This week’s expected pressure stems from what Goldman Sachs said will be the combined gross settlement of $531 BILLION DOLLARS! Ha ha ha ha ha ha ha ha! On Bloomberg, syndicated by Yahoo, we’re going to be going through the article. But before we do, I wanted to answer a basic question that has come up in a few comments on previous videos on this channel. If you haven’t subscribed, subscribe now. If you have subscribed, don’t subscribe now because it would not do anything since you’re already subscribed. Or it might unsubscribe you because if you click the subscribe button when you’re subscribed, you unsubscribe.

So don’t click it, even if you really want to. See this button? Don’t touch it! But anyway, the question is, why is it if banks have $3.2 trillion in reserves, why are repos or banks, why are they short cash? What is going on here? And the answer is, because all those reserves are put in the derivatives markets, those reserves are dead debt. Debt that died since 2008 and on that the Federal Reserve had to buy so that the credit supply did not crunch and create a global monetary catastrophe back in 2008. So they had to eat all that zombie debt, eat all those dead bodies of debt, and they maintain themselves on banks’ balance sheets as reserves in a process that we could call monetary necrophagia.

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And so with that, let’s get to Goldman Sachs. Bloomberg, Goldman sees another overnight lending rate spike on record, Treasury, deluge. Goldman Sachs Group Inc. said U.S. money markets this week are heading toward what’s becoming an increasingly common month and ritual, sharp if brief, jump in overnight lending rates as Wall Street banks absorb a huge pile of new treasuries. How huge is that pile of new treasuries? This week’s expected pressure stems from what Goldman Sachs said will be the combined gross settlement of $531 billion. Of Treasury auctions on Thursday, the largest daily amount on record.

What happens then? A record slate of auction settlements coming Thursday will pull large amounts of cash away from banks just as they bolster capital holdings to satisfy regulatory requirements, threatening to reduce the amount that’s free to be lent out through overnight repurchase agreements. That last sentence, threatening to reduce the amount that’s free to be lent out through overnight repurchase agreements. That means that there will not be enough dollars ready for repo agreements. And therefore, the price of those repo agreements is going to have to go up in order to coax other money that’s earning higher interest rates out of those agreements to fund the repo market.

And that means the repo rate spikes. That’s a apocalypse. That’s what happened in September 2019. We’re going to go to this article, which is from Reuters from August 2nd by Jamie McGreever. The title is U.S. Treasury Futures in Uncharted Waters as Fed Cuts Loom. And before you ask, yes, it says unchartered. That’s not doctored in. And then I look this up uncharted versus unchartered. The phrase is sometimes encountered as unchartered waters. Unchartered is its own adjective, a word meaning not granted or issued a charter. But we sometimes see unchartered in front of territory or waters where one would expect to see uncharted.

The confusion is somewhat understandable. So I forgive you, Jamie McGreever of Reuters and your unchartered waters. But what is the point of this this article? And that is all of the reserves that the banks have. What are they being used to fund? All we have to see here is the first paragraph and then we’ll get to the next article. As the first U.S. industry cut in this cycle draws closer, it already happened. This is three months old. Long and short positions in the Treasury Futures Market and overnight repo lending volumes have never been higher.

So overnight repo lending volumes and interest rate, long and short positions, interest rate futures, long and short positions in the Treasury Futures Market. Those are two sides of the same coin because the repos fund the Treasury Futures Market positioning. And where are we in that? So we have here in Bloomberg, shake up in bond futures, stands to reignite burned Treasury trade. If we go all the way down to this graph over here, it says Treasury Futures Positioning. How investors stand overall in terms of 10 year future equivalence. So this is back in 2021. You see these lines are going down and down.

This is the amount of short positions in futures. Treasury futures is the amount of long they’re going to mirror each other because the short has to equal the amount of long. So it’s just going to be a symmetrical chart here. And you can see that we’ve gone from about maybe one million or less. I don’t know. I can’t eyeball that exactly. But we’re near 10 million contracts now. So the amount of open interest in Treasury Futures contracts, which is all being funded by repos in these markets, has increased by an order of magnitude since 2021, which means that all these repos are being used to fund Treasury short positions.

And what happens when there are no more dollars in the repo market to fund those Treasury short positions, they have to cover. And there’s an avalanche as they are forced to cover. They get margin calls in other positions because they have to sell other positions in order to cover their positions because they can’t get the dollars in the repo market. And imagine theoretically that a hedge fund that is short Treasury Futures positions now has a lot of real estate or whatever they have in their portfolio, mortgage back securities or whatever. And they have to sell them for dollars in order to cover their positions because the margin callers are on the phone.

You have a waterfall decline and who knows what assets, whatever is being sold by these hedge funds that cannot get the dollars that they need from the repo market. And so, yes, we’re an unchartered, uncharted territory. Goldman Sachs is calling it. There’s another repo crisis that is on the docket. And once it happens, the Fed is going to have to go back to quantitative easing and exactly what happens then. We don’t know. But the last time they did this, we were just a few months away from a global pandemic that conveniently or not forced the Fed to print for five trillion dollars, whatever it was.

And this time they’re going to have to print even more. And gold and silver are going to go wherever they go. It’s the dollar that’s going to go down. Gold and silver are going to stay pretty much where they’ve been for centuries. The question is, do you want to be on that slide on that dollar slide or do you want to stay stable with gold and silver? And yes, if most of the other people in this world are on the dollar slide and they go down, then it’s going to feel like we go up even though we are not really going anywhere.

This is Rafi of The Endgame Investor. Please subscribe to The Endgame Investor on Substack where you can get a more concise version of these videos because I feel like I ramble here since I’m a writer and not a broadcaster. But, you know, we all do what we can. And don’t forget, you’re a dirty man safe if that’s what you want. Endgame 10 at checkout for 10% off. And check out my Patreon for as little as $3 a month to discover why the Hebrew word for inflation is actually samas. I’ll see you guys soon. [tr:trw].

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