September 26, 2019


It was not a unanimous decision (the vote was 7-3), but the Federal Reserve did move ahead with another rate cut last week, its 2nd drop in just 7 weeks after going 10 ½ years with no rate reductions. The 3 dissenting votes is significant given its rarity – there have been as many as 3 dissents at a Fed meeting just 4 times since 2006 and the last time there were 4 dissents at a single meeting was 11/17/92 (source: Federal Reserve).

Think of the “repo” market as “financial plumbing” – when banks and investors need to borrow cash on a short-term basis (e.g., overnight), other banks make their “excess” reserves available in multibillion-dollar electronic transactions that take place late in the trading day. In today’s interest rate world, the borrower would pay approximately 0.005% per day ($50,000 per day per $1 billion borrowed). When the regular flow of “repo” money (about $75 billion a day) broke down last Monday, lenders capitalized and the daily rate soared “fivefold,” i.e., a cost of $250,000 per day per $1 billion borrowed. Only quick action by the Fed to inject billions into the “repo” market prevented further damage (source: Federal Reserve).

The drone attacks on 2 Saudi oil facilities on Saturday 9/14/19 caused a suspension of more than 50% of Saudi Arabia’s daily production of crude oil. Overnight, the price of crude climbed +15%, highlighting the dangers of our dependence on foreign produced oil. Similar disruptions in the past forced the United States to establish our nation’s Strategic Petroleum Reserve, 4 sites in Texas and Louisiana containing 727 million barrels of crude oil in underground storage caverns. That is enough crude to satisfy our nation’s oil demand for just 35 days (source: Department of Energy).

Notable Numbers for the Week:

  1. ADULTS IN THE ROOM - 73% of stocks (by dollar) owned by Americans are held by households headed by individuals over the age of 55 (source: Federal Reserve).

  2. NO CONSENSUS - As of 9/18/19, 35% of investors surveyed are “bullish” on the prospects for US stocks over the next 6 months, 37% are “neutral” and the remaining 28% are “negative” (source: AAII).

  3. THE BANK OWNS IT NOW - Lenders repossessed 11,493 homes in August 2019, down 47% from 21,640 repossessions in August 2018. The all-time record for bank repossessions in a single month in US history: 102,134 in September 2010 (source: Attom Data Solutions).

  4. REALLY LONG - In an effort to “lock-in” historically low interest rates, the Treasury Department stated on 9/12/19 that they are considering issuing a 50-year Treasury bond in 2020 (source: Treasury Secretary).

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