Excellent article. Similar idea was rolling around in my head, glad to see it articulated eloquently here. Would not surprise me if 2023 risk assets go through the opposite of what wall st commentators are forecasting: strong first half, weak second half.

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One other idea from others..."Pivot" Clarification, the pivot is not a pause the pivot is a pause + Reverse % rates. Question: Does this happen before breakage or after? Another point, some say the "Real Pivot" is what markets are waiting for....I say its that + QT rolling off...that should be ivo AUG23...TBD & 24 being an election year! Get your popcorn ready!

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Thank you for this fascinating report! Your explanation is excellent for a reader--such as I am-- whose interest in financial affairs is merely academic. My wife handles all the assets while I write novels and every now and then a timely blog or two on Substack.

Especially interesting to me in your very thorough report above is this: "Since 2008, authorities have transformed the system almost entirely, punishing banks with regulatory costs when they lend cash to each other in the Fed Funds market. "

Keep up the good work, Concoda.

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Jan 22Liked by Concoda

Thankyou! This is so helpful, highly educational and well written for people new to this area - like myself - to understand. Great piece :)

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So will money market funds break a buck when this vol scenario occurs obviously Fed would intervene in that scenario?

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Another possible oracle,

"The Federal Reserve can probably start to slow its balance sheet runoff once bank reserves fall to around 10% or 11% of gross domestic product, Fed Governor Christopher Waller said on Friday.

"We'll start slowing as we approach maybe reserves being 10% to 11% of GDP," Waller said at a Council of Foreign Relations event in New York. "And then we'll kind of feel our way around to see where we should stop."

In January 2019, Waller noted, reserves at the Fed amounted to around 8% to 9% of GDP, and "everything was working fine," though he admitted there are arguments that the level might need to be somewhat higher."

-- https://www.tradingview.com/news/reuters.com,2023:newsml_L1N3451XE:0-fed-can-likely-slow-runoff-as-bank-reserves-near-10-to-11-of-gdp/

This comment may be less off-the-Waller than usual for me. I say "oracle", because like the original Delphic oracles, we have to do much of the work of deciphering the utterance into an actionable plan, or at least find a chart to monitor, or maybe just add a horizontal line on said chart after guestimating a likely "%" or range of "%'s."

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Really interesting. Maybe a dumb question, but why is $2tn the threshold for reserves that gives the fed anxiety?

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Hi Concoda...

So, I have a question and thought you might be the person to ask.

Now, I'm not the sharpest tool in the shed, so keep this in mind.

How can the FED say they have a restrictive monetary policy when the big banks can roll up to the reverse repo window and seemingly walk away with 2 TRILLION in cash? Restrictive?

I guess the FED prefers putting the screws to "the Littles", but NOT to their patrons the Big Banks.

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With great thanks to @concodanomics for all of his great work. Here is our first summary for him, potentially saving readers up to 10 mins reading time to get a good gist of the article.


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