure that's the way they will take, and not because they want to crash the markets, but I'm not sure that they understand the structure of the financial system enough to do the right thing.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Saying that the Fed thinks it well. I believe President Daly made something similar, but that's not actually how the plumbing works because the money in the RRP, it's owned by the money market funds, and they're not able to buy coupon treasuries. So the only way that money comes out of the RRP is either if there's more bill issuance or the people who are buying coupons funded in repo, which the money market fund investors can also invest in. So $100 billion plus QT is only possible in my view under one circumstance. That is the Treasury issues a massive amount of bills to take money out of the RRP to repay the Fed Treasury Treasury holdings. That's the only way. I was actually talking on Twitter today with someone who used to work on Treasury and he doesn't really think that they're that strategic and I agree with him.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Julian Brigdon has really very interesting theory. He said he was talking to an equity friend of his. He said, I can handle 1.5% overnight rate. I can handle 1.75%. And Julian said, I know the Fed knows you can handle it. That's why they have to go higher. Just really quick, because you mentioned the reverse repo facility, so there's about 1.6 trillion dollars in that facility right now where the private sector is lending money to the Fed. The Fed is supplying its collateral in a reverse repo transaction. Are you saying that a lot of that money would flow out during quantitative tightening?”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“I think aggressive rate hikes could destabilize the market. So that's clear to me. Maybe they want to crash the markets. I don't know. I mean, if you perceive markets as elevated, maybe that's part of your plan. So it's not always easy to tell what is a posse is fake and what is intentional. But I would think that $100 billion, at least $100 billion in QT, would be a policy mistake because it's not that it deflates risk assets, but it's potentially destabilizes the treasury market. And that's something that they never want to do.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“So I can see going forward that they misunderstand what they're doing. So Bostick coming out and saying that, yeah, we're just going to do at least $100 billion in QE. I can actually see them doing that because there's no one else telling them that maybe the market might not be able to digest this. Maybe the plumbing of the system doesn't work such that all this extra QT just comes out of the RRP. So there's really... Not a lot of expertise there that I see that could help them in areas like this, so that's why I think that you know this could be a problem going forward, especially at a time when they're doing so much in the markets. They're raising rates and potentially doing massive QTA.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Obviously, President Williams does not have that background, and I don't think the current civil manager has a very good understanding either. There's just that, not that knowledge. JPalton, I like JPAL. I think he's great because he's a common sense guy. He's not going to be like, I built this giant model that's basically fake. So he has good corporate finance experience, very pragmatic, knows that models are just for reference only. But I don't think he's ever had proper financial market experience.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Basically, an accident. He wasn't trying to telegraph anything. He just didn't know what his impact on markets was because he didn't understand markets at all. So the New York Fed had to issue a restructuring saying, yeah, we were just, you know, just talking, man. We didn't really mean it. So sorry about that. So he didn't have any experience in markets. And that's just an extension of, I think, what the broader FOMC is. They don't really understand how markets perceive them, understand, but usually there's someone there that can help them. Now there's not any more. So I've seen, I've heard Carolita speak many times in his background says it all. He understands how markets are perceived and how they work. Usually the person on the market, if there's not someone on the FOMC on the board of governors that understands this, there's someone from the New York Fed who can do this. Let's say president of the New York Fed or at the very least the SOMA manager.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“This is important because there's often a gap between how, let's say, a big quantitative model says and how the markets perceive. I'll give you an example. So President Williams, who's the current president of the New York Fed, is actually famous for not having a Bloomberg terminal at all. So right when he began his tenure at the Fed, and right before an FNOMC meeting, he basically went out and he gave this presentation to people saying, so theoretically, when If you're at the zero lower bound, close to zero lower bound and something bad happens, you have to cut rates aggressively, you know, not just slightly, but aggressively suddenly. And because he gave this right before NFOMC meeting, the markets interpreted as saying that the Fed is going to do something suddenly. And there was absolute turmoil in the short-term future straight markets. We got a lot of angry phone calls on the desk at that time. So, and that was...”