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Turmoil In The Repo Market
The Market Bull 2019

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The Market Bull – October 29, 2019

The major averages finished with small losses on generally positive data, though none of it was very significant. Speculation over the turmoil in the Repo market continues.

While more or less avoided by the mainstream media the action in the Repo market of late has left more than a few pundits scratching their heads. The official line is that the Fed “doesn’t know”, despite feeling the need to pump 120 odd billion per day. Somebody knows, the two most probable explanations are that some European banks, notably Deutsche Bank and a few smaller Italian banks have got themselves into a pickle. The other potential candidate is that negative coupon bonds are very hard to offer up as collateral for some sort of loan as the lender wants to be repaid, something of a challenge when the collateral requires the lender to pay the borrower. Given that fact that the bank or banks in question are studiously avoiding the Fed’s Discount Window, as their identity would become known, my money is on the first scenario. Especially when one considers the well documented travails of Deutsche Bank, exacerbated by negative yielding bonds and a number of smaller Italian banks like Monte Peschi and others. Time will tell of course, it always does. Additionally, the shuttering and gating of some prominent British hedge and managed funds, including Woodford and Invesco amongst others, for liquidity problems is another large red flag with shades of Lehman Brothers circa late 2007, early 2008 written all over it. Similar liquidity warnings by European Union or EU regulators are also making the rounds of late.

The CoreLogic Case-Schiller home price index advanced 2% in August on a year ago basis for the 20-city index. This snapped a 16-month losing streak for the series. Every metro area covered in this release, with the exception of San Francisco, clocked in price appreciation on a not seasonally adjusted year-ago basis. Phoenix (6.3%), Charlotte NC (4.5%) and Tampa FL (4.3%) registered the fastest year-ago price growth. On the flip side, house price appreciation was the slowest in Los Angeles (1%), New York (0.9%) and Seattle (0.7%). Additionally, prices declined outright in San Francisco (-0.1%). Lower interest rates and tight supply helped to drive the price gains.

Standard and Poors 500 Index closed at: 3,039.42 up 16.87
NASDAQ finished the day: 8,325.99 up 82.87
Gold ended trading at: $1,495.80 down $9.50


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