Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
we know when this moves, it can move very fast either way. Q1 report end of the month could get us there....or sink us.
Well, I really didn't expent fres to crack 800p but it has. It will have to stay up over this to be convincing though. Hopefully with inflation and recession prospects in mind, money will start flowing into PM miners once investors are convinced that gold will be more expensive rather than cheaper.
No just yet superc. It still hasn't broken through at the second time of asking. 3rd time lucky maybe. We will have to wait a week or 2 but meanwhile, PM miners especially Fres remain weak. I guess market is not convince plus silver is still sluggish due to the industrial elements. If there is a silver shortfall, we really need this to manifest and only then will silver and fres motor.
Meanwhile, Deutsche bank is looking like the next domino. Market doesn't even care if it is actually so I guess it is a case of panic first, ask question later which means there will be a run on DB.
During a financial crisis it could exacerbate instability with funds running out of riskier assets and onto the Fed’s balance-sheet.
There is no sign yet of a dramatic rush. For now, the banking system is dealing with a slow bleed. But deposits are growing scarcer as the system is squeezed—and America’s small and mid-sized banks could pay the price.
After all, why would a bank or shadow bank ever lend to its peers at a lower rate than is available from the Fed?
But use of the facility has jumped in recent years, owing to vast quantitative easing (qe) during covid-19 and regulatory tweaks which left banks laden with cash. qe creates deposits: when the Fed buys a bond from an investment fund, a bank must intermediate the transaction. The fund’s bank account swells; so does the bank’s reserve account at the Fed. From the start of qe in 2020 to its end two years later, deposits in commercial banks rose by $4.5trn, roughly equal to the growth in the Fed’s own balance-sheet.
For a while the banks could cope with the inflows because the Fed eased a rule known as the “Supplementary Leverage Ratio” (slr) at the start of covid. This stopped the growth in commercial banks’ balance-sheets from forcing them to raise more capital, allowing them to safely use the inflow of deposits to increase holdings of Treasury bonds and cash. Banks duly did so, buying $1.5trn of Treasury and agency bonds. Then in March 2021 the Fed let the exemption from the slr lapse. Banks found themselves swimming in unwanted cash. They shrank by cutting their borrowing from money-market funds, which instead parked cash at the Fed. By 2022 the funds had $1.7trn deposited overnight in the Fed’s reverse-repo facility, compared with a few billion a year earlier.
After svb’s fall, America’s smaller banks fear deposit losses. Monetary tightening has made them even more likely. Use of money-market funds rises along with rates, as Gara Afonso and colleagues at the Federal Reserve Bank of New York find, since returns adjust faster than bank deposits. Indeed, the Fed has raised the rate on overnight-reverse-repo transactions from 0.05% in February 2022 to 4.55%, making it far more alluring than the going rate on bank deposits of 0.4%. The amount money-market funds parked at the Fed in the reverse-repo facility—and thus outside the banks—jumped by half a trillion dollars in the same period.
A licence to print money
For those lacking a banking licence, leaving money at the repo facility is a better bet than leaving it in a bank. Not only is the yield higher, but there is no reason to worry about the Fed going bust. Money-market funds could in effect become “narrow banks”: institutions that back consumer deposits with central-bank reserves, rather than higher-return but riskier assets. A narrow bank cannot make loans to firms or write mortgages. Nor can it go bust.
The Fed has long been sceptical of such institutions, fretting that they would undermine banks. In 2019 officials denied tnb usa, a startup aiming to create a narrow bank, a licence. A similar concern has been raised about opening the Fed’s balance-sheet to money-market funds. When the reverse-repo facility was set up, Bill Dudley, president of the New York Fed at the time, worried it could lead to the “disintermediation of the financial system”. During a financial cr
An article from The economist that sums it up below. Economist probably is Pro Biden so I doubt they have a political axe to grind. Long and complicated explanation but the gist is the same slow burn.....
t is easy to understand how money gets destroyed in a traditional bank run. Picture the men in top hats yelling at clerks in “Mary Poppins”. The crowds want their cash and bank tellers are trying to provide it. But when customers flee, staff cannot satisfy all comers before the institution topples. The remaining debts (which, for banks, include deposits) are wiped out.
This is not what happens in the digital age. The depositors fleeing Silicon Valley Bank (svb) did not ask for notes and coins. They wanted their balances wired elsewhere. Nor were deposits written off when the bank went under. Instead, regulators promised to make svb’s clients whole. Although the failure of the institution was bad news for shareholders, it should not have reduced the aggregate amount of deposits in the banking system.
The odd thing is that deposits in American banks are nevertheless falling. Over the past year those in commercial banks have sunk by half a trillion dollars, a fall of nearly 3%. This makes the financial system more fragile, since banks must shrink to repay their deposits. Where is the money going?
The answer begins with money-market funds, low-risk investment vehicles that park money in short-term government and corporate debt. Such funds saw inflows of $121bn last week as svb failed. According to the Investment Company Institute, an industry outfit, in March they had $5.3trn of assets, up from $5.1trn a year before.
But money does not actually flow into these funds, for they are unable to take deposits. Instead, cash leaving a bank for a money-market fund is credited to the fund’s bank account, from which it is used to purchase the commercial paper or short-term debt in which the fund wants to invest. When the fund uses the cash in this way, it then flows into the bank account of whichever institution sells the asset. Inflows to money-market funds should thus shuffle deposits around the banking system, not force them out.
And that is what used to happen. Yet there is one new way in which money-market funds may suck deposits from the banking system: the Federal Reserve’s reverse-repo facility, which was introduced in 2013. The scheme was a seemingly innocuous change to the financial system’s plumbing that may, just under a decade later, be having a profoundly destabilising impact on banks.
In a usual repo transaction a bank borrows from competitors or the central bank and deposits collateral in exchange. A reverse repo does the opposite. A shadow bank, such as a money-market fund, instructs its custodian bank to deposit reserves at the Fed in return for securities. The scheme was meant to aid the Fed’s exit from ultra-low rates by putting a floor on the cost of borrowing in the interbank market.
poker, I am not sure commercial slow burn defaults will cause the sudden stress. Probably not big enough to cause a big crunch. what will happen though is that bondholders and investors will be very careful about lending to banks now which will further restrict their liquidity. Yes, feds is now printing to pay depositors but this is at 4.5% interest so adding more costs on top of their bad investments and lending. It will be a slow burn and it will affect the smaller banks where they have to give high rates to depositors hurting their margins. Maybe instead of Lehmann moment, it will be a small bank slow burn collapse. Anyway, this is all academic. Main thing is, gold is a good thing right now.
Feds have had their rate raising knuckles rapped and inflation is still raging.
Poker, I think you have missed the crucial point I am making. That is should there be a run on the banks, there isn't enough liquidity to pay depositors unless they take a loss on their bondholdings which hasn't been marked to market. It is exactly the same scenario as the LDI fiasco. There is no political motive with my post whatsoever. Just stating the fact that the capital requirements set by watchdogs isn't what it is all made out to be, should there be stress. I don't know exactly where stress is going to come from, if I did, I would be a super trader but for now, I would avoid bank shares. I have listed some possibilities of stress but god knows where it will appear from. This time around, things seem a lot less predictable compared to subprime which played out over quite a few months. There isn't one thing that that brings the house down. It seems to be number of possibilities but when it comes down, they find they are naked because the assets are not worth much when they have to cash it. Yes, very liquid but not worth the value.
Further on what I wrote, if bank's holding of government bonds are marked to market value, I am guessing every single one of them would be insolvent because the rates have come up so far so fast. (some gilts have dropped 60% in value in the space of a year). Their saving grace is that they can hold the bonds to maturity and it will get paid out in full so no losses incurred. Trouble happens when there is a bank run like SVB or a liquidity crunch when many loans miss payments. I guess the bigger the banks, the less likely of a systemic failure as the risks are more spread out.
Nevertheless, however you look at it, the whole banking industry is a house of cards right now and any wind will bring it down. Oil shock? War? Corporate fraud? Who knows.
My guess is, if feds do their homework, they will know how fragile banks are and will buy time so the bonds can recover in value (their value rise as they get close to maturity). Therefore I say, rates will be paused but they will talk up prospect of rises.
BTB, that is the most likely scenario. Effectively what they are doing now with the emergency lending against bonds at face value. This will just make the whole saga a slow motion car crash and does nothing to arrest inflation. Fact is, countless banks have already breached their capital requirement because the long term loans they lent out at ultra low interest rates have also dropped in value but there is no accounting for the value of their loan books.
I am just surprised that someone as smart and as controversial as Elon Musk hasn't tweeted that he has moved his entire liquidity into gold!
stevejones, Maybe. History also shown that after the whack, they go to record highs. Beautiful opportunity to trade. Bring it on....
Gold breaks 2000 and this pig is barely sprouting wings. No doubt held back by silver and general market diving.
News that some Credit suisse bondholders will be wiped out is going to seriously mess up the market liquidity. This saga has a while to play out yet. Who would want to lend banks money now? Banks could be staring at a new Lehmann moment.
When somebody shouts fire, buy gold because it is indestructable. No like long term bonds. LMAO
Lagarde raised the ECB rates by another 50bps. What do you think that will do to Italian bonds now that they are cutting taxes? The country with the highest debt in EU needs will to borrow more at even higher rates so I reckon Italian bonds will drop further in prices.
I wonder which european banks are holding italian bonds. German ones? French ones? They will be doing whack a mole soon matey.
All a big accounting con. Feds have loaned the banks money against face value of the long term bonds that are now worth half of what it was. Effectively, QE again. Just that they term it a loan, not an outright purchase. It is a magic show. QT brings on QE but shhhh, don't call it QE. Call it a loan.
Issue is, an asset that is worth less still needs to be accounted for. I wonder how many more banks are actually bust and how big the QE loans will be. I am not convinced and I think gold is going to the moon.
Let's see if the 1pm seller returns. If not, we could look to track PM prices hopefully again.
Back to the topic, market is clearly still not convinced. How do you do QT while there is a liquidity crisis and monthly rate rises.... banks have loaded up on treasuries that is supposed to be liquid but they have fallen massively in value due to rate rises. When customers want their money or when feds want to cancel them, they find a hole because they have to sell bonds that are now worth less. oops. I wonder if ALL banks are really marking their bonds to market linked to duration? If not, this will be a crisis many times of subprime. No point holding bonds that mature in 10 years if you have to pay depositors next month.
Bulk of the volume was after 1pm which indicates a big stateside seller.
don't you just hate it when this happens? Always make you think there is bad news to be announced.... melon twister.
56 billion sounds like sticking plaster to me. Once ECB jacks up rates again, their assets will drop in value and they will be in ****. Just kept on IV drip life support.... soon the swiss will be printing money to support their banks.... Let's see what happens.
Here's what I just realised. The SVB collapse is due to it using value of long term instruments to make short term lending. The LDI fiasco is pension funds using short term instruments to fund long term liabilities. Wow, you really can't make this stuff up. The way I look at this is, every institution that has mismatched liabilities in its books is under threat. Banks in both side of atlantic, pension funds, insurers, brokerages, exchanges.....
When will comex and LME get their reckoning?