New Fed Repo Schedule/analysis for what it means after today (SPY, VXX)

by MiltDavis

In the midst of today’s storm, I am calm. Joyous even. Why? Because this weekend I signed up for the FED Financial Operations E-mail List Serve: the new FED repo was released this afternoon and will give us a shot in the arm heading into the close tomorrow and EOW. Here it is, and here’s some analysis/confirmation bias


My previous DD on the FED Repo schedule ( saw a connection between days of what became known on the sub as “double pump days” and rises in SPY. These DPD’s were going smoothly on Tuesdays, but last week we hit a snag in the plan. What was the issue?

The issue became no bids being entered for the Fed repos. Jerome Powell extended his gracious hand, and the banks poo-pood it! What does this mean? It likely means one of two things:

  1. After already taking issue with the rates and terms from when Repo operations began in daily capacity in the winter, there had been displeasure among the banks with the FED. This, combined with a new set of restrictive regulation standards borne of of the Stress Test Results, led banks to break from the Fed for Repo operations even if they weren’t necessarily on the financial footing to do so, needing to shun the additional liquidity based on terms.
  2. The banks saw the market—and themselves—doing so well now and in the near future from the recent euphoria that they balked at the FED’s increasingly aggressive rates.

Recent history leads me to believe it’s a mixture of the two with the second being the larger factor by far: the day they last offered a pump (repo loan) of 0 basis points on the overnight were 6/12 and 6/15, SPY increased 1.1% and .93% respectively. What’s even more notable is that these came after a drop of 5.7%—sheeeesh.(this will matter later)

Within last months Repo schedule, they weened the banks off of 0 basis points loans (literally free money) and started to introduce 5 point loans on 10 point days. This worked fine for a few weeks of double-pump-Tuesday bliss. But then last week, it failed and we dipped. Did the mechanism fail? No.

The banks refused to take the loans.

The FED was offering the lifeline while trying not to dive into more spending debt, and holding banks accountable through interest rates. Things were going well until today, and the banks likely thought they didn’t want—or need—the increasingly high interest rate loans of the FED.

So what now and why does this shit matter

Now they do need it. We are approaching tragedy levels today. As they did when they took the money after we dipped 5% the day before the last 0 basis points loans, they will take this money tomorrow. They need to take this money for two reasons tomorrow:

  1. Because the market will have a cascading fall affect if people link this to COVID numbers rising
  2. More importantly, banks have their earnings run this week. It’d be a debacle if they didn’t shore up financials with some swift loans amongst each other.

Banks probably will not be as frenzied to borrow the loans as they were when they were 0 basis points, but tomorrow is the first double pump of the new calendar and the 5 basis point overnight +10 basis point term operation has been a fine combo for them up until they got cocky last week. In addition to the two factors above re: banks need this fucking money, there is a big factor as to why this will shore up today’s losses:


I looked at each rollover date for new fed repo operation and GUESS what I found? On almost every rollover date—going back to last year when the operations weren’t even daily— SPY is elevated**.** Even more of note, almost all the rollover date were preceded by a dip. The only time the rollover date didn’t elevate SPY was during the March crash, which is a no-brainer. Someone smarter than me can explain why rollover dates lead to jumps in SPY, but I do not believe that’s coincidence.

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These factors lead me to conclude that this was a correction today, and we will come out of through the week leading into another beautiful Monday.

What could go wrong? Problematizing factors include: 1) the fact that the overnight repos are taking place in the afternoon this time around. I don’t know how that change affects things and didn’t have the time yet for that breakdown and 2) the beige book will be released this week, which carries some—but not a ton—of weight depending on if they’re glass half full or half empty and 3) talk about UI benefits and stimulus 2 may heat up a bit, and you know how Mango be

I will try to update here when I can, but do more stuff on my twitter of the same name because I can react quicker to news and such. For all the people who think I’m spouting permabull insanity, here’s a picture of the last time I played VXX last month so you can see my only allegiance is tendies. I have no quarrel with you bear folk.


We’re gonna be fine.

SPY 7/17 318c

QQQ 7/17 267c

My other short term positions if anybody cares:

AAPL 7/17 390c

HPE 7/17 9.50c

MRNA 7/17 75c

WMT 7/17 134c


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.


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