“It happens sometimes. People just explode. Natural causes.” - Agent Rogersz (Susan Barnes), Repo Man.
Alex Cox’s cult sci-fi comedy satire Repo Man was something of a sleeper hit when it hit American cinemas in 1984. Universal Pictures were distinctly cool about its prospects on release, proving the timeless wisdom of William Goldman’s observation (in Adventures in the Screen Trade) that when it comes to Hollywood, “nobody knows anything”.
Inasmuch as it really matters, the plot features punk rockers, a car repossession business, and a stolen 1964 Chevrolet Malibu that may or may not contain extraterrestrials. Critic Roger Ebert:
“I saw “Repo Man” near the end of a busy stretch on the movie beat: Three days during which I saw more relentlessly bad movies than during any comparable period in memory. Most of those bad movies were so cynically constructed out of formula ideas and “commercial” ingredients that watching them was an ordeal. “Repo Man” comes out of left field, has no big stars, didn’t cost much, takes chances, dares to be unconventional, is funny, and works. There is a lesson here.”
From Repo Man to Repo Men, or perhaps Repo Usual Suspects.. Pam Martens and Russ Martens for Wall Street on Parade on January 3rd 2022 reported the following juicy little news nugget:
“Four days ago, the Federal Reserve released the names of the banks that had received $4.5 trillion in cumulative loans in the last quarter of 2019 under its emergency repo loan operations for a liquidity crisis that has yet to be credibly explained. Among the largest borrowers were JPMorgan Chase, Goldman Sachs and Citigroup, three of the Wall Street banks that were at the center of the subprime and derivatives crisis in 2008 that brought down the U.S. economy. That’s blockbuster news. But as of 7 a.m. this morning, not one major business media outlet has reported the details of the Fed’s big reveal.
On September 17, 2019, the Fed began making trillions of dollars a month in emergency repo loans to 24 trading houses on Wall Street. The Fed released on a daily basis the dollar amounts it was loaning, but withheld the names of the specific banks and how much they had borrowed. This made it impossible for the public to see which Wall Street firms were experiencing the most severe credit crisis..
Under the Dodd-Frank financial reform legislation of 2010, the Fed was legally required to release the names of the banks and the amounts they borrowed “on the last day of the eighth calendar quarter following the calendar quarter in which the covered transaction was conducted.” The New York Fed released the information for the third quarter of 2019 last Thursday, a day earlier than required. We reported on it the following day.
Those Fed revelations, that had been withheld from the American people for two years, should have made front page headlines in newspapers and on the digital front pages of every major business news outlet. Instead, there was a universal news blackout of the story at the largest business news outlets, including: Bloomberg News, the Wall Street Journal, the business section of the New York Times, the Financial Times, Dow Jones’ MarketWatch, and Reuters..
Theories abound as to why this current story is off limits to the media. One theory goes like this: the Fed has made headlines around the world in recent months over its own trading scandal – the worst in its history. Granular details of just how deep this Fed trading scandal goes have also been withheld from the public as well as members of Congress. If the media were now to focus on yet another scandal at the Fed – such as it bailing out the banks in 2019 because of their own hubris once again – there might be legislation introduced in Congress to strip the Fed of its supervisory role over the megabanks and a restoration of the Glass-Steagall Act to separate the federally-insured commercial banks from the trading casinos on Wall Street.”
Just to bring things up to speed, here is analyst Doug Noland’s review of 2021 in its entirety, in financial market terms:
“Books will be written chronicling 2021. I’ll boil an extraordinary year’s developments down to a few simple words: “Things Ran Wild”. Covid ran wild. Monetary inflation ran wild. Inflation, in general, ran completely wild. Speculation and asset inflation ran really wild. More insidiously, mal-investment and inequality turned wilder. Extreme weather ran wild. Bucking the trend, confidence in Washington policymaking ran – into a wall..
Inflation running wild. CPI surged 6.8% y-o-y in November, the strongest consumer price inflation since June 1982. Core PCE, the Fed’s favored inflation gauge, rose above 6% for the first time since 1983. Surging food and energy prices, in particular, punish those who can least afford it.
Monetary inflation running wild. Federal Reserve Credit expanded $1.391 TN over the past year, or 19%, to a record $8.742 TN. The Fed’s balance sheet inflated an astonishing $5.015 TN, or 135%, in the 120 weeks since QE was restarted in September 2019. Federal Reserve Assets have now inflated 10-fold since the mortgage finance Bubble collapse.”
Now back to the ‘repocalypse’ of 2019. Through a chance discussion on Twitter this past week we were reminded of this piece by Fabio Vighi (admittedly of a Marxist persuasion, but these days that at least puts him on the winning side). Notably:
“17 September 2019: The Fed begins the emergency monetary programme, pumping hundreds of billions of dollars per week into Wall Street, effectively executing BlackRock’s “going direct” plan. (Unsurprisingly, in March 2020 the Fed will hire BlackRock to manage the bailout package in response to the ‘COVID-19 crisis’).
