The FED REPO Disaster & AMC Squeeze | The Truth

[Music]

hey everyone meet kevin here in this

video i'm going to talk about the

federal reserve some crazy things

happening with repos and we'll talk

about what i believe the truth is in

terms of what's actually happening

and i'm going to be very clear in terms

of what i do think we know with

certainty and what i don't think we know

with certainty so we'll go into that

and some of this will actually relate to

amc as well amc stock so

these things are all interconnected and

uh we're just gonna go through it piece

by piece so

the first thing i want to say is i'm a

little bit pissed with how the market

works because

you know there's a reason 70 of us

believe the market is rigged

it has to do with the fact that there

are so many rules and norms that

exist with hedge funds and institutions

that allow them

not to disclose certain certain things

like they don't have to disclose their

margin debt they don't have to disclose

all of their derivatives and they don't

have to disclose their short positions

timely

all these things are things that really

by default give hedge funds sometimes a

short-term advantage over us as

retail investors and it's one of the

reasons we kind of hate the hedgies

because

think about it like we have information

that we can publicly get and do due

diligence on right

but so can the hedge funds the hedge

funds can get that same due diligence

hedge funds on the other hand though

they know what they're doing and they

talk to all their friends

you know that's what happens come on

those wine and dine dinners they all

know what they're doing with each other

they have that special advantage of way

more information over us and and that's

really frustrating because

they have both they have the public do

dd they have what we research because we

post it all

which is fair because that's how we

share it around but then they also have

their own knowledge of what they're

doing internally and i think that's why

in the short term a lot of us

get very frustrated and it's like wow

this this game kind of feels raked

because

well in many ways it is and i i found

personally at least the best way

to deal with that sort of rigging in the

market and then we're going to talk

about the fed and amc

i just want to make this off my chest

i've personally found the best way to

deal with that is

quite frankly hodling like 98 of my

portfolio is a huddle portfolio i'm

holding my amc i'm

hodling tesla and tech and consumer

discretionary you know all my favorite

companies

i don't care so much about the short

term i know that in the long run

i can outperform these hedgies all day

long because they're trying so hard

trading every single day not to lose

customers i don't care i'm not beholden

to any customers

i'm not beholden to people depositing my

money with my fund right

so i don't have to play all these fancy

games and try to tell them about oh well

look at this hundred million dollar

algorithm we have and there's a whole

piece about that the other day about how

a company spent

a hundred million dollars trying to do a

uh

you know a special proprietary trading

algorithm and come on the algorithms

they work for a few months and they stop

working because people

other people reverse engineer it and

figure it out it's it's it's just a

messy place

so uh but what i what i specifically

want to say in this

is i want to talk about the fed and the

reverse repo rates because lately they

felt a little scary

uh and they've been a little confusing

and concerning to a lot of us so what i

want to do is

pull that up we're going to do that here

and explain a little bit of what's going

on because it's pretty important

and a lot of the reason this is

interconnected with the hedge funds is

because we think that

or mainstream consensus right now is

that oh this

this line going way up is a really bad

sign that the hedge funds are getting

screwed or something

shady's going on and uh let's have a

conversation about that so

uh the easiest way to do this since

we're on a phone is literally just to

point out my ipad right here which is

charging with this power block over here

but anyway this here is the overnight

reverse repurchase agreement chart now

i'm going to make this very very simple

in terms of what this means but all you

have to know right now

is that see how it's like really flat

over here

and then it skyrockets yeah it's

skyrocketing a lot

to the point right now of over 534

billion dollars on june 10th and this is

something that

is freaking a lot of folks out so let's

have a conversation about

uh what the heck this means because it

looks scary it's like oh my gosh

fed and in line going to the moon 500

something billion dollars

it kind of implies that oh my gosh is

somebody borrowing a crap ton of money

because because maybe they need more

cash

so so they can prevent uh basically

getting margin called on their amc

positions and

and because because they're borrowing so

much more money from the fed the fed is

playing the game against us retail

investors to screw us

and that sounds like a really like uh

you know enthralling narrative because

it's it's again it reiterates that

us versus them right like here's you and

me the average retail guy the dude with

the runescape shirt

getting screwed again and the feds

coming in to bail him out

so i spent actually most of the day here

going deep into the difference between

repos and reverse repos

what all of this means and uh and is

there a real

uh concern here yeah and if you know

partially there is we're going to talk

about that

uh but but what does it actually imply

so first of all

what does that line mean what happens

when that line goes up so the line's

going up we know that right

so the line goes up when banks

have too much cash now that sounds crazy

because it's like wait a minute wait a

minute

banks are supposed to have a lot of cash

i mean they're banks they're supposed to

have a vault full of money right

yes yes and no yes banks are supposed to

have a certain amount of money

but once they have too much money they

actually run

into regulatory limitations that say no

no

you can't be holding this much cash you

need to either invest it

or you need to lend it out so this is

where you could see some

