its dangerous when you think to yourself im right and the
mkt wrong.

You its true, you see what you want to see! I kinda agree with your analysis and we are a technical traders and clearly all major indices are making HH and HL but fundamentally I feel like worse is yet to come and for some reason I feel like Wall Street is setting up the biggest BULL TRAP in history which is why I am Short at this level and been holding the short since Oct 2022!

1y is at 4.4% + .10 this is about 4.5% loan to banks.

I think we should see a trap.. so am short term bearish this afternoon. But all of it fixed risk. With a 30-90 day window. The set up is there for a pull back, but in every strong advance there will be divergence showing up. you have to pick your battles with Randys calls. This divergence coupled with the proximity to trapping a huge number of longs and stopping out the last hold outs in the short camp i think is worth it. But 99% of my $ is earning 4+% interest until I can be convinced to go long for a couple years.

In hindsight we might look back and wonder why we didn’t buy with all the leverage we could get ahold of when QQQ retested of the 200dayMA while at the same time the Fed pivoted. Could have been the best buying opportunity of the next ten years. Otherwise, we really need to hope and pray for absolute economic destruction for Randy’s bearish thesis to play out.

Thanks for the info! Although I appreciate Darius Dale’s work, he is not a “trader” and I actually subscribed to his newsletter and lost money on every suggested trade. The BTFP may or may not be what we previously called QE, but it does indicate a massive Fed pivot, and that’s all that matters to the market. BTFP = “Buy the F–ing Pivot!”

To understand how BTFP does this, here are some its key aspects:

• When in need of capital, eligible banks (any US FDIC and some foreign banks) can borrow against their securities instead of selling them in the open market,
• Eligible securities are U.S. Treasuries and high quality mortgage-backed securities
• There is no haircut, banks can borrow up to 100% of the collateral
• That collateral is valued at par, not market value
• The rate is the 1 year overnight swap rate (OIS) plus 10 (measly) bps
• No pre-payment penalty
• Loan term is for 1 year
• No transaction fees
• Treasury is backstopping the Fed banks for program
• Program is in effect until at least March 11, 2024

In other words, there are no fees, no penalties, banks can pledge Treasuries and borrow against 100% of their face value at a cost of the 1yr swap rate + 10bps.
In finance, we would call this a sweetheart deal. So attractive as to be unethical or illegal.

ist week

BTFP takes the US Treasury-collateralized lending of a standard repo transaction, and adds in the money-out-of-nowhere mechanism of QE to create a somewhat non-infinite liquidity facility. This facility allows banks to come as they please and pledge their distressed, devalued USTs and MBS as collateral, receiving the full value of those securities in cash in return.
The Fed isn’t buying securities per se, but it’s preventing the forced selling of distressed securities by allowing banks to borrow cash well in excess of the value of those securities—that money is created from nowhere, and while it must be paid back, it still has the same net stimulating, risk-taking effect of introducing liquidity into the system that is characteristic of past Quantitative Easing (QE) programs.
Lending against devalued collateral at par is stimulative. Whatever you want to call this money-from-nowhere UST-collateralized loan program, financial conditions have eased. Given that it must be repaid, perhaps a better name would be Quantitative Teasing…
By lending against distressed, deeply discounted assets at par, the Fed and Treasury are flooding new dollar value into the system over the collateral value. It’s a standard repo transaction, that has the same value-creation effect of QE—stealth QE.

BTFP is big enough to theoretically cover all unrealized losses in the banking sector, some $650 billion, all of which can tap this facility unbeknownst to its counterparts. That’s right, the Fed and Treasury will not reveal who uses BTFP emergency loans until 2025 at the earliest. Remember the stigma associated with borrowing from the Fed we discussed earlier? Now banks have no way of knowing who’s in a fragile capital position, so they have no way of avoiding risky counterparties. The potential usage of this facility is staggeringly high, and neither the banks who deal with one another nor the public will know who uses it, introducing untold levels of highly dispersed, invisible risk to the banking sector, making an already fragile financial network all the more fragile.
QT won’t meaningfully continue—any further balance sheet roll-off is performative as long as banks continue to tap BTFP forcing the Fed’s balance sheet to expand on net. This past week saw the Fed’s balance sheet expand by $297 billion, effectively erasing half of the QT it’s taken nearly a year to complete:

https://thebitcoinlayer.substack.com/p/btfp-stealth-qe-banks-in-extreme

Please educate us, then.

Jeff, his explanation is ridiculous. Sterilized? loan? sorry, no.

https://twitter.com/i/status/1636373785774538753

He’s joking with you. But ultimately, this is not QE in the traditional sense. Darius Dale explains it in this in his pinned tweet: https://twitter.com/42MacroWeather

It had been 0.96 (96%) positive correlation during the big part of last 15 years, why wont matter now? You can compare Fed Balance Sheet and the SP500, check it out.

Nah dumping 500 billion into the system and telling banks and depositors of every kind they cannot lose no matter what they’ve done has no effect on asset prices.

That kinda worries me too!