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“So on the FOMC you have people with a variety of backgrounds and usually there's always someone that people consider to be the brains of the FOMC right now that's like Clarita in the past you can think of Dill Dudley as so both these guys they have a lot of experience with markets so for example Bill Dudley used to be chief economist at Golden Sachs then he headed the open markets desk and he was president of New York Fed Clarita he was at PIMCO for like over a decade so these people understand how markets think”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Joseph, my final question for you is a tweet you said you talked about Clarita, Richard Clarita recently announced he's going to resign from the Board of Governors of the Fed. You said Clarita was the smart market savvy guy on the FOMC, Federal Open Markets Committee. Now there is no one there who understands markets expect even more policy errors. So two questions, Joseph. Number one, what are the lack of knowledge? Like people who J. Powell, who have worked in markets for a long time, who have worked at the Fed, what is their sort of misunderstanding that you see? That's question number one. Question two is expect even more policy errors, what sort of policy errors? And what are the consequences?”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“I don't know if it's something that's super meaningful. But it looks like it's a promising technology and maybe they could expand it even more. So it's something that we definitely want to keep watching.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“That to me can also be done without the blockchain. It's possible not because of the blockchain, but because everything is on JPM's books. It's all one database owned by GPM. Whereas if you are doing like a repo transaction with someone else, then they would also be someone else's books involved. You'd have to send money to your clearing bank and who would have to send money to, let's say, someone else's commercial bank and so forth. there would be other books involved. I think that you could actually do intraday repo if just Without the blockchain, if everyone was on the books. So the innovation, so I think it's a really good application of crypto.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“I'm inclined to think it's the latter because intraday repo obviously great but so you basically from what I understand that you basically onboard yourself onto this blockchain you can put down your treasuries and get a treasury token and you can put down your cash and get a cash token and you can just make this transaction on the blockchain and”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Got you, got you. How are you making of it sounds like you're not too intrigued by ETH or USDC? How about JPMC? JP Morgancoin, an on-chain deposit token that JP Morgan is going to launch to conduct blockchain-based intraday repo. Is this something that has a lot of a use case or is it something that's just sort of there to generate a little news clip?”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Recently there was someone nominated Saul Marova to be head of the IFT of the control of the currency, which is our bankering regulator. So her vision, if you look at her papers, was to have a nationalized banking sector where everyone would just deposit money at the central bank. And Almarova and her friends who are smart and wise will just determine who gets all the loans and the money, right? Centralized command economy. Now, in order to do that, you're going to need a CBDC. So if that's your vision of the future, you need a CBDC. But Amarova was not, her nomination was not successful, so maybe that plan takes a step back and maybe we have less need of a CBDC. But just from a practical standard, I'm not sure why we need one unless you really wanted to change the banking system. I know you guys are heavy on blockchain. So maybe there are things about this that I don't understand. Full disclosure, I'm not, I am a no coiner.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Be a CBDC. I don't know the purpose. So you have people who would say that, but you also have people like, let's say Governor Brainerd, who would talk about. I don't really know the purpose of it. I suspect it has to do more with, let's say, Greater political visions of how we should run our country. If you recall,”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Whether or not there's a CBDC, I think this is ultimately a political question. So if you look at people who on the Fed board, you can have people like Governor Quarles, which would echo something that I agree with. That is, I don't see the purpose of CBDC. I mean, why? So for me, I have money in a commercial bank. I make payments instantly. It's great. In fact, I even get some cash back for my credit card. I send money, it's fast, and I never worry that my money in the bank will just disappear. The one time that 10 years ago, I log into my checking account and I saw somebody in Italy made a bunch of withdrawals. I called my bank and they immediately credited it back to me. So I've never had problems with the commercial banking system and it's guaranteed by the government up to 250,000.