Thread by @FedGuy12

Many think of Fed's BTFP as a liquidity injection, but it is quantitatively and qualitatively different from QE. I discuss why in the article. Thanks @EthanYWu for a clear and balanced article on the topic.

https://twitter.com/FT/status/1672121172455051264

@GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth The S&P was 4200 in February, it fell to 3800 in March when the bank failures began. And yes, the FDIC action (not the FED) resulted in a rally as cascading failures were taken off the table. The S&P rallied back to pre SVB highs in April, just in time for NVIDIA to guide higher

@GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth which is what gave you the rally. Liquidity is important, but you cant have it both ways. And unless you are seeing secret plans for stealth QE as fact, it is just markets being their usual irrational selves over the ultra short term, in this case 1 day options.

@point7five @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth Market beliefs and desires have always been relevant, no one disputes this. The Fed is NOT doing QE of any kind, regardless of he balance sheet behaviors for reasons outsside their control

@DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth The black swan event is no black swan event. Then the Fed tightens for years with no excuse not to drain liquidity. What a handful of tech stonks do is irrelevant. What credit does is what matters.

@GordonJohnson19 @FedGuy12 @EthanYWu First, You would have been lucky, not smart. It is true that taking bank failures off the table (so they can continue to boil the frog) was a market positive. So with the balance sheet now set to shrink by AT LEAST ANOTHER 2 TRILLION by anyone's estimate what should we do now?

@bitcoin_eagle @DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth Irrelevant to the Fed's balance sheet and rate path.

We will see what AI does or does not do. So far it is a really only a powerful search engine with Grammarly attached. Calling it a steam engine is rather hyperbolic. Either way, it doesnt impact the Feds plans for policy now

@bitcoin_eagle @DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth I got an idea. Ask Bard what happens to stonks if the balance sheet shrinks by a 1/3 and rates stay at 5% for 2-3 years. Get back to us.

@TSPsmart @GordonJohnson19 @FedGuy12 @EthanYWu But it doesnt make it QE. And that matters, because the balance sheet will continue to shrink. Stonks are irrelevant.

@bitcoin_eagle @DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth They said that about your steam engine too, right? And here we are at full employment.

@bitcoin_eagle @DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth It was your analogy, not mine. If you think AI stocks are cheap, good for you. Buy some.

@bitcoin_eagle @DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth Your point is?

@BartsQuandry @RJRCapital @DJ1978643 @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth March 2020 the UST market had a heart attack. The next one will kill it.

@GayBearRes @BartsQuandry @RJRCapital @DJ1978643 @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth Before ZIRP and QE, yes

@ADrunkenmiller @GordonJohnson19 @FedGuy12 @EthanYWu BTFP? 100BN? rounding error.

@Cessnadriver50 @DiMartinoBooth @bitcoin_eagle @DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu So is your horoscope

@KarrMilt @bitcoin_eagle @DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth They have told us their targets. Right now its between 4 and 5 Trillion with a few small moving parts. Its not about keeping stinks up, its about keeping the UST markets private. They really have no choice.

@OtherSide_AM @GordonJohnson19 @FedGuy12 @EthanYWu He is obsessed with finding moar QE coming from somewhere, somehow.

@Lisa00007369 @point7five @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth Its just cash going into money market funds. It isnt printed, it already exists. Moreover, it CANNOT be multiplied like bank deposits. MMFs offer only storage, not fermentation.

@RobertFantozzi6 @DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth After a decade of zero rates, outright Fed subsidies of UST/MBS investing with a 9T balance sheet and regulators turning a blind eye to the securitization of garbage assets(CLOs) by the Trillions what we need now is a good old fashioned liquidity trap.

@burner_mikes @GayBearRes @BartsQuandry @RJRCapital @DJ1978643 @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth The debt is really a rather simple issue. There are 50T in "dark assets" sitting the Caymans and the other havens just waiting to be confiscated. Don't kid yourself, they will be. This is how history and revolutions work.

@nashvillesam29 @nickbsr9 @Lisa00007369 @point7five @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth Some of it is indeed "printed." It's a modest 100BN a year (one month of balance sheet QT). Look, my point here (and DDMs too I think) is not that Fed monetary liquidity never increases. It is noisy. But there is no INTENTION to stimulate. It is OT QE. In fact it is the opposite

@nashvillesam29 @nickbsr9 @Lisa00007369 @point7five @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth not qe

@RobertFantozzi6 @DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth It was indeed a mistake. They know it now. Rule #1 If you are in a hole, stop digging.