governmental regulations sort of

manipulating how

banks might otherwise operate with this

cash so banks

have too much cash and when the banks

have too much cash they might call up

their customers and go hey yo

you want a credit line increase quite

frankly i've probably gotten four of

those calls

in the last three months it's kind of

nuts how they keep trying to throw more

money at me and i'm like no no i've

already got a seven million dollar

credit line with you chase

i've only borrowed three hundred

thousand dollars on it i don't need more

like i'm good i seriously i don't need

more of a credit line right now

uh and i just don't want to be tempted

it's part of my reason

but but anyway i think the banks are

just like desperate to get money out

there

but people aren't borrowing as fast as

they were last year and this is

evidenced by the

growth rate in margin uh or at least in

one way it's evidenced by that well

first of all it's also harder to buy

houses right now

it's harder to to spend money on things

right now because some things are more

expensive and people are holding off on

purchases

but if you look at the growth in margin

debt on stocks you'll actually see last

year

at certain points it was growing oops

sorry there at certain points it was

growing like

oh gosh five to ten percent month over

month i mean you had these

massive growth rates in margin

debt it was crazy how fast it was

growing in the last three months

we've had margin debt going up at the

rate of a little less than one percent

a little over one percent and last

reading was a little over three percent

so we're growing the amount of actual

like debt against stocks margin debt

at a slower rate than we were before

so uh okay this this gives us a little

bit of an idea of

what's going on with margin debt and now

we understand that banks have too much

cash so

what does this have to do with this line

well the reverse repo

line is actually a symptom of banks

taking the extra cash they have if they

can't lend it out remember i said they

can invest it

well something they can invest it into

that's pretty much

nearly as good as cash that's not a

treasury that might be losing value

you know a couple point like i mean i

mean like a couple basis points like

0.01 percent in in the open market you

might lose like 0.01 percent

uh like an annualized rate depositing in

something else right now

where where can banks put their money

that's technically invested

where they're not going to lose like

0.01 percent which on many hundreds of

millions of dollars is obviously

a lot well they can put the money into

money market funds

and money market funds have to have

their money invested in the market

or on deposit with the fed and that's

what they do they deposit their money

with the fed

they deposit their money with the fed

trading desk

and this is known as a reverse repo

basically they put the money in

and they briefly hold a different

security and they trade it back the next

day

it's the opposite of what oftentimes

happened now you don't have to

understand the entire repo process that

that does not matter so much

the whole point of this last like if if

you're confused about the last like

three minute discussion here

it's very simple banks got too much

freaking money

and we're going to talk about why they

might have too much money so very simple

number one

banks have too much freaking money what

happens when banks have too much

freaking money

they gotta put it into money markets

which can then until its place go into

the fed system

so the fed ends up with more of these

liabilities

and banks are putting their cash their

assets over at the fed

overnight and this number has been

skyrocketing recently

and one of the reasons it's been

skyrocketing recently

is because on march 31st the slrs

expired the slr requirements expired

these slr rules had to do with rules

that said banks needed a lot more cash

on hand

than they previously did because of

coveted risks so in other words

on march 31st well before march 31st

banks needed a lot more cash

and they needed a lot more treasuries on

hand they needed more reserves

when that slr went away banks were able

to say

oh we don't need as many treasuries as

we did previously because the

requirement went away so they could sell

their treasuries

have more cash and so now now they had

more cash

and more treasuries they got rid of some

of their treasuries now they have even

more cash

but wait a minute now they run into

other limitations that say wait a minute

you have to park this cash somewhere and

that's the big line that we're seeing

at least in my belief and what's crazy

is if you actually

look at the date of the line remember

those those rules the slr rules which

you don't even have to know what those

are it's just basically rules that would

have required

banks to have more treasuries and they

are able to

have less now because those rules

expired if you go right here

the line over here there we go

if we could just tap that there we go we

tap the peak over here oh it keeps going

away there we go

uh you'll notice it jumps right here on

march 31st

and so this was possibly this whole run

here

is possibly a symptom of banks holding

less treasuries having more

cash and when they have more cash they

hit the limits of how much cash they can

hold

and they have to throw it into the fed

money market system or the money market

system which throws in the repo system

so

full recap here and then i want to get

to some bottom lines all right

full very quick recap bank's got more

cash they can't lend it out as fast we

talked about the evidence that we could

look out for why they can't lend it out

as fast talked about margin debt

we taught we know banks have a lot of

cash we know that the amount of

treasuries banks needed to hold

has uh has substantially dropped because

reserve requirements

have fallen which allowed banks to dump

treasuries which means they have more

cash

so bottom line is banks have a crap ton

more

cash and this reverse repo system

is kind of like a buffer valve it's like

okay well if you got that much cash put

it over here

for now you know it's it's kind of weird

and funky how it all works it

it feels odd and this is also

exacerbated by the fact that the federal

