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goldminingXpert (29.41)

TARP Funds Repaid

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June 09, 2009 – Comments (32)

Roughly $50B in hard dollars are being returned to the treasury in the coming days. Where do you think the dollars are sitting while they wait to get repaid? If you said stocks, give yourself a pat on the back.

32 Comments – Post Your Own

#1) On June 09, 2009 at 11:36 AM, devoish (98.66) wrote:

Excellent, now lets see them refund the taxpayer cash received from their own lack of due diligence in the Fannie, Freddie and AIG guarantee situation.

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#2) On June 09, 2009 at 11:51 AM, goldminingXpert (29.41) wrote:

By comparison, there is $60B of net assets in SPY--the behemoth S&P index fund. Thus, we can expect to see the equivalent of all of SPY leaving the market in the next few days.

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#3) On June 09, 2009 at 12:02 PM, goldminingXpert (29.41) wrote:

If it came out of bank reserves, each dollar there can fund many dollars of lending due to fractional reserve system so if it was pulled out of reserves, banks have $100s of Billions less in net effecitve lending capacity. Either way, um, it's a GREEN SHOOT!

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#4) On June 09, 2009 at 12:13 PM, degaston (99.56) wrote:

Come on ... they can always get the money through the Term Auction Facility that's undersubscribed on its $150B capacity every 2 weeks.

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#5) On June 09, 2009 at 12:19 PM, catoismymotor (37.49) wrote:

GMX,

Whoo to the Hoo! $50 billion is going to be repaid. If that $50 billion is currently sitting in the market will there not be a vacuum as a result when all that dough is pulled out? Will this not pull down the DOW, S&P and NASDAQ? Which companies have the banks trusted with the money? Which companies will take the hit and be driven down? Or, better yet, where can I go to find this out?

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#6) On June 09, 2009 at 12:19 PM, helicopterfool (30.09) wrote:

I am not a conspiracy theorist by any means - but the latest market action, jobs report, green shoots, etc really has me scatching my head.   That said, after the paybacks, if we have a sell off (or just an end to all of these late closing rallies), it will either make me feel that I am not that stupid afterall, our government has the media in its pocket, and/or the cowboy really was trying to help the sheep over the fence. 

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#7) On June 09, 2009 at 12:22 PM, huddaman (98.59) wrote:

I think this only means there is $68B less money in the banking system, or if you assume money multiplier of 5, then around $340B less available for lending. That means, lesser money for the banks to lend, and so higher interest rates.

 On the flip side, govt can use this $68B and spend it to buy back treasuries (or issue $68 of less treasuries and avoid shrinking investor baalances by $68 less). So overall, the net effect in my opinion is the action could be positive for the dollar and negative for low interest rates and housing.

 

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#8) On June 09, 2009 at 12:25 PM, jstegma (29.17) wrote:

With all due respect, GMX, this blog post is simply absurd.  Banks don't park their short-term cash in stocks.  I think that's the dumbest thing I've heard on CAPS in a long time.  The money is almost undoubtedly in short-term Treasury securities.  You know better than that.  Come on.

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#9) On June 09, 2009 at 12:31 PM, goldminingXpert (29.41) wrote:

Even though GS was accounting for 30% of all the NYSE volume last week and the biggest movers and shakers on S&P futures every day are GS and JPM?

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#10) On June 09, 2009 at 12:34 PM, goldminingXpert (29.41) wrote:

Jstegma--this is further proof of why you're too smart to be a banker. You wouldn't put money you needed next week in stocks, nor would you run your business at 30 to 1 leverage. You probably wouldn't write interest only neg am 2nd loans to unemployed construction workers either. You'd make a terrible banker.

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#11) On June 09, 2009 at 12:42 PM, tonylogan1 (27.87) wrote:

So if the money is in Treasuries, the money comes out of treasuries, interest rates rise, which is damabing to the equity markets as well at this point.

No matter where the money is right now, when it is repaid, it will have a contracting effect, not a multiplier, so even though GMX is wrong about the money being in stocks, he is still on the right track about the impact of the pay back.

