Slosh Report

I just remembered that I hadn’t run a slosh report for a while and quite frankly I was a bit shocked when I saw the updated graph this evening:

• This table summarizes recent Temporary Open Market Operations. All values in $billions.
• The “Sloshing” columns (dark blue) show the total Repos that have been accepted but have not yet matured as of the date shown.
• This source of the data is the NY Fed web site.

What are Repos?

The Fed makes injections of Repos (Repurchase Agreements — usually TOMOs — Temporary Open Market Operations typically expiring in 1 to 30 days) into the market most business days.

Repurchase Agreements are loans (at Fed Fund rates) issued daily, in amounts typically ranging from U.S. $1 to U.S. $20 billion, by the Federal Reserve to Primary Dealers, the proceeds of which can be used to buy, for
example, Dow index futures, if the Fed seeks to boost the Dow. The total amount of un-expired Repos on any given day constitutes the “Repo Pool.” (i.e. the ‘Slosh’ shown above’). Monitoring changes in Repo Poll levels (which is publicly available information) is crucial to determining how the interventions might affect the markets (assuming you wear a tin foil hat like me).

While the Repo Pool is one vehicle for manipulating the markets it is not the only one – interventions can and do occur without changes in the Repo Pool. It now appears that The Fed uses TSLF injections and TARP funds to intervene as well – which is why you need to select the TAF option (you can leave out the TIOs).

My Take:

Ladies and leeches, that’s quite a significant drop and it’ll kick in next Thursday, right at the end of OPX. Unless I misread this graph – and it’s entire possible since I am not a credit market aficionado, so please don’t hesitate to correct me if I do – the Fed is ‘draining the swamp’ and thus I expect a considerable dislocation (i.e. large drop) in equities by the end of OPX week. BTW, this would also fit the time table Fujisan suggested today: Some more meandering this week and the next, maybe a little rally even getting us to 900-912 – after that the SPX falls off the plate and doesn’t find a floor until 800 or below (~7,700 on the DJI).

I would very much for you credit pros to chime in here – where’s Red when you need him?

Alright, I’m turning in – see you guys on the other side.

Cheers,

Mole