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Thursday, April 26, 2007



the fed has spilled a shockingly huge sum into the markets this week by the reporting of the wall street examiner, driving asset prices higher today. speculation is circulating on what event the fed might be trying to inject liquidity to counteract -- bad economic data (possibly housing), large lender trouble (possibly housing-related), plans for a foreign central bank to back off dollar purchases or a hedge fund in dire straits.

the fed created over $30bn this morning, which directly fed a rally in equity markets which have been showing some signs of narrowing participation. and this comes on the heels of nearly $90bn in treasury debt paydowns following april 15, putting a surge of dollars into the market which the fed had actually been mildly counteracting until today. no wonder the markets have headed higher and the dollar has broken to new lows!

but it should be noted that the repo expires may 3, with an unprecedented $45bn maturing. whatever the event is, lee adler presumes it will break before thursday next -- and it should rattle investors.

UPDATE: followup from lee adler:

Oddly, the Fed reversed most of yesterday’s add today by shorting the 14 day rollover and doing a rare reverse repo on top of that. My guess is that they realized it was overkill with the way the market skied. But they left Monday’s 5 day forward, 3 day $18 billion repo in place. I suspect that this is a pre-emptive strike against what is likely to be a surprising bad GDP release tomorrow.

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