The Bear’s “Liquidity” Fear. What Just Happened.

I have to say this was super Convenient

Bank of America just put out an update

on what actually ended up happening so

the latest Barefoot is liquidity and the

treasury general account needing to be

refilled or replenished in fact here's

even our boy Nate T over at the Wall

Street Journal who still hasn't

responded to my request to interview him

maybe maybe he's just not into the meet

uh if you haven't but but anyway so the

treasury Department provided a little

more detail Wednesday on how it plans to

refill the treasury general account

carefully following the latest debt

limit solution or resolution the

treasury now expects that its cash

balance will be about 425 billion by the

end of June basically what this is is

when the treasury has no money left

it's got to fill it back up

and it does that by issuing i o use

called bonds now when you hear about

bonds I just want to be very clear

replace the word bond with loan and I

promise you it will make a lot more

sense when you think about it that way

so to draw it out it's basically hey

treasury's like yo we need uh we need

another 400 billies okay

um how about you just issue like uh a

whole lot of these thousand dollar notes

uh and instead of calling him a note

we'll just call him a bond okay

roughly similar for the point of this

it's good enough okay and so we're going

to issue debt

the point is

somebody has to take cash out of their

bank account and give it to the treasury

Department right because if you've got

let's say Kevin and he's got his bank

account right here so here's Kevin's

bank account and I'm gonna go minus a

thousand over here the treasury is going

to get my thousand bucks and I'm going

to get this piece of paper so I could go

look at me I have this note I have this

Bond and I'm going to put it on my

balance sheet

and the fear is that this is going to

lead to some kind of liquidity drain

because then Kevin's going to be able to

spend less money on fuel to go fly

around or whatever it is that he does

with his dollars

so uh that would be concerning

potentially because that could mean less

earnings per share for companies right

potentially if the money comes from

Kevin or businesses or corporations if

the money comes from the reverse repo

facility

then it might not matter

at all and you might see no impact at

all

now to explain this in a more

sophisticated Manner and then to explain

the implications for the stock market

let's look at the way Citibank explained

it

in in simple words the last paragraph is

here what matters for reserves it

matters who buys the bills which are

like short-term loans

the fed's reverse repo facility sits at

a 2.1 trillion dollar cash balance with

money with with money market funds

consistently making up about 90 to 95

percent

if they are enticed to buy the t bills

and and earn the yield the impact on

draining Bank Reserves could be modest

so in other words if we use the reverse

repo facility to buy uh these bills then

maybe it doesn't really matter

however if corporations step in or small

businesses or overseas buyers or

whatever then that's potentially less

money that's going to end up going into

the stock market and that could create a

headwind for equities as Citibank

suggests here now

one complication here which actually

feeds into the bare narrative is that

but Kevin

if you're earning

five percent on the reverse repo and

you're getting paid out on this every

single night

uh you know one 360th because the

banking calendar is one 360th of the

year so you're making one 360th and 5

every single night and you basically

have you know pure liquidity here in the

reverse repo facility why would you

bother putting money into like a

six-month treasury bill uh well the

reason you'd want to put money into a

six-month treasury bill is because

surprise surprise you get paid a premium

well what is that premium well right now

it's about 44 basis points

in other words it actually makes sense

to move money from the reverse repo

facility

to the six month bills because you're

going to make more money

now if you end up using uh these uh or

or rather if the six-month t-bill Market

we're only paying let's say

4.75 percent and you had to lock your

money up for six months why would you do

that when you could lock your money up

for a day and earn five percent

but now six months and earning five four

four that actually looks juicy so in

other words I don't know that it's

really a big deal that the treasury

general account needs to be refilled up

because there's plenty of incentive in

my opinion for picking up these these

six month T bills and maybe moving out a

reverse repost so simply put it's

probably going to be a big giant nothing

Burger but the Bears are still going to

use it as evidence for why the market is

going to crash at least until they can

come up with a better narrative now I

have to say this was super Convenient

Bank of America just put out an update

on what actually ended up happening this

week with liquidity this is an update

that came out just last night and here's

what they told us the federal reserve's

balance sheet arose by 3.6 billion

dollars and we had some small take-ups

in the bank term funding program a lot

of people call this buy the FED pivot

which knows maybe it's like a secret

signal they're sending us but anyway a

total lending increased a little bit 3.7

billies but take a look at this treasury

general account to begin rebound oh my

lordies overnight reverse repo facility

drops so what I recorded yesterday

actually two days ago was true about

liquidity expectations that everybody

and I've been saying this for weeks but

this previous clip that you just saw we

talked about a couple days ago and I'm

reiterating it here to show that hey

look

that's what we thought would happen with

the liquidity we would see hey there's

plenty of money to be made by these

treasury bills yielding 5.4 or whatever

and the reverse repo facility will

likely drop and that's actually exactly

what ended up happening as you can see

here the treasury general account went

from 29 Billy to 77.5 which is almost a

50 billion dollar increase so just

consider that for a moment about a 60

billion dollar increase what happened

with reverse repos well reverse repo

Arrangements dropped by 107 billion so

you are seeing that money move out of

reverse reboost and helping with these

liquidity fears and challenges that

people thought about so anyway here's

our answer and it's as expected which is

good news because again we you know

we're looking for bearish arguments and

once again this is not now I want you to

know this when it comes to AI time is

what's going to make you money and if

you can prove that value to an employer

you'll always be able to be employed so

this is another way of making sure that

you don't get replaced

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