There is apparently no bottom to the well of idiocy in the Biden* regime.
Some were quick to mock repo guru and former NY Fed staffer Zoltan Pozsar when he warned that the unexpected western blockade of Russia had the feel of a Lehman weekend, because virtually nobody had any idea what the forced exclusion of a G-20 economy from the global financial system would lead to. In fact, just yesterday Jerome Powell admitted that he had not been consulted, suggesting that arguably the most momentous financial decision in modern history has made without consulting the single most important financial person in the world.
However, it appears that while Pozsar may have been ahead of the curve, as usual, he was not wrong, and today the all important FRA-OIS indicator of interbank funding stress (and money-market risk) is surging, and at last check was above 37bps, up a whopping 12 pts...
FJB: "What about the Fed?" KLAIN: "Who cares? It's just a bank, right? OUR bank, right? So what's the worry??" FJB: "Oh....yah.....great. What flavor ice cream tonight? To Hell with Lent--that's for actual Catholics."
There's a fairly technical essay at the link. Skip all that stuff and look at the chart at the bottom. Here's the text you should know about:
...a blow out in FRA/OIS means that dollar funding is becoming increasingly problematic, and absent a sharp tightening in the Libor-OIS and FRA-OIS spread, while bank credit concerns may not have been the catalyst for the sharp spike, it will be banks that are eventually impacted by what is increasingly emerging as an acute tightening in short-term funding markets and/or a global dollar shortage. And in another indication that the FRA-OIS is indeed spiking in response to an ominous global dollar shortage - just the outcome Pozsar warned about and one which shouldn't be happening when factoring in the record endogenous market liquidity - we find that the average cross-currency basis swap is tumbling....
...if the FRA-OIS spikes another 10-15 points, the Fed will have no choice but to emerge from its paralysis and reassure markets that the financial system isn't about to experience another paralysis (oh, and unless the Ukraine war magically ends in the next few weeks, say goodbye to "six or seven" rate hikes this year)
Lock down that mortgage rate NOW.
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