THe down side of this would be if the government annouces simultaneously some new "stimulus" plan to give this money to someone else to prop up markets

 

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#12) On June 09, 2009 at 12:44 PM, portefeuille (99.60) wrote:

first this:

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On June 09, 2009 at 3:09 AM, awallejr (59.12) wrote:

Gmx, I won't argue with a layman.  Get your JD first.  And nottheSEC, yeah the "switch in time" was a play on the "stitch" phrase.

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(from here)

now this:

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I think that's the dumbest thing I've heard on CAPS in a long time.

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oh come on, he can't be an expert in everything. he is preparing a new article on climate change I think ...

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#13) On June 09, 2009 at 12:45 PM, goldminingXpert (29.41) wrote:

THe down side of this would be if the government annouces simultaneously some new "stimulus" plan to give this money to someone else to prop up markets

This is a good point I hadn't considered.

No matter where the money is right now, when it is repaid, it will have a contracting effect, not a multiplier, so even though GMX is wrong about the money being in stocks, he is still on the right track about the impact of the pay back.

I have a hunch it is in stocks, but of course it could be in reserves or in treasuries. The result, as you said, is the same.

I'm thinking I'm going to lose the bet...bonds just lost their bid again moments ago heading into the first of the three sticks of TNT (ahem, bond auctions) this week.

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#14) On June 09, 2009 at 12:48 PM, goldminingXpert (29.41) wrote:

portefeuille, nice attempt at hijacking my blog.

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#15) On June 09, 2009 at 12:53 PM, StopLaughing (< 20) wrote:

Note: the TARP political theatre is old news. There are no new twists. The Gov gave money to banks that did not need it and they are now giving it back. It is essentially no news and should not move the market one way or the other.

If the Gov has a deal with the big banks to move the market then the non TARP banks will continue to intervene with non TARP money. 

However, if the US Gov is directly meddling in the market they would use  shadow banks (like the rest of the Govs in the world) where there would be no traces to create political problems and lose votes from everyone who lost money in the market.

Further, there is no need to directly meddle since the Gov controls the money supply, spending, taxes, the strenght of the $, much of the information (or misinformation) and a host of other things like cooperation with foreign Govs who do own shadow banks.

Meddling directly would only have a very short run effect which is of little value. It is a lot cheaper to leak key information early to a few favored large hedge funds.

The Bears are just wrong (so far) and are reaching for conspiracy straws. There are many who try to influence the market by getting stories put into the media etc. but I do not know of anyone who is dumb enough or large enough to try to move the market without moving in concert with a number of the large institutions. Further, there would have to be fundamentals to back up the move or it could not be sustained for more than a day.

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#16) On June 09, 2009 at 12:56 PM, goldminingXpert (29.41) wrote:

TARP funds used to buy stocks

Jstemga, don't make brash comments because then trolls will quote you for the next month even though you were wrong. Camistocks blatantly lied about me, I called him on it, he refused to defend his comment yet portefeuille kept quoting the known lie for a month in any posts tangentially related to me.

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#17) On June 09, 2009 at 1:07 PM, angusthermopylae (39.25) wrote:

Logically, the $50 billion can only be in a few places, right?  (Maybe distributed amongst these):

--Cash-in-the-vault.  That means the money is/was being used to back a bank's loans.  As said earlier, that means that they would not be able to continue or loan out $340 billion to the economy.  Therefore, pulling from here would shrink the money supply.

--Stocks.  Pull it out of the market(s), and the market(s) have to fall by $50 billion.  (yeah, yeah, I know--but at the end of the day/week/month, there's still less money around.)  This reduces stock prices overall, which either means that everyone else has less value, or causes a bunch of others to pull there money.  Again, this causes a contraction, initially on the markets, then on everyone who counts their stock as an asset.

--Assets (houses, land, Spacely's Space Sprockets).  To pull the money out of those, they have to sell them...and someone else has their money locked up in these assets.  Since the $50 billion is then returned to the government, it's pulled out of the monetary system altogether....another contraction.

On top of that, some are noticing that things are worse than the original stress test conditions.  Wonder how that will work out?

(Have I missed any?)

Overall, I'm not against the repayment, but I suspect it has more to do with new conditions being attached to government help than with "We're fine now, we don't need your money." Repaying the bailouts (or part of them) at least disentangles the government from these companies...and if it kills artifical inflation of assets and bank strengths...rip off that bandaid!

