We struggle, says Williams, to see why repo rates will remain materially subdued from here, meaning they’re going up. Hey guys, Raf here from The Endgame Investor, and now Bloomberg is calling The Endgame. That’s right, Bloomberg, that financial newspaper we all love. An author named Alex Harris, who may or may not be a subscriber to The Endgame Investor, I doubt he is, but who knows at this point, has written an article talking about the endgame for repo market being banks, quoting some other banker who used the same term. What I’ve been saying here is that more and more repo has been used for the basis trade to arbitrage the difference between the futures price for treasury notes and the spot price.

And that has been going up and up and up every week, as more and more repo dollars have been used to fund this. And meanwhile, bank reserves, where the repo dollars come from, are falling as the Fed continues its quantitative tightening and its vacuuming of spare dollars back into the black hole of nothingness that is the Federal Reserve. So we’re going to see what Bloomberg has to say about this. They’re basically saying the same thing that I’ve been saying, except they’re trying to be a little bit less alarming about it. And so am I. I am looking forward to this.

I’m not that much alarmed by it because I don’t really know what’s going to happen afterwards, but it’s got to be better than this, hopefully. And here we are. Bloomberg banks likely endgame in quotes for repo market as treasury supply grows. Bullet points here, at least 200 billion more financing in a few years, Citibank. Overnight rates rising amid dealer balance sheet constraints. These two paragraphs here have the main point. The supply of new treasury coupons. Treasury coupons means notes and bonds. Treasury bills are not coupons because they don’t have a coupon. They don’t pay interest semi-annually.

The interest on bills is basically the difference between what you pay for it and what you get when it matures, whereas treasury coupons are from two years to 30 years and you get paid semi-annually in interest. So anyway, the supply of new treasury coupons, meaning notes and bonds, is expected to increase by over $3 trillion in the next two years, which means Wall Street will need to find another $200 to $400 billion of additional repo, according to Citigroup Inc. strategist Jason Williams, and a note dated August 23rd. With balances at the Federal Reserve’s overnight reverse repo facility, or RRP, which I talk about a lot, consider an alternative to T-bills or private market repo, potentially close to being drained, meaning RRP is potentially close to being drained.

We’ll see what that link is in a second on potentially. I have another article on that. Actual bank participation in the market is more critical, so meaning when the RRP finally runs out, it’s banks that will have to lend to the repo market or the repo rate will explode just like it did in September 2019, and that’s in the next paragraph here. That’s becoming all the more important for market participants who rely on the repo market for real-time indications of stress, like the ruckions. Ruckions, that’s a good word. I’m going to use that word more often.

Ruckions seen in September 2019, that was a ruckion. As the Fed gets closer to the end of its balance sheet unwind, already the overnight rates have spiked to unusual levels, because primary dealers are already stuffed with treasury supply, constraining their normal function as an intermediary in the market. Banks will eventually become the endgame as the marginal cash lender in repo markets. He wrote, I think this is the same Jason guy, right? Jason Williams. So Jason Williams is our new endgame investor. Congratulations. Jason Williams, welcome to EGI. If you’ve been reading this blog, I’m proud, though I would seriously doubt it.

But who knows? Given that T-bill supply, Jason continues, will be growing as well and likely utilizing some or all of the remaining RRP or reverse repo cash, we think bank portfolios will have to be tapped for reserves at some point. What he’s saying is, as I’ve been saying, when RRP finally drains out, banks will have to supply the repo to keep the repo market from exploding or imploding or whatever floating as it did in September 2019. It’s all the same thing. Now, check this out. Bank of America strategist last month estimated that banks, currently sitting at about $3.36 trillion of reserve stashed at the Fed, may have lending capacity of around $100 billion to $200 billion more, an amount that would only keep repo rates in check for a couple of months with larger treasury coupon auction settlements expected.

So $100 billion, $200 billion, they say it can last about a month or two or a few months, a couple of months. Well, let’s see. $100 billion, $200 billion in repo. So we have here the repo volume, the SOFR volume, the SOFR is the repo market. How long does it take to fluctuate $100 billion, $200 billion? Well, we have this figure over here. On August 26, $2.039 trillion were traded in the repo market. And on August 27, it was $2.227 trillion. Wow, that’s over $200 billion more in one day. So why is it going to last a couple of months? It can last maybe a day.

