Now more than ever, banks, hedge funds, fudge packers, brokers, you name it, is leveraged beyond belief. All of them are autists buying everything they can on margin to make bank bro, and they don’t want to hold any cash because it’s not printing tendies. So they buy bonds, treasuries, etc. to print them small returns instead of holding cash. They are illiquid as hell.
When the market crashed, a lot of these guys, specifically hedge funds, got caught with their smelly panties down and were at risk of getting margin called or did get margin called and the whole fucking thing was about to crash down. The market would have went down another 25%. They had no cash and the repo market had no demand, because any cash that people did have, no one wanted to lend it out because the economy was fucked (still is). In short, think of a repo as when a hedge fund wants cash real quick to buy a call option on Tesla but all their cash is tied up in other equities. So they put the treasury bonds or any other securities on the repo market and they get cold hard cash through a repurchase agreement and make bank on their Tesla call and then give the money back to the issuer of the cash, plus interest.
So now, JP said how do I stop this free fall and get the markets back in order. I bring back demand for the repo market so hedge funds can get liquid again and start buying up equities with options and make a fuckin killing while all of us cheer on our girlfriends getting railed by their boyfriends, and cry about the lack of tendies from our puts.
So JP started injecting trillions into the repo market and hedge funds lended out their securities for loads on cold hard cash, bought equities hand over fist, and stopped the market free fall while making a shit load of money on the rebound. Win-win, the fed stopped the bleeding and got paid back on their loan because the hedge funds made bank on the bounce, and a win to the hedge funds because they were saved again from defaulting and now have cash (reserves) to play with and make even more tendies.
So JP stopped arguably the biggest leveraged/default crash we have ever seen next to the housing crisis overnight by directly engaging in repurchase agreements with hedge funds. Hedge funds/Pension Funds drive the market.
Now that hedge funds are liquid again, they will soon start closing their long positions and go short, because let’s be real, the economy is fucked beyond belief right now and hedge funds are in the business of making lots of tendies. Not much more room to go up, but plenty to go down. JP only stepped in to avoid the banks and hedge funds getting fucked, and once banks are fucked, no one gets any more loans and we all eat shit. Now that those dealers are liquid again, the markets should start to play out as they should when you have 17M unemployed in 3x weeks, no consumer activity, corporations maxing out credit lines about to issue stock at depressed values, and US oil going bankrupt.
So, hang on to those puts. Hedge funds love making bank bro, and the fastest way to do that is playing the downside. As long as the dealers (banks, hedge funds) don’t get too leveraged again and have access to cash, then JP is going to have to watch the market slow bleed.
Notice on Wednesday/Thursday we started to see some major drops and selling. That is hedge funds taking billions in profits and ready to reverse course for utter destruction. Next week we start the fall. You can count on it.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.