The repo market’s ructions suggest underlying systemic failure. From Sven Henrich at northmantrader.com:
Rarely has failure been celebrated so much. But it is of little wonder after all, as all asset classes rose in 2019 in spite of slowing growth and flat to declining earnings. In religious debates the question is often asked: Why is there something instead of nothing? In financial markets the corollary question may be easier to answer: Why are markets higher on nothing? The answer of course being primarily: Central bank liquidity.
We’ve discussed the unholy alliance and central bankers being trapped at length, but there is a much more sinister truth lurking beneath, one of system failure suggesting things are not anywhere near as rosy as they may appear.
Indeed, the evidence increasingly suggests the Fed, desperate to fix a leak in the hull, is lighting the whole ship on fire in the process by blowing a historic asset bubble setting markets up to fail and on course for a massive reversion.
Why system failure?
Because 2019 has revealed a fundamental truth: Central banks can’t extract themselves from the monstrosity they have created and made markets dependent upon.
2018 was the only year since the financial crisis that central banks reduced liquidity on a net basis and it blew up in everybody’s face:
