The Problem No One Wants to Discuss

The problem here in one word…REPO.

Check this out.

In only the last four months, the FED has plowed over $6.6 Trillion into the REPO market. *

(*data made available on the public website of the New York FED)

Why?

The 24 Primary Dealer Banks – who normally make up the REPO market – have stopped participating.

Why, again?

Banks don’t trust banks.

The last time the FED intervened in the REPO market was from December 2007 – July 2010 to the tune of $16.1 Trillion.  It’s what kept the markets from completely blowing up.

Ironically (or NOT) these REPO loans have been made without any details being provided to representatives in Congress as to which firms are getting the money or what it’s being ultimately used for.

HMMMM!

Could it be that the FED – in a desperate attempt to keep interest rates from rising – is fueling a Ponzi-like rally in stocks?

Or maybe it’s another “look here, don’t look there” distraction head-fake to keep you from seeing the problem that no one wants to talk about.

The REPO problem is exacerbated because the central banks of the world are trapped…and they know it.

They’ve lowered interest rates hoping that it would stimulate their economies.  Instead, they find themselves backed into a Catch-22 corner:

• If they continue to lower rates, the big money moves to where it can get a higher yield.
• If they do nothing the markets will eventually force them to raise rates.
• And if they raise rates, their economies go into a melt-down mode.

The REPO market is following the same pattern it did in 2008…only this time it’s on steroids.

By the time you start hearing: “Who Could’ve Foreseen This Happening?” it will be too late.

Read about this in our January newsletter (HERE).

And sell your bond funds ASAP.