@Lisa00007369 @point7five @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth So the answer is from the interest earned on the UST assets they own. You would be right to point out they printed to buy THOSE, but that was then. This is now. There is NO INTENTION to stimulate. So no QE. To not understand the difference is to not understand the difference.

@nashvillesam29 @nickbsr9 @Lisa00007369 @point7five @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth To be accurate, it WAS printed, back when the Fed bought the 9T in UST assets that are throwing off much more income than the RRP cost. The real answer is taxpayers. Got a problem with that? Good. Not yeh Fed's fault. If anything QT will make this abundantly clear.

@Lisa00007369 @nashvillesam29 @nickbsr9 @point7five @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth If I run over you by accident in the middle of the night when you are running without a headlamp that is different than when I shoot you in the head after hiding in your bushes. To not understand the difference is to not understand the difference. Fortunately the law does.

@Lisa00007369 @nashvillesam29 @nickbsr9 @point7five @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth The balance sheet is lower. Money has been drained. EVEN AFTER THE BTFP AND DISCOUNT WINDOW LENDING. Maybe it isn't as fast as some would like, but you cant say it isn't happening.

@Ivanovich2112 @BirSignup @DiMartinoBooth @RobertFantozzi6 @DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu No Fed put under junk loans. buy the ticket, take the ride.

@RobertFantozzi6 @DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth It sounds like your agenda transcends the Fed's current policy stance, articulated or otherwise. I'll leave you to it.

@RobertFantozzi6 @DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth The problem isnt the banks. The problem is the non-banks. As long as 2 guys and a Bloomberg can rent money and buy and s'structure' assets with ZERO regulatory oversight and Rating Agencies acting like street hookers markets will stay broken. The Fed is succeeding...

@RobertFantozzi6 @DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth in crushing ABS issuance, and as the FULL credit cycle plays out the losses in mezzanines (absent a pivot) will be so horrific investors will avoid them like the plague. and mezzie, no washee. This is the REAL Fed agenda. No AAA synthetic safety? Plenty of UST buyers.

@nashvillesam29 @nickbsr9 @Lisa00007369 @point7five @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth Feds.

@RobertFantozzi6 @DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth no mezzi, no washee

@RobertFantozzi6 @DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth Not this Fed. 10 years ago? Yep. Not Powell. Listen to him, he is telling you what he thinks.

@GordonJohnson19 @Lisa00007369 @nashvillesam29 @nickbsr9 @point7five @FedGuy12 @EthanYWu @DiMartinoBooth You must look at the CREDIT MARKETS overall. You think it's still business as usual? You are living under a rock if you do. AI Stocks? So fucking what.

@Lisa00007369 @point7five @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth They aren't pretending. Keeping cash in MMF RRPs where it cannot be multiplied sterilizes what are market rate payments. Everyone borrowing money can tell you those rates are higher, and will slow consumption and economic growth. To not understand this is to not understand this.

@S_Williams_Jr @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth Correlation is not cause. The BTFP was an effort to stop bank runs. It also suggested--to many--that the Fed's getting near terminal rates. They are. The modest liquidity itself is incidental.

@S_Williams_Jr @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth It is liquidity, yes. It is EXPENSIVE liquidity. Any bank taking BTFP money is going to have some splainin' to do (as Ricky used to say to Lucy) to shareholders and analysts on the earnings call they would much rather avoid. Again, the intention is not stimulate, but the opposite

@Lisa00007369 @CACryptoNerd @point7five @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth They don't need to. The back and forth "Hamlet" drumbeat is a distraction, meant to focus attention on terminal rates to keep stonks amused in a range so the QT can continue and keep attention away from the balance sheet. Well played so far, JP

@S_Williams_Jr @DiMartinoBooth @RobertFantozzi6 @DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu Its like oxygen. "Stomaching" what you are prepared to do to get it is beside the point.

@S_Williams_Jr @DiMartinoBooth @RobertFantozzi6 @DJ1978643 @RJRCapital @GordonJohnson19 @FedGuy12 @EthanYWu Yep.

@JUNKieBONDs @S_Williams_Jr @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth From the Fed? Yes, 2 years. From banks who take the cash? They are going to have to own up on the earnings call or get sued.

@JUNKieBONDs @S_Williams_Jr @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth Yes. But they were all forced to take the money.

@JUNKieBONDs @S_Williams_Jr @GordonJohnson19 @FedGuy12 @EthanYWu @DiMartinoBooth Probably a question getting seriously asked in boardrooms as we speak.