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#18) On June 09, 2009 at 1:12 PM, goldminingXpert (29.41) wrote:

Bonds plunging again... 30 year yield is getting harder better faster and stronger.

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#19) On June 09, 2009 at 1:18 PM, portefeuille (99.60) wrote:

Camistocks blatantly lied about me, I called him on it, he refused to defend his comment yet portefeuille kept quoting the known lie for a month in any posts tangentially related to me.

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he is talking about this:

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#29) On May 15, 2009 at 3:26 PM, camistocks (86.99) wrote:

So this is it... We worship the top tens and feel good... Americans love top tens...

Nobody cares about interesting blogs.

But hey we've got this nice guy called gmx... He continues to separate you from your money since early April... but still everybody loves him... ah well

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(from here)

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#20) On June 09, 2009 at 1:21 PM, goldminingXpert (29.41) wrote:

Repost it again. Once you've repeated a lie this many times, you probably think it's true.

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#21) On June 09, 2009 at 2:53 PM, kdakota630 (29.47) wrote:

BTW GMX, if you are writing another college paper regarding the fallicy that is global warming, I thought you might be able to use this:

Ron Paul link

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#22) On June 09, 2009 at 2:57 PM, goldminingXpert (29.41) wrote:

Ha... that's the one I used in my first global warming article. I will be writing again about global warming next year as we are now in a 10y cooling trend and it is becoming increasingly clear that global warming is dead... bring on "climate change" cause the earth sure isn't getting hotter...even with faulty thermometers.

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#23) On June 09, 2009 at 3:20 PM, DragontoadX (34.00) wrote:

http://seeker401.wordpress.com/2009/05/31/enron-kyoto-cap-n-trade-scam/

  

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#24) On June 09, 2009 at 3:35 PM, StockSpreadsheet (71.76) wrote:

One thing overlooked so far is that many of the banks sold new stock to raise money, in addition to selling more bonds, (these without the backing of the FDIC).  Therefore, a lot of the money being used to repay the TARP funds was NEW money to the banks, (from the stock and bond sales, etc.), so would not necessarily have to come out of exising positions, (stocks, short-term Treasuries, etc.).  They might have parked it in CD's, money market funds, etc. instead of Treasuries, (depending on when their stock/bond sales were, they probably would not want to overnight it in Treasuries but could have deposited at the Fed or someplace like that).

Anyway, just wanted to point out that the majority of the money being repaid is probably coming from the money raised by the recent stock/bond sales, (which were a prerequisite for the government to allow them to repay the money), so there could be very little change in the market at all due to the repayments.

 

Craig 

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#25) On June 09, 2009 at 4:02 PM, jstegma (29.17) wrote:

GMX -

The article you linked to about the banks buying stocks was more about buying out other banks.  Those are done deals.  The banks paying back the TARP funds aren't going to sell those stakes in the other banks to come up with the cash.  You have a point if you are just saying that the banks won't be able to do those sorts of buyout transactions for a while, but the idea that the banks are going to be selling some shares of SPY or specific stocks here in the next week or so and handing the proceeds over to the government is not realistic.

angust - you missed one - short-term Treasuries.  

As far as the TARP money, I am pretty sure that most if not all of it got parked in short-term Treasuries.  The yield on them is microscopic and it is a HUGE market, so pulling $60 billion out might drive up 30 day and 3-month rates a slight amount, but the yeilds will still be microscopic and it won't make much difference.  It will not drive up the yield on the ten-year much at all which would be much more relevant for stocks.  

StopLaughing got it right on the TARP.  The banks are just paying back money that they were just sitting on anyway.  The TARP worked in only one way - it kept some banks from failing in the short-term.  The idea was to get the banks to lend by giving them excess capital to play with, but it simply didn't work.  It solved the supply problem of loan money, but it didn't fix demand.  The lack of demand comes from the fact that most consumers who would want to borrow are not creditworthy.  You don't lend more money to someone who is struggling to avoid foreclosure and fearing a job loss. 

