As a quick recap, to 03-06-2020, Fed TOMO is back up to ~ $175BN or 1.2x est primary dealer equity, which I’ve begun to update for new annual filings. This was after a brief peak up to nearly $200bn as the coronavirus-inspired panic began to hit.

Primary dealers look like they’ve de-levered by around 1x, presently to 20.1x, if trend holds with updated filings.

Never-the-less, inclusive of POMO, outstanding liquidity for implied asset support is now up to 3.9x est. primary dealer equity. This isn’t necessarily positive, as it’s an implied problem.

Note that all after-the-fact attributions are just that. The virus may be a catalyst but not likely the entire cause, IMHO.

Most worrisome of all to me in the immediate term is the cascade downward in US rates, including the 10-yr below 1%. That represents a ‘stampede’ to safety and has been an indicator of bad things for equities in the past.

As previously noted, watching the Fed outside of repo is important, and now we’ve got a red alert, which I think has contributed to the market nervousness.

[NOTE: the Fed was so behind in its emergency 50 bps rate cut, I entirely overlooked that when originally writing this note! Yep, they did. And they were way behind the market.]

Specifically, it appears the groundwork is being laid for JPM, and possibly other banks to head to the discount window once again. I’m not buying the b.s. argument it’s time to dispel the stigma. If you know what the discount window is for, you’ll understand why there’s a stigma. This is exactly what happened when Bear had collapsed and the Fed was backing up JPM to do the takeover. They lent to JPM through the discount window – which is part of my view that it was JPM that was bankrupt (along with many others) in 2008. Only JPM was too big to fail.

The Fed’s Randal Quarles made remarks on Feb 06, 2020 surfacing the issue: Quarles

Quickly picking up the football, JPM’s CFO commented on their recent investor day, they’d likely soon tap the window: JPM Investor Day – Firm Overview – Feb 25, 2020

Finally, the OPEC breakdown and ‘declaration of war’ in the oil market by Russia is a big negative for U.S. high yield and credit. That ain’t gonna help anything. The bulls argue it’s a discount for consumers. However, in my experience in financial markets, which is admittedly shorter than some very successful bulls, the negative demand implications signaled by lower oil prices are more weighty to me than any proposed discount to consumers or businesses.