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“I don't really understand why there are stablecoins. I think of it as just kind of an unraped to go into the crypto world, the altcoin world, right? So it's an easy way to go from fiat to, you know, Stable coin, then from that stablecoin you could enter in the broader crypto economy. That's how I think of it as an on ramp. So whether or not it is meaningful to me depends largely upon whether or not people are very much interested in buying these altcoins.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Last conversation, we were talking about stablecoins, but unfortunately we ran out of time. I promised our audience that we'd get to it this time. Let's make good on our promise. How are you thinking about stablecoins, private coins, central bank digital currencies? I know that Jerome Powell yesterday made some comments saying that private private coins could compete with a central bank digital currency. How are you sort of thinking of that?”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Definitely something you want to focus on, definitely something worth focusing on, but it's not necessarily something to be alarmed about because you really don't, there are weird technical things that could be behind it as well. So like I said, it could be just someone that's bidding on tail risk, embedding bigly”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Not really the median expectation of the market. Maybe you have just some people who are making a tail risk bet that rates would be 1.5 and it just averages out when the median expectation is, let's say, 0.75. And so it just averages out to 1%, but that's not the median expectation. That's the average. You have these extremes. And so when you're just looking at that inversion curve, it's really hard to know what drives that. It could just could be a difference from the median and the average. So you have somebody just betting big at the federal screw up and just kind of buying that and betting that rates would be lower, which may not have been representative of the median expectation.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“So going back to, I think, what I discussed earlier, when you see what the euro dollar is pricing, let's say you have its pricing in, let's say 1% LIBOR one year from now. So that inversion was very slight. It was hard to say what that meant. That's what's in the price, but you don't really know the distribution. Maybe, for example,”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“So the URD curve futures are spot rates. So if you're looking at, let's say, 2025 March Eurodoll, what you're just saying is that what is the three-month rate at that point in March of 2025? That's what you're saying. It's a spot three-month rate. So that's not the same as, let's say, a three-year treasury, which would be a three-year term rate. That being said, they are related because out of the spot three-month rates, you can construct a swaps curve. You can construct a swap rate, which is, let's say, the equivalent of borrowing three-year term in the euro dollar market. So usually that's higher than the three-year treasury, and that what we call that is a swap spread. So that's how the two markets are related.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Okay, and to what degree do far, far dated euro dollar futures, 2023, 2026, 2031, do those futures trade much more like long-term treasury yields than short-term treasury yields? So are those outside of the control? I know that, and also, do you have any thoughts on the euro dollar futures curve going into inversion at about middle of December, maybe early December, and now it has since exited inversion do you pay, you know, does that mean anything to you?”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“I see right now that they usually have pretty good control of LIBOR. In extreme circumstances, let's say during March 2020, you can see LIBOR spiking and you can see them losing control. But listen, they brought out new tools, the FX swap, that basically immediately put a ceiling over LIBOR. So they have these tools. They don't always use them, but I think to say, so in the future, I think you're exactly right. LIBOR sulfur will be easier to control than LIBOR. In fact, they wouldn't even spike at all because of the San Antonio facility, so they would have more control, I agree.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Your dollars are basically Basically pot the policy. So Federally kind of controls that through expectations. So there's not going to be a change in its level of control. It's already there. So euro dollars are going to transition. So LIBOR, that's going to transition into sofa-based. So they've already sent a transition date. I believe it's next June. So from them that day forward LIBOR will equal sulfur plus, I think 24, 25, 26 basis points. something like that so that transition has already been set it doesn't really change the feds toolkit it just changes the reference rate so actually i'll take that back so it can have more precise tuning over silver than they could of of libor but um”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“And the euro dollar futures market as it stands today, I believe, is futures of the LIBOR, three-month dollars nominated LIBOR. So will the transition from LIBOR to Sofor put more of the offshore dollar system within the control, within the remit of the Federal Reserve since the Federal Reserve, as you mentioned earlier, can pin Sofia between a specific band.