The Federal Reserve's "Unlimited QE" has created excess liquidity in the market, and in order to eliminate this, a series of things will happen.

After just crossing the $500 billion mark on Wednesday, the Fed took in $534.9 billion in fixed-rate reverse repos on Thursday, another record high for the fourth straight day and the largest increase since June 3.

And why there is so much money in the market (liquidity), it depends on two aspects:

1. The Fed's unlimited QE program, which conducts quantitative easing of US$120 billion per month;

2. The U.S. Treasury continues to shrink its cash balance;

Here you need to popularize the reverse repurchase:

Positive repurchase and reverse repurchase are two means of the Federal Reserve's open market operations, which directly release or withdraw the base currency through an agreement with the counterparty.

Contrary to the open market operations of the People's Bank of China, the Federal Reserve releases liquidity through positive repurchase and reverse repurchase to recover liquidity. (That is, Laomei is recycling liquidity now)

Financial institutions holding large amounts of cash lend money to the Fed through reverse repurchase facilities in exchange for U.S. Treasuries as collateral, with interest rates as low as 0%

Overnight reverse repurchase is a shelter for market funds during periods of excess liquidity, and its interest rate acts as the lower limit of the Fed's interest rate corridor.

The surge in overnight reverse repurchase demand and acceptance is a reflection of excess market liquidity caused by unlimited QE bond purchases and fiscal stimulus after the epidemic.

But we must know a set of obvious data now.

As explained in the previous article, the reason why the US financial market is so liquid now comes from unlimited QE, and the more exaggerated point is that 120 billion US dollars are issued a month, and about 400-500 billion US dollars are withdrawn in the reverse repurchase market every day , A full four months of QE was withdrawn by the Federal Reserve.

One thing to know is that the interest rate on short-term government bonds is 0%, which means you can’t make any money buying them. Instead, there are spreads and handling fees. Is there no place for big funds to go?

Think about it, according to the analysis of analysts from major financial institutions, the interest rate on short-term U.S. treasury bonds may become negative. Deflation has turned into inflation. I have to say which link has the problem?

So many people are currently betting that the Fed will tighten its "quantitative easing" policy.

However, all of this will not change so quickly. After all, Biden has signed a new financial appropriation, and the new 6 trillion US dollars will go to the battlefield again.

The "quantitative easing" policy is only bad for U.S. debt and the dollar. You must know that the commodity market has always been negatively correlated with the dollar, so it will continue to rise? ? ?

And how do you predict the reaction of the outside world to the Fed?

Curvature's strategist Scott Skyrm pointed out in a report on Tuesday that the market does not currently expect the Fed's monetary policy meeting next week to raise IOER.

That said, the consensus expectation is that the Fed will not take easing action when the liquidity hoarded at the Fed is at record levels.

According to Skyrm's report, the market has two expectations for the Fed. First, from the perspective of federal funds futures, it is expected that the first monetary tightening will be in 2023;

Second, the spread between the repurchase rate of general collateral and the federal funds rate will gradually narrow in the next year. Now the former is 5 to 6 basis points lower than the latter on average, and it is expected that the two will be flat within a year.

Skyrm's conclusion is that there are only two possibilities for the Federal Reserve to make technical adjustments to the repurchase rate, one is to reduce QE, and the other is to raise ON RRP (reverse repurchase tool interest rate).

Because an increase in IOER would be equivalent to an increase in both the fed funds rate and the general collateral repo rate, the market priced in an increase in IOER (excess reserves).

The Fed itself discussed tapering QE at its meeting in April, and indicated the Taper path of market research, but it still has to wait for obvious changes.

Anyway, from the market point of view, no matter what the Fed says, the data will not lie, and the scale of reverse repurchase that refreshes the record every day indicates that Taper is approaching.

The interest rate meeting in June or July will be an important point. Judging from the experience of the last round of the Fed’s monetary policy tightening, it will generally go through the process of “sending a tapering signal—beginning to reduce QE—completely exiting QE—raising interest rates”.

The main reason is that the economic environment in the United States is too bad now. Although so much money has been sent out, it is basically rarely used in real money. Everyone uses it to speculate in stocks and coins. How can I have the heart to go to real money, let alone the epidemic is still going on.

After reading a lot of discussions about this on the Internet, the general meaning is that after completing the two goals, the Fed may start discussing specific implementation policies after a long time:

1. Vaccination rate;

2. Unemployment rate;

This thing will definitely happen in the end. It’s just a matter of time. After all, you need to know how much money has been printed in the past two years. Last year, the liquidity dried up. Now the liquidity is like a stormy sea. It is said that xx% of all US dollars are It has been printed in the past two years, not to mention that it will continue to be printed.

Wait for the news, after all, a decision has to be made, but now we are watching how other central banks play first, and the Fed has the ability to defuse bubbles all over the world.

Specifically, what is triggered, Baidu or google it yourself. (This is not super hair, it is too much excessive excessive hair)

Let's talk about the market.

The predicted market still lost to the weekend. This is the fourth consecutive week that the weekend has fallen. If you say there is no reason, there is actually no reason.

Just take one of the most interesting news of this morning.

This is actually because Yunnan has regulated mining. It feels like a good thing, but it turned out to be a bad news for no reason. Many people guessed that they didn’t even read the content.

Anyway, on the whole, let’s wait for zc in Sichuan. After all, Sichuan’s hydropower is really rich, and it’s a waste to not use it. Waste = shameful.

The current stage is killing randomly, not to mention copycats, the mainstream has gone crazy, especially the new coins.

There is nothing to say, as long as the contract is not opened, it is actually easy to talk about. At this time, it depends on whether the funds will return to the mainstream. If it falls by 90%, it can still fall by 90%, but the mainstream is different. If it falls by 90%, it can only fall by 10%.

Let’s continue with the band, buy when it falls, sell when it rises, and stop loss by 10% of the quilt, strictly demand yourself, don’t mess around.

Do a good job of position management by yourself. It’s not like you haven’t survived it. Those who survived are all talents. They speak nicely, look good, and the key is to make money.

|Risk warning

All articles of Professor Suo cannot be used as investment advice and recommendations. Investment is risky, and the risk in the currency circle is even worse. It is recommended to evaluate personal risk tolerance and prepare psychologically before entering the market.