Yeah, we’re getting close here. Williams noted, Jason Williams, not sure when Williams, noted that domestic banks lent about $100 billion in December 2023, and the second quarter of this year as repo rates moved above interest on a reserve balance or balances or IORB. So what that means is interest on reserve balance is the interest that banks get for doing nothing with the cash. And when repo rates go above the IORB, which is 5.4, so basically when repo rates go above 5.4%, as we can see in this chart over here, if you look at the 99th and 75th percentile, anything above 5.4% will be lent by banks from their reserves, because they’d rather get 5.44% than 5.4%.

So anything over 5.4% is being lent by banks. And you can see here that the repo rate is gradually hitting higher, hitting the month end 5.31% over here than 5.33, 5.34, 5.35. This is the median weighted percent. We’ll see if we get to a new record here. And a repocalypse would be that this rate over here would jump to maybe 7, 8% overnight. Something like that is going to happen at some point soon. If we go into the second article here, it talks about how the reverse repo facility seems to be stagnating at $300 billion.

There’s a lot of technical crap in here, a lot of it that I did not quite understand. I’m going to try to go through this and try to decode it for endgame investor subscribers. You can check that link out in the description below once I figure this out. But what I do understand is the end of this article where it says, Cities Williams, this is Jason Williamson. Guy thinks it will be worked out over time, but it’s a slow process, meaning the whole repo market will be worked out over time and could not specify a timeframe.

What he’s talking about here is the reverse repos going to zero, being worked out over time. Meanwhile, it’s unclear whether repoits will stay at current levels going forward. Treasury bills supply, that’s what is the alternative to storing at the reverse repo facility, right? Giving it to the government so they can spend it on Ukraine and whatever. Treasury bills supply is expected to build up into the end of August, which should pull money market rates higher and draw more cash out of RRP. And here is the final sentence, which is pretty ominous and which is all you really have to know and understand.

We struggle, says Williams, to see why repo rates will remain materially subdued from here, meaning they’re going up. Hey, where’d these stairs go? They go up. Meaning the repo rates are going up. We are getting closer to the final apocalypse, which will lead to the final round of printing, which will lead to gold and silver going vertical and the end of the monetary system as we know it. That, whether they understand it or not, is what these Bloomberg articles are actually saying. But they can’t sound alarmist, though they can use the term endgame.

That is what they are talking about. For repo rates explode higher, check out monetary metals, where you can earn interest on your gold and silver. This is practically the only way to earn interest on your gold and silver in gold and silver terms. Monetary metals lends out your gold and silver to jewelry companies and other companies that use physical metal who need to hedge anyway. This is not fractional reserve, as other gold and silver schemes may be. Each lease is oversubscribed by about three to four times. So if you need your metal back, you can probably get it back anytime you want to be replaced with another client’s metal on the lease.

And if you don’t want to lend out your metals with monetary metals, you can always use the storage account and they will store your metals for free. Check out the link in the description below to open account with monetary metals. And I do have an account with monetary metals. And in my view, it is awesome. This video is also brought to you by The Dirty Man Save. If you do not want to lend out your metals and you would rather not hold it all with monetary metals, that’s perfectly fine. I also do not hold all my metals away from me.

I want some of them with me for the endgame and you can get, for that purpose, a Dirty Man Save. You can use the code Endgame10 at checkout for 10% off. You can see it in the flesh over here. This is the pipe. And if you open it up, you can see inside the Dirty Man Save over here. The reason I have this here and it’s not buried somewhere is that I can’t actually use this here because I got within a few feet of my backyard being bombed. And if that happens, everyone will be showered with melted silver coins.

And I don’t really want that. It’s dangerous and I would lose my silver. So assuming you’re not under aerial bombardment, The Dirty Man Save could be right for you. Use the code Endgame10 at checkout. This is Raf of The Endgame Investor. Wishing Bloomberg and Jason Williams and Alex Harris who wrote the article. A wonderful endgame. And I’ll see you on the other side. Thanks for watching. [tr:trw].

See more of Rafi Farber on their Public Channel and the MPN Rafi Farber channel.