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Banks, you know, they'll buy it because of regulation and let's say foreign pension funds because the rates are positive and not negative. So it's, in my view, more supply and demand driven than Fed policy expectations. And of course, fundamental zoo matter. If you structurally have a view of secular inflation, maybe that impacts it as well. So it's a lot harder to say what I think than say the front end and the belly.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“You're right, so the 30 year, let's say beyond 10 years, that's longer term rates. Fed has less control about that because it's less about the path of policy. It has something to do with the path of policy, but it's hard to know what the Fed would be doing 10, 20 years from now. A lot of it has to do with supply and demand. That has to do with just the structure of the markets. Let's say you have a sovereign. Let's say sovereign people, sovereign investors need risk-free assets”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Within the Federal Reserve's control, too. I mean, there's sometimes, as you talked about in 2018, when the futures market, euro dollar futures market, did not buy that the Fed was going to continue to hike, right?”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“But to what degree is the euro dollar rate as well as the long end of the US Treasury curve outside of the control of the Federal Reserve? Tomorrow the U.S. 30 year is going to have some path and that path is going to have a relatively small amount to do with what FedCher pal just said. And if FedShare Powell wanted to have the 30-year bond pinned at 2%, that's possible via, I guess they could do it via yield curve control, but under the current measures, unless the Federal Reserve gets a lot more drastic and sort of goes Japanese Bank of Japan style, then the 30-year is outside of their control. I guess the two years within their control because it is a composite of rate expectations. But isn't that itself rate expectations not fully?”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“So there are banks offshore that create dollars and it's very large, but one, they are also highly influenced by Fed policy. And two, they are under more or less the same regulations as US banks. So, I mean, it's there, but... I don't think that it's particularly special or inflationary.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“So I think it does have. So when the Fed raises rates, it does have an impact on the banking system, not so much on the liability side through the Fed funds rate, but from interest on reserves. It mechanically sets the minimum asset return that can accept. So if you have a bank, you can always put cash up to Fed and earn IOR. So that's, I think, the direct impact the Fed policy has on banks. And that same policy is also transmitted to offshore banks. If you are Sockjin in Europe, yes, you are a foreign bank. Yes, you sit in Paris, but you also actually have a Fed account. So even though you are offshore, you are very much connected to the enthrap world. So, and not only that, you are under basically the same regulations that US banks are, slightly different, but Basel III is a global standard.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Now the thing about the dollar though, regardless if it's onshore or offshore, there's only one dollar rate curve, and that is largely controlled by the Fed. So let's say you are an offshore investor, let's say you are, let's say a Brazilian hedge fund manager, and you have dollars you want to invest, you always have the option of investing in U.S. treasuries. Anyone can buy them, right? So whether or not you invest in treasuries or let's say a local Brazilian company that issues in dollars is going to be benchmarked to treasuries. So there's only one dollar rate curve. And that's how the Fed controls not the dollar system, not just onshore, but offshore, right? Because they have the same rate curve.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“If you have international need for dollars, you will also have dollars created and lent in the offshore community. So first principles, dollars are created by the government and also by the commercial banks. So if you have because there's so much dollar need, there's also foreign banks outside of the US that curate dollar loans, which in turn create dollar deposits. Let's say I think according to the BIS, the amount of dollars held on the dollar liability, so dollar deposits mostly held on the balance sheet of foreign banks is about $12 trillion, so it's a very, very large.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“That's really important to realize that yes, there is a giant URDAL system outside of the boundaries of the US. So for more context on that, I would sketch out that what's special about the US dollar is that dollars are used in the US and they are also used abroad to a very widespread level. There are many reasons for this, one of them being, for example, global trade. Almost half of it is invoiced in dollars. So if you're a Japanese company and you're buying something from an Indian company, it's probably going to be in dollars. So there's basically a vast international use case for dollars.