19 September 2019: Donald Trump signs Executive Order 13887, establishing a National Influenza Vaccine Task Force whose aim is to develop a “5-year national plan (Plan) to promote the use of more agile and scalable vaccine manufacturing technologies and to accelerate development of vaccines that protect against many or all influenza viruses.” This is to counteract “an influenza pandemic”, which, “unlike seasonal influenza […] has the potential to spread rapidly around the globe, infect higher numbers of people, and cause high rates of illness and death in populations that lack prior immunity”. As someone guessed, the pandemic was imminent, while in Europe too preparations were underway (see here and here).
18 October 2019: In New York, a global zoonotic pandemic is simulated during Event 201, a strategic exercise coordinated by the Johns Hopkins Biosecurity Center and the Bill and Melinda Gates Foundation.
21-24 January 2020: The World Economic Forum’s annual meeting takes place in Davos, Switzerland, where both the economy and vaccinations are discussed.
23 January 2020: China puts Wuhan and other cities of the Hubei province in lockdown.
11 March 2020: The WHO’s director general calls Covid-19 a pandemic. The rest is history.
Joining the dots is a simple enough exercise. If we do so, we might see a well-defined narrative outline emerge, whose succinct summary reads as follows: lockdowns and the global suspension of economic transactions were intended to 1) Allow the Fed to flood the ailing financial markets with freshly printed money while deferring hyperinflation; and 2) Introduce mass vaccination programmes and health passports as pillars of a neo-feudal regime of capitalist accumulation. As we shall see, the two aims merge into one.
In 2019, world economy was plagued by the same sickness that had caused the 2008 credit crunch. It was suffocating under an unsustainable mountain of debt. Many public companies could not generate enough profit to cover interest payments on their own debts and were staying afloat only by taking on new loans. ‘Zombie companies’ (with year-on-year low profitability, falling turnover, squeezed margins, limited cashflow, and highly leveraged balance sheet) were rising everywhere. The repo market meltdown of September 2019 must be placed within this fragile economic context.
When the air is saturated with flammable materials, any spark can cause the explosion. And in the magical world of finance, tout se tient: one flap of a butterfly’s wings in a certain sector can send the whole house of cards tumbling down. In financial markets powered by cheap loans, any increase in interest rates is potentially cataclysmic for banks, hedge funds, pension funds and the entire government bond market, because the cost of borrowing increases and liquidity dries up. This is what happened with the ‘repocalypse’ of September 2019: interest rates spiked to 10.5% in a matter of hours, panic broke out affecting futures, options, currencies, and other markets where traders bet by borrowing from repos. The only way to defuse the contagion was by throwing as much liquidity as necessary into the system – like helicopters dropping thousands of gallons of water on a wildfire. Between September 2019 and March 2020, the Fed injected more than $9 trillion into the banking system, equivalent to more than 40% of US GDP.
The mainstream narrative should therefore be reversed: the stock market did not collapse (in March 2020) because lockdowns had to be imposed; rather, lockdowns had to be imposed because financial markets were collapsing. With lockdowns came the suspension of business transactions, which drained the demand for credit and stopped the contagion. In other words, restructuring the financial architecture through extraordinary monetary policy was contingent on the economy’s engine being turned off. Had the enormous mass of liquidity pumped into the financial sector reached transactions on the ground, a monetary tsunami with catastrophic consequences would have been unleashed.”
There is investing in the world as it is, and there is investing in the world as we might like it to be. Given the overwhelming stench of rat on Planet Finance, the latter option is increasingly desirable, but the former option is the only one open to us. Happily, central banks have made the asset allocation call that much easier by making bonds utterly uninvestible. So we throw our lot in with Benjamin Graham-style ‘value’ equities, supplemented by systematic trend-following funds (not least because they are uncorrelated to traditional assets), and by exposure to sensibly priced commodities-related businesses with little or no debt and high cash flow generation, as the best inflation hedges we can find.
But it is beginning to look like the problem isn’t so much Covid as Wall Street itself: a grotesque serial killer of capital, with an awful lot of previous.
So who will step up and offer to clean the Augean Stables ?
The ‘Repo Man’, we learn from the film, lives his life on the edge, operating under extreme tension which is caused partly by his working conditions, and partly because, as Harry Dean Stanton explains, “I’ve never known a repo man who didn’t use a lot of speed.” If only today’s ‘Repo Men’ could slow down for once in a while – for all of our sakes.
As you may know, we also manage bespoke investment portfolios for private clients internationally. We would be delighted to help you too. Because of the current heightened market volatility we are offering a completely free financial review, with no strings attached, to see if our value-oriented approach might benefit your portfolio -with no obligation at all:
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