“It’s About To Get Very Bad” – Repo Market Legend Predicts Market Crash In Days | Zero Hedge
That said, as Pozsar concedes in his conclusion “QE4 – as much as it makes sense – won’t happen unless the Fed’s hands are forced.” By which he means there has to be a market crash for the Fed to do the one thing that can alleviate the banks’ terminal reserve problem.
The Credit Suisse strategist admits as much:
“not responding to potential stresses in the FX swap market with the swap lines, may be what forces the Fed’s hands. If it will take the swap lines to help RV hedge funds to roll their positions without the risk of fire sales, not encouraging their use preemptively can lead to fire sales where QE4 goes live as a clean-up “operation” with the Fed buying what the RV funds are forced to sell – and what they could have bought from dealers under normal circumstances as dealers have been politely asking the Fed since September, just like they were asking for a repo facility before that – and we know how that ended…”
In conclusion all we can say here is that 11 years ago, on September 5, 2008, ten days before Lehman filed, there were massive marketwide repo problems (recall the repo market froze in Sept 2008 and only a multi-trillion bailout by the world’s central banks prevented civilization collapse) and almost nobody understood them… with one exception: Citi’s Matt King did and he laid out all the problems in his iconic Sept 5, 2008, piece “Are the Brokers Broken” in which he predicted the collapse of Lehman. Ten days later he was right. Will Zoltan Pozsar be this generation’s Matt King?