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%.


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