These two graphs tell the story of what is going on in Washington. The Federal Reserve (the Fed) operates a facility called the reverse repo facility. Banks and mutual funds can deposit surplus cash in the repo fund and earn a % return on their cash. However, the Fed is slowly closing the door on this repo fund and directing banks and mutual funds elsewhere, namely to the Treasury General Account (TGA). The TGA is best thought of as the chequing account for the US Gov’t. It is vital that the chequing account be topped up now because the Gov’t needs the money to ensure Gov’t operations run smoothly. There is even the possibility of a Gov’t shutdown in January 2024.
Institutions that deposit funds with the TGA will earn around 5.5%. To ease the interest rate burden on the US Gov’t, the Fed recently did an about-face turn and suggested that rates would be cut in 2024. This will lower the interest rate bar and maybe encourage some people to put their money back into the equity markets instead.
Is there another reason the Fed did a U-turn? Indeed so. That reason is commercial real estate. A significant portion of US commercial real estate is facing the prospect of having to refinance its debt in 2024-2025. Colliers International, the mega property management firm, claims that in Los Angeles alone, practically all of the large office towers owe more than what their towers are worth if they were to sell here and now. And who has financed these loans? The answer is regional banks.
In March 2023, when Silicon Valley Bank (SVB) and others hit the skids, the Fed created the Bank Term Financing Program (BTFP). This was to be a 12 month program with a wind-up date of March 2024.
Look at the above chart. Does this thing look set to wind up in the next few months? No it does not. In fact it is still growing as regional banks reach for assistance as their commercial property customers teeter on the brink of trouble…
So are we headed for a total wipe-out disaster? Many pundits on YouTube will have you believe we are about to crash. I have a different take on the matter. I say we will see some panic very shortly, but this will not spell the kiss of death for the economy. In fact any angst in the near term will create a buy-the-dip opportunity.
Why do I say all of this? The answer rests with the planets and with the 18.6 year cycle of the North Node of Moon.
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