Although the Fed decided to extend the repurchase operation plan (to market funding) that ended on October 10 to the beginning of November, Wall Street’s worries about the resurgence of the dollar in the short-term financing market in the fourth quarter have not decreased.
A Wall Street hedge fund manager admitted to the reporter that the dollar shock wave in the fourth quarter will be more severe than the US overnight lending rate in September to a record high of 10%. On the one hand, the corporate tax pressure is coming again at the end of the fourth quarter, plus the bank is satisfied. Regulatory requirements need to be fully funded, resulting in a large amount of funds that banks are placing on the market. On the other hand, the US bond yields continue to fall, and the downward pressure on the US economy is increasing, which is forcing a large amount of overseas capital to withdraw a large amount of funds from the United States. This will increase the short-term financing market funding gap.
"What is most worrying now is that if the dollar is overwhelmed, the overnight dollar lending rate will soar again, which may trigger a more violent financial market turmoil," he said. Since a large number of hedge funds and asset management institutions mainly borrow funds from the short-term financing market to maintain the margin requirement of their leveraged investment portfolio, if the overnight lending rate suddenly rises, the cost of holding positions will rise, and they will not be excluded from the surge in US stocks. In turn, the large-scale sell-off of the leveraged portfolio has spurred the US stock market's callback to far exceed market expectations.
It is worth noting that the Fed is also aware of the seriousness of the resurgence of the US dollar in the fourth quarter and is planning to adopt new interventions. However, the current Fed's internal differences in solutions are not small. Specifically, some Fed officials tend to expand the Fed's balance sheet; some Fed officials advocate "normalization" of repurchase operations, and may even consider setting up a repurchase operation tool; and some Fed officials recommend measures to enrich bank preparations. gold.
"In fact, each solution has its own advantages and disadvantages. For example, expanding the balance sheet seems to be once and for all, but this will compress the operational space of the Fed's future monetary policy easing (to stimulate economic recovery); the normalization of repurchase operations will be symptomatic. It does not cure this problem, because the Fed cannot accurately pre-empt the US dollar every time and make arrangements in advance to resolve the risk of violent financial market turmoil; enriching the bank reserve requires coordination among all parties to ensure that the bank will not intercept the reserve for its own use. Instead, it is put on the market to ease the pressure on the dollar," said Dario Perkins, head of global macros at TS Lombard.
In the early hours of October 9th, Beijing time, Fed Chairman Powell made it clear that he would soon begin to expand his balance sheet again. This remark is regarded as an important signal that the Fed’s decision-making level tends to adopt the first measure.
"Powell’s statement also indicates that the Fed is preparing for the US recession," Dario Perkins pointed out. After all, the emergence of the dollar shortage, in addition to corporate tax pressure and bank retention reserve to meet regulatory requirements, another important reason is that the US economic recession has always been accompanied by liquidity risks in financial markets, so that more and more banks would rather "carry" funds. They are prepared to take the risk of “expanding” their own funds and borrowing risks.
Is the dollar in the fourth quarter wild?
In the early morning of October 8, the latest round of $75 billion in repurchase operations provided by the New York Fed, only $47.05 billion was applied for “claim” by financial institutions.
This seems to indicate that the dollar bailout since September has been significantly eased as the Fed continues to invest in the market.
"However, it does not mean that the dollar shortage problem has been completely solved." The above Wall Street hedge fund manager pointed out to reporters. The reason why the financial institutions claimed funds on October 8 was far lower than the Fed’s investment amount. An important reason was that with the end of the third quarter, the company’s tax payment ended, and the recent rebound in US bond yields caused overseas institutions to suspend the pressure on US dollar selling, making the US large Banks have relatively sufficient funds and placed short-term financing markets, so that the overnight lending rate is hovering around 2%, in line with the target range set by the Fed.
However, the September triggering of the dollar shortage and overnight lending rates will rise again in the fourth quarter, and the trend is even more fierce than in September. For example, at the end of the fourth quarter, enterprises are facing tax pressure again. In addition, at the end of the year, Bank of America needs to retain a large amount of reserves to meet regulatory requirements, so that the short-term financing market funding gap is not lower than September.
What worries Wall Street financial institutions is that the Fed’s previous repurchase operations have expired in the fourth quarter, which is bound to withdraw a large amount of funds from the financial market, which inevitably aggravated the short-term financing market funding gap in the fourth quarter.