The banks have basically been sitting on the money ever since they got it.  They didn't loan it out and they didn't go bargain hunting in the stock market and they didn't speculate in commodities with it.  They parked it in short-term government-backed paper.  That is one reason why the short-term rates are so darn low right now.  It is also the reason inflation hasn't gone crazy - the velocity of money has remained incredibly low.  It doesn't affect prices when the government prints off a few truckloads of money and unloads it into JPMorgan's vault where it sits until the government agrees to accept it back.  It's as if the money was never even there, other than in some capital ratios that determine if a bank fails or is allowed to continue until the accounting rules are changed.

 

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#26) On June 09, 2009 at 4:05 PM, goldminingXpert (29.41) wrote:

Hmm... this might explain why IRX 13-week bill yield is up 30% in the past 4 trading days. Interesting findings Jstegma.

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#27) On June 09, 2009 at 5:51 PM, TMFBabo (100.00) wrote:

GMX, thank you for your TMAP series.  I've finally added some hedges to my portfolio after being mostly long until pretty recently.  My portfolio still has a long bias, but it's a lot more balanced now. 

I mean, I already knew that a lot more pain was in store, but I figured people knew it was coming and would not be surprised by the negative things to come. (since positive and negative "surprises" are what makes the market volatile, right?) After thinking about it a little bit though, I realized that many people would indeed be blindsided by the pain to come. THAT could lead to a possible plunge in the markets.  I thought the possibility of a plunge was large enough to add a meaningful short position to my portfolio.

What helped me was exactly what annoyed many other people: how you repeatedly warned us.  After the 20th post or so, I started thinking whether people really expected the bad news or not.  I knew they were coming, from the data at hand.  However, I know a lot of people personally who've become way too bullish too early.  They will indeed be blindsided if the market plunges.

Now that my portfolio is hedged, I feel much better.  I believe I paid a good price on my longs and I'm definitely sure they're going up over the long run.  If the market crashes, I can cash in my shorts and go 100% long.  If it doesn't crash, I still expect to make good money since my portfolio does have more longs and I expect those longs to outperform the S&P 500 handily.  Either way, I've removed a lot of market risk from my portfolio and I'm happy about that.

Karl Denninger's a bit too bearish for my tastes, but I do respect his views and I hope to see you quoting him more as you continue your series.  That man does write some good material.

bullishbabo

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#28) On June 09, 2009 at 5:58 PM, goldminingXpert (29.41) wrote:

Thanks I could be of assistance bullishbabo. I think you're wise and you will profit greatly after you cash those hedges. The next move up is going to be a monster. Volume is getting thinner and thinner in the market meaning that it takes less news/volume to spark greater moves. The next time the S&P takes a nice dive, we're going to get a monster rally. While we may not get a 1933-37 sort of snap, I'm expecting the S&P to double in the span of a few months at some point during these economic hard times and by hedging at the tops, you've got the firepower to enjoy the firesales.

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#29) On June 09, 2009 at 5:58 PM, angusthermopylae (39.25) wrote:

jstegma,

I think you're probably correct, and thank you for poiting that out.  It also dovetails nicely with a vague but definite feeling that the bailout money has not been exerting monetary inflation pressure ...that it's been 'on the books' only.  (sorry, GMX, I'm skeptical of both sides of the inflation/deflation debate.)

If it is true that the money has been tied up in Treasuries, then the payback could, in the best case, simply balance the books:  Government no longer has that money out there, and the banks don't have that as a listed asset.  Reset to real life, instead of some kind of inflated (in the reputation sense) value.

...but I'm always cynical about best cases coming true....

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#30) On June 09, 2009 at 6:22 PM, goldminingXpert (29.41) wrote:

(sorry, GMX, I'm skeptical of both sides of the inflation/deflation debate.)

I'm a deflation followed by lots of inflation-ist. Both the diehard deflation people and the hyperinflation people scare me.

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#31) On June 10, 2009 at 10:05 AM, jstegma (29.17) wrote:

GMX - I agree on the current deflation followed eventually by significant inflation.  The Fed is going to have a tough time mopping up the liquidity without completely hosing the economy once it gets moving again someday.  The inflation just won't show up until things start to get better which may be a while.

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#32) On June 10, 2009 at 10:07 AM, skeptic86 (94.15) wrote:

GMX, im not doubting, but whats your reasoning? is there any eveidence this money is coming from stocks?

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