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Every day I study stoic philosophy for a few minutes. I think this piece of wisdom is priceless and needs to be shared.

So many of us are chasing financial freedom that we think is only a trade, or a million dollars away, or whatever the number is. The problem is there will always be more that we want to chase; it is part of human nature. Paradoxically, the quickest way to wealth is to stop craving it. True abundance comes not from owning everything but from wanting less.

S2N Spotlight

I know the stuff I am focusing on this week is a bit heavy and not what you would normally spend time getting to grips with. Trust me, it is important. I am setting up an early detection section that is going to help us all in the long run. After all, it’s all about money, and understanding the plumbing of the money system is what it is all about.

When things go wrong, one of the first things to disappear is liquidity. So let’s keep an eye on liquidity. Since July 2021, things have changed at the Fed. There is no longer a daily repo auction. Instead, they use Standing Facilities with preset rates. If a bank needs emergency funding, it can approach the Standing Repo Facility and borrow at 5.50%, which is above current market rates. As you can see below, there is no current use of the facility, with relatively small amounts used over the last 500 operations.

The blue line represents the Reverse Repo usage, which represents where excess liquidity typically held by the money market funds park their excess capital.

In this chart we only look at the emergency Standing Repo Facility. I have transformed the y-axis into a log scale so that you can see the small amounts that are common with the larger stress amounts. We have only had one moderate stress event in the last 2 years.

My vision has always been to provide the information I am using to inform my thinking on the site to allow anyone to look for something they are interested in with up-to-date information. The content I am covering is extremely dense, so it is impossible to capture everything in the newsletter on a daily basis. It is for this reason that I believe strongly that the research portal needs to become a companion to the newsletter to get the most out of Signal2Noise.

As you can read in the summary below, there are no liquidity strains in the system at the moment. The only thing to note is the Reverse Repo (RRP) is now in the tight liquidity bracket, as it has come down from billions to under $200 million. The Fed’s intention is to bring this down to zero as part of its quantitative tightening program, at that point, the only balancing number is for bank reserves to reduce, which will put some liquidity pressure on the system.

I find this complex, I think because it is complex, but it is really important (Signal), so I will continue to build our understanding and ability to see through the (Noise).

S2N Observations

I once again will keep observations to a minimum so that I don’t overload. It seems that there is a divergence in inflation expectations between the US and Europe.
There are so many diverging economic data points being reported at the moment, I don’t think the market has a clear view on the trade war outcomes, as I don’t think the chief architect himself has a clear view on how this will play out.

The phrase that comes to my mind is “strong opinions, loosely held.”

S2N Screener Alert

The Dow Jones Global Index made an all-time high (ATH), as did the German DAX.

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