The data shows that in the week of October 9 alone, the Fed has three 14-day repurchase operations due, and the funds recovered from the financial market amounted to $139 billion.
The Wall Street hedge fund manager told reporters that they have set up a number of scenarios that triggered a resurgence of the US dollar in the fourth quarter. First, the UK’s hard Brexit caused a large number of European institutions to withdraw funds from the United States to fill their own investment losses, and the second is geography. The increase in political risks has led some Middle Eastern countries to withdraw funds from the United States for emergency rescue. Third, the Fed’s repurchase operations have continued to expire, which has made the financial market funds again tense. Fourth, the sharp correction of US stocks has caused hedge funds to rush to raise funds to fill the leveraged portfolio margin gap. At the end of the quarter, corporate tax pressures overlap with the bank's huge reserves to meet regulatory requirements.
“Therefore, the fund requires that the proportion of cash and cash equivalents in the entire portfolio should not be less than 10%. The main purpose is to prevent the recurrence of the US dollar (and the overnight interest rate soaring), which will lead to a significant increase in the cost of other leveraged investment portfolios, dragging down overall performance. Performance." He bluntly told reporters.
Many reporters have learned that some hedge funds are hoping that the Fed will adopt more intense interventions to ensure that the overnight lending rate will remain stable in the fourth quarter, avoiding the dollar's resurgence.
"If the Fed simply extends the repurchase operation period, then the move will be a temporary solution," Andrew Brenner, head of global investment operations at National Alliance Securities, told reporters. Because most financial institutions believe that this is only a temporary measure of the Fed, once suspended, the dollar shortage will follow in a more violent form.
The Fed’s internal "differences" have expanded
Focusing on how to completely solve the problem of the dollar shortage, the current Fed is also divided internally.
Specifically, the Fed has formed three propositions within the Fed, namely the “extensions” that advocate the expansion of the balance sheet, the “repurchase party” that pushes the normalization of the repurchase operation, and the “buffering party” that proposes to enrich the bank’s reserves. .
The expansion of the expansionist sentiment from the Fed began to assess when to resume the balance sheet expansion after the interest rate cut in September.
"And in the eyes of the expansionists, by expanding the balance sheet to release hundreds of billions of dollars in QE funds, it is possible to solve the dollar shortage in the short-term financing market once and for all," Andrew Brenner told reporters. The logic is that the current dollar shortage has emerged, and has a close relationship with the Fed’s previous contraction – as the Fed ends QE and initiates a contraction process, US banking institutions deposit a total of 2.8 trillion dollars in cash from the Fed in September 2014. The sudden drop to the current $1.5 trillion directly led to a sharp decline in the reserves of US banking institutions. It did not force more funds into the financial market, which eventually led to a surge in the US dollar shortage and overnight lending rates in September.
The repurchase party tends to solve the problem of the dollar shortage by establishing a rolling operation and long-term repurchase operation mechanism without significantly increasing the balance sheet, thereby reserving a larger monetary policy loose operating space to cope with the US economy. Risk of recession.
The buffer faction believes that the root cause of the current dollar shortage and the overnight loan interest rate soaring situation is that the US banking institutions have insufficient reserves. Therefore, they believe that the Fed’s measures to enrich the bank’s reserves are the right medicine.
"At the moment, the expansionist seems to have the upper hand." He bluntly said. On the morning of the 9th, Fed Chairman Powell said that he would soon start the expansion of the balance sheet again, which undoubtedly made the expansionist feel "winning."
However, many hedge funds on Wall Street can doubt whether the move can completely solve the problem of the dollar shortage.
"At present, most banks in the United States have learned the lessons of the financial crisis in the financial crisis caused by the US recession. They are more inclined to leave a large amount of QE funds to themselves to solve the financial gap in business losses and to cope with the new round of funds derived from the economic recession. Lack of liquidity shocks may not be willing to invest in short-term financing markets to increase their credit risk.” The aforementioned Wall Street hedge fund manager admitted to the reporter that the focus of the Fed should be to guide banks to put a lot of QE funds into the financial market, rather than just Bank institutions provide huge amounts of money.
On October 5, 2019, NBA Rockets general manager Morey sent a tweet. For a time, Morey set off a hurricane with one's own strength, causing the NBA to be almost suspended in China. Chinese Netizens commented that this may be the "most expensive" tweet in the history: a tweet, the Rockets lost hundreds of millions. The support of NBA president Adam Shawhua may have caused the NBA to lose more.
