Impeachment, Liquidity Concerns Don't Slow Equity Traders, For Now

On Wednesday, he Fed conducted another in a series of overnight repurchase auctions (REPO) which was oversubscribed by the most since the operations began to be a daily fixture last week. Wednesday's overnight funding fiasco was for a maximum of $75 billion, but offers were up to $92 billion, meaning somebody didn't get ready cash for operations.

This is becoming more and more of a liquidity crisis, which, as learned from the Lehman crash of 2008, can readily become a solvency crisis, as Lehman and Bear Stearns before them both were forced into liquidation.

With the oversubscribed condition seemingly becoming worse by the day, the NY Fed quietly announced that the operations proposed last week - daily $75 billion overnight until October 10 and three $30 billion two-week terms - were to be raised to $100 billion overnight and $60 billion in the two-week auctions.

Markets seemed more concerned with making money quickly rather than focus on a looming issue or the impeachment farce currently making the rounds in Washington. For what it's worth, Wall Street either doesn't want to look or considers these events inconsequential. In the case of impeachment, they may be right, since the Democrats are pushing on a string in their flimsy argument that President Trump committed some kind of crime by discussing with the president of Ukraine some possibly-underhanded dealings by former vice president Joe Biden.

It's nonsense, as the White House has released the complete transcript of the two leaders' phone conversation and there is no quid pro quo element to it and the Bidens (Joe and his son, Hunter) were brought up by Ukrainian President Volodymyr Zelensky.

As far as the Fed's actions are concerned, traders are normally blind to the much larger world of bonds and credit. Doug Noland, a reputable bond and credit analyst (possibly the world's best) writes in his most recent credit bubble bulletin that the Fed's actions are a response to excessive speculative leverage, mainly in the bond markets, which have been whipsawed of late, but spilling over into equities and currencies - especially China - as well.

While the street may have its focus on near term profits and end-of-quarter positioning, real experts see nothing good from the Fed's reach for substantial amounts of liquidity and expect volatility to continue over the next month or more.

At the Close, Wednesday, September 25, 2019:
Dow Jones Industrial Average: 26,970.71, +162.94 (+0.61%)
NASDAQ: 8,077.38, +83.76 (+1.05%)
S&P 500: 2,984.87, +18.27 (+0.62%)
NYSE Composite: 13,037.61, +45.35 (+0.35%)