A major question at hand is year-end interbank liquidity.  Historically (pre 2007) demand spikes during the final two weeks of the year as banks close out their books.

How will this year-end unfold?  As widely noted interbank yields surged to around 10% from 2% in mid-September because of demand, a demand that was met by the Federal Reserve…aka the Banker’s Banker. This was the first time since 2007 the Fed had to intervene, an invention that is now occurring on a daily basis.

Yesterday the Fed announced its 42 day $25 billion repo was oversubscribed by a factor of two.

Most will agree the reason for the current demand is regulatory and technical in nature and the Federal Reserve is providing the much needed and required liquidity.

Many, including me, are concerned about this lack of liquidity and the perception a policy/regulation change must occur to resolve the issues.

I rhetorically ask are these funding issues a major reason for the massive short position taken by a noted and well regarded hedge fund.  Bridgewater has commented many times that they believe  the next issue the markets may face is a liquidity issue, the result of Dodd Frank, ETFs, and technology based trading that has all but destroyed vital infrastructure.

What will happen today?  Trade headlines are still dominating the markets.

Last night the foreign markets were mixed.  London was up 0.11%, Paris down 0.04% and Frankfurt down 0.17%.  China was up 0.03%,  Japan up 0.35% and Hang Sang down 0.29%.

The Dow should open flat as the markets searched for signs of progress in the trade deal.  The 10-year is up 1/32 ot yield 1.70%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.