Good morning. Looks like I picked a great time for a trip out of the country! I am back and jetlagged and therefore blogging in the extreme early AM.

To get to the point, it’s not surprising we see futures down large here on any excuse, coronavirus or not, since the Federal Reserve has made good on its hint it would seek to reduce repo market support.

Reviewing developments since about week ago, outstanding support in the Temporary Open Market Operations (TOMO) has dropped substantially.

As of 02/21/2020 TOMO outstanding has dropped below the total (estimated) equity of the external Primary Dealer system, now 0.9x. This compares with 1.2x at 02/12/2020 the last time I ran an update before leaving. Recall it was already trending down. Falling rates in the treasury market were also consistent with a ‘growth concern’.

Repo Analysis Tear Sheet: 02/02/21

To try and guide more informed (and profitable) trading decisions vs reacting after-the-fact, one needs to generally seek to take the (correct) tails of the behavioral distribution. In this regard, I suggest now paying close attention to any coverage of special meetings involving Fed officials and and any breadcrumbs dropped in their further publications versus just watching the price levels of the indexes.

A note on timings of daily update calculations: Repo operations can vary somewhat by timing, even ‘regular’ ones. Generally, the TOMO repos get announced/published to the public (in full) by shortly after market open. POMO repos have been coming generally as late as 11:45pm. Therefore, I am withholding publishing any new calculations until after that 11:45 horizon in order to try and fully capture the days’ activity in one shot and not have any discrepancies from one day to the next. In the past, it’s been possible that numbers I’ve incorporated on a given day missed some of the activity later that day. This post concerns updates through end of last week.

I’ll share some thoughts specifically on COVID-19 (coronavirus) in a separate post. It’s serious, but not the end of the world. OMG! You mean, there’s viruses and sometimes new ones ’emerge’?! Call the press!

and don’t forget to bring a towel…

Good company in a journey makes the way seem shorter. — Izaak Walton

Thanks for joining me!

This is my spot for sharing all kinds of thoughts on various, seemingly random, interests.

If you’re of a literate inclination, you might be familiar with the inspiration for the blog itself, the wonderful author Douglas Adams. If you haven’t read his Hitchhiker’s Guide series of unique sci-fi comedy with a uniquely British bent, it’s never too late to put a smile on your face.

The Heart of Gold was a  fabulous fictional starship featured in the Hitchhiker’s Guide books, powered by an ‘Infinite Improbability Drive’, based on some absurdity empowered by quantum physics, which, when engaged, made the improbable possible, allowing the ship to simultaneously pass through every point in the universe and as a side-effect, hilarity nearly always ensued.

…it depends on what “The Hitchhiker’s Guide to the Galaxy” author Douglas Adams called the Infinite Improbability Drive. Exact descriptions of the technology are somewhat sketchy, as the power source essentially thrives on a blend of theoretical quantum physics and random, surrealist nonsense.

According to Adams, it generates the “infinite improbability field needed to flip a spaceship across the mind-paralyzing distances between the farthest stars.” The same technology, he explains, could also cause all the molecules in a person’s undergarments to leap simultaneously one foot to the left.

Other side effects include hallucinations, mutations and the spawning of enormous marine animals. Hey, everything comes with a price.

Robert Lamb “10 Fictional Spacecraft We Wish Were Real” 27 February 2012.
HowStuffWorks.com. <https://science.howstuffworks.com/10-fictional-spacecraft-we-wish-were-real.htm&gt; 24 February 2020

I thought it a perfect inspiration.