As the President of the United States of America parades around Twitter screaming things like, "Are you enjoying these stock market all time highs?! Are you all boned up about this rocking economy?! Are you tired of winning?!", the powers that be are testing the waters of public perception to see just how much they can get away with. To see just how far the public will bend.
In the initial wake of the repo market spasm in mid-September many were curious as to who was in need of liquidity. A couple of months later the BIS came out and pointed the finger at hedge funds on the brink of "LTCM-like" blow ups as the driving force behind the demand for overnight liquidity. If the Fed didn't step in and start injecting more than $400B into the overnight repo markets over the course of the last four months it seems we may have witnessed a culling of over-levered funds.
Your Uncle Marty was a bit perplexed when it became apparent that hedge funds were the entities in need of massive amounts of liquidity at the Fed window because he always thought the window was only open for banks and securities dealers designated as primary dealers in the Federal Reserve system. After consulting some friends, I was assured that this was, in fact, the case. The primary dealers simply act as a buffer between the Fed and the hedge funds that they service in an effort to maintain the veneer that the Fed isn't picking winners and losers.
Well, this primary dealer buffer must be hindering the flow of the Fed's attempted liquidity injections because some people want to remove it and hook the hedge funds up with direct access. At least that's what this article written in the Wall Street Journal this morning seems to be arguing for. Quoting unnamed "analysts" and hedge fund managers who I'm sure have no overt incentive to posture this way. Apparently this is one of the few tools the Fed has in it's tool box to combat the consequences of its decades-long monetary experiment.
After reading the above blurb, I was half expecting Ashton Kutcher to knock on my door, ball tap me and scream "Punk'd!" in my face. If these rumors are true, the conspiracy theories about the Fed propping up markets will be pretty hard to deny moving forward. They would be directly funding margin trading for these risk takers.
Find sanity in sats.
in b4 the Fed comes out and says the Journal wrote a story with bad sources.
Pumped for a haircut this week.