Repo Rates Spike, The Year-End Clog Begins A Whole Week Early

And When Gold Miners Finally Break Out and Shine Like Homestake Mining in the 1930s

Clog hits the Central Bureacracy

• SOFR rate spikes by 9bp and the 75th percentile hits the upper bound a full week early, and without repo volume even spiking yet.

• This is happening because all spare cash is being stuffed back in to the RRP for regulatory purposes. This gives us an idea how much extra cash actually exists.

• Bloomberg explains why the standing repo facility is still useless, even though the Fed is doubling it going into the year end turn.

• Gold price looking healthy from an open interest perspective.

• Looking into 1930s history, the monetary End Game of its time, and Homestake Mining to determine when mining stocks finally take off.

The Year End Turn Plumbing Clog Begins a Week Early

The toilet water is starting to back up already, and there are 6 business days to go before we get to the year end turn. The secured overnight financing rate, AKA SOFR, AKA the repo rate, jumped up 9bp from 4.31 to 4.40 for December 24. Volume is hanging around the $2.3 trillion range. The 99^th percentile of repos is already out of the Fed's target range by 8bp, breaking above the upper bound of 4.50%.

Even the 75^th percentile is at the upper bound exactly at 4.5%.

The chart below shows the year-end turn into 2019.

The black line is repo volume. The blue line is the repo rate. The huge spike in the blue line in September is the repocalypse. What you can see is that the spike into the year end turn into 2019 corresponded with a spike in repo volume. There wasn't much action in the days leading up to the year end turn that year. The blue line does climb into the spike in the rectangle above, however this was due to a rate hike by the Fed on December 20, 2018, not to tightness in the market itself. Point being, there was a huge spike into 2019, but the repo market was calm immediately before and afterward.

This time, the action is starting a full week early.