reserve recently

increased the amount of people can

actually or amount of money people or

banks

or institutions could actually put into

the repo system

previously there was a limit of 30

billion dollars and now it's up at

60 billion dollars and keep in mind

right now on this chart we're somewhere

around

500 no actually the latest reading here

is

479 billion dollars but it went as high

as about

534 okay but anyway

what else like how else does this relate

to amc so the most important thing to

know

is that this chart does not mean

borrowing

it's literally banks taking cash parking

into money markets would show up here

it's banks having too much cash that's

what this means

now some folks say well kevin isn't it

possible that

hedge funds could be getting dreamed

right now because they deserve to get

reamed

and that they got to come up with more

cash and so they're having more cash in

the bank to offset

their marginal requirements

marginally possible hedge funds on

average statistically this is researched

hedge funds statistically hold 15 of

their money in cash

not more the other things that they can

do

is they can buy positions with the

opposite betas of whatever they're

trying to hedge

so for example if you have uh a a tesla

with a beta of

two against the s p 500 or even the

nasdaq you might buy some bitcoin with a

beta of of 0.4

it's it's a way to beta hedge basically

it's a way to offset

uh the risk in your portfolio and so

with amc

for example if somebody had a lot of amc

short

positions they could hedge that position

by potentially buying

some shares or even buying calls and so

there are other ways

to hedge your position other than just

having cash and ways that would actually

be

acceptable for margin maintenance as

well we don't get the best margin

maintenance rules

you know hedgies they get to use

derivatives as margin maintenance we

don't

you know in most cases we don't that is

uh and again another example of the

system kind of being a little rigged

here so

right now the fed is saying look the

process of reverse repos is working as

intended now maybe they're lying

through their teeth and they're just

total scumbags here okay

but if you followed this i understand

it's a little more high level

uh and look trust me i'm by no means an

expert on it

i've done a lot of research on this not

just today but in the past

as well i feel like i have a grasp on

what's happening with reverse repos

but i know enough to know that i don't

know everything but i do know enough to

say

that that line going up it ain't

borrowing i also know enough to say

that we can't say with certainty

that those are hedgies uh depositing

more money because they're getting

squeezed and they're getting screwed and

it's just a matter of time before it

blows up in their face

i wish i could say with certainty that

was true

but i always want to be very truthful

with my audience i cannot tell you that

is with certainty

true because i don't have the facts to

substantiate that

because hedge fund disclosure laws

aren't freaking transparent enough and

there's very little for us to look up

uh that kind of information and that's

that's what's very frustrating

and so two things that we got to

remember here bottom lines

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you'll think like i do too you'll change

your entire psychology in terms of

perspective of

what what's actually happening out there

in the world okay the next thing to

remember is

the easiest way to beat the hedgies is

just total

huddle and minimize your debt because if

you minimize your debt you're not going

to get squeezed out if you huddle

who cares what the number is do you have

more shares today than you had

previously or do you have less

that's the most important thing in my

opinion so there you have it

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no i cannot say with certainty that

these are hedgies trying to screw us

uh this is not borrowing i want to make

that super super clear the line going up

is just a symptom of too much

cash and now oh is it possible that

that's because of

inflation yeah yeah

uh well there are two definitions of

inflation though remember that

one definition of inflation is the

expansion of the money supply

yes the money supply has been

substantially expanded

so yes yes expense expansionary

or the expansion of the money supply aka

that form of inflation

could mean or or be the reason why we

are seeing the substantial boost

in uh in reserves over on repos in fact

if you take a look at this reverse

repost take a look at this chart right

here

u.s factors absorbing reserve funds

treasury general

basically this is the checking account

of the treasury department

and the checking account of the treasury

department is actually going

down as that is their balance is going

down as they're spending

more money they're putting they're

injecting more money

into the economy uh and uh as they

inject more money into the economy that

money shows up at banks

so it's actually more possible that we

have this repo figure this chart going

way up

because the treasury department is

getting rid of their money they're

pumping their money into the economy

which shows up at banks

at the same time the slr

rules expired allowing banks to have

less treasuries which mean they could

have more cash but then they hit this

other limit of having too much cash

and so now you got both of these factors

and less borrowing a third factor

leading to ah crap

all right i guess we'll throw it over

into the reverse repo market

see what i mean so again bottom line

number one huddle huddle huddle huddle

that is your best opportunity

now bottom line number two this is not

borrowing

and we cannot say with certainty that

these are like hedgies trying to like

come out and wreck us although we know

that that's what the hedges are trying

to do

that line going up is is in my opinion

not a related

symptom it's it's certainly not it's

suspicious

but it's not like bottom line evidence

right

okay that's very important to know

hopefully this helps you

hopefully you appreciated this insight

and hopefully you made it to the end if

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thanks for watching folks we'll see in

the next one bye