On the afternoon of October 8, Beijing time, the CCTV Sports Channel of the Central Radio and Television General Administration issued a statement, to suspend the current broadcast arrangements for the NBA preseason (China), and immediately investigate all cooperation and communication involving the NBA.
In addition, there are more than five domestic media and platforms such as Tencent Sports, Tigers, Live Broadcasting, and Slam Dunk magazines, which announced the suspension or termination of the broadcast and coverage of the Rockets.
In July of this year, Tencent Sports has renewed its contract with the NBA. It is reported that the amount of this renewal is 5 billion US dollars for 5 years, estimated at the current exchange rate, about 100.7 billion yuan. If the cost of broadcasting rights such as TV and short video is superimposed, the NBA's revenue in the Chinese market will reach 400 million US dollars a year.
This year, Tencent and the NBA announced a new contract until the summer of 2025. It was reported that the contract renewal amount was as high as 1.5 billion US dollars (about 10.3 billion yuan). On average, it is around RMB 2 billion a year.
A number of companies decided to terminate cooperation with the NBA: vivo, Tencent Sports, Anta Sports, Mi Wei Video, Dicos Dicos, Luckincoffee, and Master Kong Ice Tea. As of now, at least nine of the 25 official partners announced by NBA China have publicly announced their termination of cooperation.
How much will the Rockets lose with the withdrawal of these sponsors?
"There is no way to find specific information about these contracts in the open channel, but from the figures of 17 years ago, each company will be in the millions.
In 2002, after Yao Ming joined the Rockets, Yanjing Beer took the lead in signing a six-year, $6 million sponsorship contract with the Rockets. "
Before 2017, the Rockets' Chinese sponsorship brands were maintained between 4 and 8 years. The domestic brands such as Peak, Founder Group, Anta and Kunlun Lubricants have sponsored the Rockets. The brand sponsors from China once occupied the Rockets. The team sponsors 8%-10% of total revenue.
After 2017, the Rockets will accelerate the development of the Chinese market, hoping to increase the number of Chinese sponsors to 12, and increase the proportion of total revenue to 20%.
According to rough estimates, the loss of the Chinese market, the Rockets will lose 400 million yuan in losses each year.
A Wall Street hedge fund manager admitted to the reporter that the dollar shock wave in the fourth quarter will be more severe than the US overnight lending rate in September to a record high of 10%. On the one hand, the corporate tax pressure is coming again at the end of the fourth quarter, plus the bank is satisfied. Regulatory requirements need to be fully funded, resulting in a large amount of funds that banks are placing on the market. On the other hand, the US bond yields continue to fall, and the downward pressure on the US economy is increasing, which is forcing a large amount of overseas capital to withdraw a large amount of funds from the United States. This will increase the short-term financing market funding gap.
"What is most worrying now is that if the dollar is overwhelmed, the overnight dollar lending rate will soar again, which may trigger a more violent financial market turmoil," he said. Since a large number of hedge funds and asset management institutions mainly borrow funds from the short-term financing market to maintain the margin requirement of their leveraged investment portfolio, if the overnight lending rate suddenly rises, the cost of holding positions will rise, and they will not be excluded from the surge in US stocks. In turn, the large-scale sell-off of the leveraged portfolio has spurred the US stock market's callback to far exceed market expectations.
It is worth noting that the Fed is also aware of the seriousness of the resurgence of the US dollar in the fourth quarter and is planning to adopt new interventions. However, the current Fed's internal differences in solutions are not small. Specifically, some Fed officials tend to expand the Fed's balance sheet; some Fed officials advocate "normalization" of repurchase operations, and may even consider setting up a repurchase operation tool; and some Fed officials recommend measures to enrich bank preparations. gold.
"In fact, each solution has its own advantages and disadvantages. For example, expanding the balance sheet seems to be once and for all, but this will compress the operational space of the Fed's future monetary policy easing (to stimulate economic recovery); the normalization of repurchase operations will be symptomatic. It does not cure this problem, because the Fed cannot accurately pre-empt the US dollar every time and make arrangements in advance to resolve the risk of violent financial market turmoil; enriching the bank reserve requires coordination among all parties to ensure that the bank will not intercept the reserve for its own use. Instead, it is put on the market to ease the pressure on the dollar," said Dario Perkins, head of global macros at TS Lombard.
