11 sats \ 3 replies \ @jp OP 18 May 2022 \ parent \ on: Reverse repo operation hits all time high... Again bitcoin
To my knowledge, this is the first time RRO have sustained such a high level - I think a lot of economists are stumped on this.
Basic thought is that there is so much excess liquidity in the market that the banks cannot stuff money anywhere else in the economy that they feel comfortable with - highlighting just how over valued every asset in the market is.
As credit dries up, all the zombie companies will be exposed and employees will find themselves quickly unemployed :/
Basic thought is that there is so much excess liquidity in the market that the banks cannot stuff money anywhere else in the economy that they feel comfortable with - highlighting just how over valued every asset in the market is.
In my opinion this means that assets are undervalued because the money and the liquidity is there its just refusing to invest currently. The money will enter the assets when it realizes that they are undervalued relative to the amount of dollars in circulation. So the way the market is currently valuating things is by assuming the amount of dollars is constant, but in reality trillions have been printed and because of this assets are still undervalued even if they are near historic highs. This is something the market does not yet accept which explains the current activity in the repo market.
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I would argue the opposite.
The current RRO market rate is 0.4% which means that banks are willing to lend out their money to the Fed at 0.4% - a lower interest rate than other assets (e.g mortgages, business/personal loans, etc.). If there were valuable assets to invest in, the Banks would be making loans out for the purchase of these assets (and not to the Fed)
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So im sorry for editing my post, but i only did it to clarify my point. But i see what you mean, the question is why are banks taking the 0.4% interest with so much money and why is the trend increasing? Imo its because they THINK other assets are overvalued simply because they are near historic highs? But when you look at the amount of money chasing that 0.4% then its kinda obvious that other assets are undervalued. Not sure if that makes sense
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