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Affects how much credit banks can create. Remember, banks create money, so how much credit they create has direct impact on the level of inflation. Now, if you go back in time to when the Fed officials were learning about the world, it was a very bank-centered world. So banks were the center of the financial system, how much money they create is very important. So adjusting their opportunity cost, adjust how much credit they create, which has direct economic consequences. Fast forward to today, banks are Banks are still big, but they're really not the same as they were. The capital markets are much, much bigger than they used to be. So you can think that the banks sit there and they, you know, they do their thing. They can't create as much credit as they used to because of regulations and so forth. They're much more highly regulated. But the capital markets have become a lot more important. And they don't really respond to effort because they can't really vest that effort anyway, but they can access the RRP, which is”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“You're going to have to price what you are willing to accept based upon what you can get in the reverse repo facility. So that's basically Fed policy moving outside of the bank beyond just the banking sector, but also through the capital markets, the debt markets. Focusing solely on effort, the only people who can lend in effort are banks. So it's very much a bank-centered motto of policy transmission. I am adjusting opportunity cost banks, which in turn”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“So in my view, the true rate that actually affects the market is the reverse repo rate, because that's the rate that everyone can almost everyone can access indirectly. So when the Fed raises the reverse repo rate, the money market funds basically are able to receive higher return, which they can pass on to their investors. So let's say they raise the reverse repo rate to 5%. So that means that me, I can go and I can access that rate indirectly by putting money in a money market fund who will then invest in the RRP, right? It's not precise. There are transaction costs, but that's roughly how it is. Now, that's the lens that of viewing the markets, the Fed's impact through both the banking sector and the capital markets, because the reverse repo facility allows anyone to go and basically indirectly access that. So if you are someone, if you're investing in corporate debt,”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Lower, they're going to lend more in repo. That's really all it is. It doesn't mean anything because really, and I mean this literally, there is almost no banks barring in effort because they need money.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Like I mentioned before, the AEFFR effort is a dead market. And I know this because when I was on the Fed, I had access to just everything whatever, everything, transaction-based data met with and spoke with basically everyone who transacted in that market. It really has no economic significance. Except to the few people Boomers in the Fed who think it's important. Unfortunately they have a lot of influence. So what it really is is that the home loan banks who are the only lenders in the Fed funds market, they have two investment options basically, Lenin Repo or Lendin Fed funds. The Fed funds rate is above so far, then they're going to lend more in Fed funds. When the Fed funds rate is”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“I didn't know that's how the Fed controls sofer secured overnight financing rate. So repo is when the Federal Reserve takes reserves and lends it to buys back a lend securities from the banking system, Reverse Repo is when the banking system has cash and they don't know what to do with it and they lend money to the Fed and the Fed supplies treasuries to the banking system. So that's how they have that banned. I wonder what is the significance of the spread between EFFR, the effective Fed funds rate, and sofer. Does that spread indicate anything?”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“That is the prequesti of having a reference rate. You have to be able to control it. And now they can do that. The second step, of course, is to make sure everyone uses sulfur. And there's a full corp press behind the scenes to make sure that everyone does use sulfur.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Treasury repo market is about a trillion dollars a day in transactions, very, very deep. So you get a very much a market determined rate. It was actually the cash transactions were actually very low post GFC, so it's true that you could not get a very good cash rate. So simply because most people were not borrowing unsecured due to Basel III, like I mentioned earlier. So sulfur is going to be the replacement for LIBOR that's already set in stone. Moving forward, it's going to be the replacement for Ephra as well. You can see this from a couple of reasons first The Fed has tools now to control sulfur completely. And on the bottom sulfur is a repo rate over a net repo rate. At the bottom of the range it has something called the reverse repo facility that floors sulfur. At the top of the range it has something called a standing repo facility where it offers to lend a limited amount of money at a set repo rate to the repo market. So now it has complete control over sulfur and that is”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT