Fed Reverse Repo Again?!

 

Hi everyone, 

It’s me, TUB. I will like to thank all my readers, new and old, for staying with me. Special thanks goes out to uSMART Securities for sending me tasty new year bak kwa and auspicious red packets. May we huat (Hokkien for prosper) together this year!

As you may or may not know, I have paying special attention to the Fed Reverse Repo agreement this year. Here are some key points to note. 

Point 1: There is still US$2 trillion on the sideline.

Point 2: The Fed Reserve Repo has fluctuated quite drastically. I’ve made content trying to explain when they were at milestone values of US$2.3 trillion on 29 December 2022 (Link here) and US$2.5 trillion on 30 December 2022 (Post here). Now that it’s at US$2.17 trillion, I figured we’d make content about that too. 

Source: Yahoo Finance

It is important to note that the drop in Fed Reverse Repo coincides with a rise in the S&P500 index as well as the values of many smaller cap companies. To me, this means that market liquidity is only temporarily out of the market due to the significant increase in Fed rate, which is a form of risk-free rate. Once the fed pivots, the funds will start to get out of this cycle and the market will resume its bull run.

This is reassuring for a contrarian like me, as it reveals a silver lining in the global pessimistic outlook. That being said, I do not encourage an all-in contrarian approach to investing. Instead, let us keep a balanced one and look for more indicators that might prove or disprove my conjecture.

Stay Tuned.

By TUB, Edited By Ram.