In the early hours of October 9th, Beijing time, Fed Chairman Powell made it clear that he would soon begin to expand his balance sheet again. This remark is regarded as an important signal that the Fed’s decision-making level tends to adopt the first measure.
"Powell’s statement also indicates that the Fed is preparing for the US recession," Dario Perkins pointed out. After all, the emergence of the dollar shortage, in addition to corporate tax pressure and bank retention reserve to meet regulatory requirements, another important reason is that the US economic recession has always been accompanied by liquidity risks in financial markets, so that more and more banks would rather "carry" funds. They are prepared to take the risk of “expanding” their own funds and borrowing risks.
Is the dollar in the fourth quarter wild?
In the early morning of October 8, the latest round of $75 billion in repurchase operations provided by the New York Fed, only $47.05 billion was applied for “claim” by financial institutions.
This seems to indicate that the dollar bailout since September has been significantly eased as the Fed continues to invest in the market.
"However, it does not mean that the dollar shortage problem has been completely solved." The above Wall Street hedge fund manager pointed out to reporters. The reason why the financial institutions claimed funds on October 8 was far lower than the Fed’s investment amount. An important reason was that with the end of the third quarter, the company’s tax payment ended, and the recent rebound in US bond yields caused overseas institutions to suspend the pressure on US dollar selling, making the US large Banks have relatively sufficient funds and placed short-term financing markets, so that the overnight lending rate is hovering around 2%, in line with the target range set by the Fed.
However, the September triggering of the dollar shortage and overnight lending rates will rise again in the fourth quarter, and the trend is even more fierce than in September. For example, at the end of the fourth quarter, enterprises are facing tax pressure again. In addition, at the end of the year, Bank of America needs to retain a large amount of reserves to meet regulatory requirements, so that the short-term financing market funding gap is not lower than September.
What worries Wall Street financial institutions is that the Fed’s previous repurchase operations have expired in the fourth quarter, which is bound to withdraw a large amount of funds from the financial market, which inevitably aggravated the short-term financing market funding gap in the fourth quarter.
The data shows that in the week of October 9 alone, the Fed has three 14-day repurchase operations due, and the funds recovered from the financial market amounted to $139 billion.
The Wall Street hedge fund manager told reporters that they have set up a number of scenarios that triggered a resurgence of the US dollar in the fourth quarter. First, the UK’s hard Brexit caused a large number of European institutions to withdraw funds from the United States to fill their own investment losses, and the second is geography. The increase in political risks has led some Middle Eastern countries to withdraw funds from the United States for emergency rescue. Third, the Fed’s repurchase operations have continued to expire, which has made the financial market funds again tense. Fourth, the sharp correction of US stocks has caused hedge funds to rush to raise funds to fill the leveraged portfolio margin gap. At the end of the quarter, corporate tax pressures overlap with the bank's huge reserves to meet regulatory requirements.
“Therefore, the fund requires that the proportion of cash and cash equivalents in the entire portfolio should not be less than 10%. The main purpose is to prevent the recurrence of the US dollar (and the overnight interest rate soaring), which will lead to a significant increase in the cost of other leveraged investment portfolios, dragging down overall performance. Performance." He bluntly told reporters.
Many reporters have learned that some hedge funds are hoping that the Fed will adopt more intense interventions to ensure that the overnight lending rate will remain stable in the fourth quarter, avoiding the dollar's resurgence.
"If the Fed simply extends the repurchase operation period, then the move will be a temporary solution," Andrew Brenner, head of global investment operations at National Alliance Securities, told reporters. Because most financial institutions believe that this is only a temporary measure of the Fed, once suspended, the dollar shortage will follow in a more violent form.
The Fed’s internal "differences" have expanded
Focusing on how to completely solve the problem of the dollar shortage, the current Fed is also divided internally.
Specifically, the Fed has formed three propositions within the Fed, namely the “extensions” that advocate the expansion of the balance sheet, the “repurchase party” that pushes the normalization of the repurchase operation, and the “buffering party” that proposes to enrich the bank’s reserves. .
The expansion of the expansionist sentiment from the Fed began to assess when to resume the balance sheet expansion after the interest rate cut in September.
"And in the eyes of the expansionists, by expanding the balance sheet to release hundreds of billions of dollars in QE funds, it is possible to solve the dollar shortage in the short-term financing market once and for all," Andrew Brenner told reporters. The logic is that the current dollar shortage has emerged, and has a close relationship with the Fed’s previous contraction – as the Fed ends QE and initiates a contraction process, US banking institutions deposit a total of 2.8 trillion dollars in cash from the Fed in September 2014. The sudden drop to the current $1.5 trillion directly led to a sharp decline in the reserves of US banking institutions. It did not force more funds into the financial market, which eventually led to a surge in the US dollar shortage and overnight lending rates in September.
The repurchase party tends to solve the problem of the dollar shortage by establishing a rolling operation and long-term repurchase operation mechanism without significantly increasing the balance sheet, thereby reserving a larger monetary policy loose operating space to cope with the US economy. Risk of recession.
The buffer faction believes that the root cause of the current dollar shortage and the overnight loan interest rate soaring situation is that the US banking institutions have insufficient reserves. Therefore, they believe that the Fed’s measures to enrich the bank’s reserves are the right medicine.
"At the moment, the expansionist seems to have the upper hand." He bluntly said. On the morning of the 9th, Fed Chairman Powell said that he would soon start the expansion of the balance sheet again, which undoubtedly made the expansionist feel "winning."
However, many hedge funds on Wall Street can doubt whether the move can completely solve the problem of the dollar shortage.
"At present, most banks in the United States have learned the lessons of the financial crisis in the financial crisis caused by the US recession. They are more inclined to leave a large amount of QE funds to themselves to solve the financial gap in business losses and to cope with the new round of funds derived from the economic recession. Lack of liquidity shocks may not be willing to invest in short-term financing markets to increase their credit risk.” The aforementioned Wall Street hedge fund manager admitted to the reporter that the focus of the Fed should be to guide banks to put a lot of QE funds into the financial market, rather than just Bank institutions provide huge amounts of money.
On October 5, 2019, NBA Rockets general manager Morey sent a tweet. For a time, Morey set off a hurricane with one's own strength, causing the NBA to be almost suspended in China. Chinese Netizens commented that this may be the "most expensive" tweet in the history: a tweet, the Rockets lost hundreds of millions. The support of NBA president Adam Shawhua may have caused the NBA to lose more.
On the afternoon of October 8, Beijing time, the CCTV Sports Channel of the Central Radio and Television General Administration issued a statement, to suspend the current broadcast arrangements for the NBA preseason (China), and immediately investigate all cooperation and communication involving the NBA.
In addition, there are more than five domestic media and platforms such as Tencent Sports, Tigers, Live Broadcasting, and Slam Dunk magazines, which announced the suspension or termination of the broadcast and coverage of the Rockets.
In July of this year, Tencent Sports has renewed its contract with the NBA. It is reported that the amount of this renewal is 5 billion US dollars for 5 years, estimated at the current exchange rate, about 100.7 billion yuan. If the cost of broadcasting rights such as TV and short video is superimposed, the NBA's revenue in the Chinese market will reach 400 million US dollars a year.
This year, Tencent and the NBA announced a new contract until the summer of 2025. It was reported that the contract renewal amount was as high as 1.5 billion US dollars (about 10.3 billion yuan). On average, it is around RMB 2 billion a year.
A number of companies decided to terminate cooperation with the NBA: vivo, Tencent Sports, Anta Sports, Mi Wei Video, Dicos Dicos, Luckincoffee, and Master Kong Ice Tea. As of now, at least nine of the 25 official partners announced by NBA China have publicly announced their termination of cooperation.
How much will the Rockets lose with the withdrawal of these sponsors?
"There is no way to find specific information about these contracts in the open channel, but from the figures of 17 years ago, each company will be in the millions.
In 2002, after Yao Ming joined the Rockets, Yanjing Beer took the lead in signing a six-year, $6 million sponsorship contract with the Rockets. "
Before 2017, the Rockets' Chinese sponsorship brands were maintained between 4 and 8 years. The domestic brands such as Peak, Founder Group, Anta and Kunlun Lubricants have sponsored the Rockets. The brand sponsors from China once occupied the Rockets. The team sponsors 8%-10% of total revenue.
After 2017, the Rockets will accelerate the development of the Chinese market, hoping to increase the number of Chinese sponsors to 12, and increase the proportion of total revenue to 20%.
According to rough estimates, the loss of the Chinese market, the Rockets will lose 400 million yuan in losses each year.
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