The One Thing
Rodney Johnson | January 28, 2020 | In the 1991 movie City Slickers, Curly (Jack Palance) gives Mitch (Billy Crystal) a gift. Curly tells Mitch the secret of life. Curly tells him that the secret to living is, "One thing, just one thing. You stick to that and everything else doesn't mean…" well, you get the point. Mitch, being the inquisitive city type, asks what that one thing is, and Curly tells him, "That's what you've got to figure out." It makes for a poignant scene in a comedy, but it's a cop-out. Rarely is there a time when situations beyond those experienced by three-year-olds are driven by just one thing. But there are times when just one thing can sway an entire situation, like when one of my daughters broke up with a guy because of bad breath. Was it really just that? Probably not, but the guy lost a great girl for lack of dental hygiene. When it comes to the equity markets at the start of 2020, we've got a lot going on. From Phase 1 of a trade deal with China, to earnings, GDP, and low-interest rates, many things are pushing on the decisions that investors make every day. But if we step back a bit, we can see that there is one thing, just one thing, that rises above the rest. If we understand that, then the rest of it falls into place. Today, it's just the Fed. More specifically, it's just the Fed supporting the repo market. The major stock indices gained around 30% last year, but not in a straight line. Or, rather, it wasn't in a straight line until late September. In late April, the market rolled over and lost more than 6%. After recovering, the markets dipped again in late July and early August, down another 6%. Stocks wobbled a bit in late September, but then found their footing on September 30 and began a steady march higher with almost no volatility. We didn't even have a scare in the normally rocky month of October. We have one person, or group, to thank for that: Chair Powell and his band of Fed governors, and how they are dealing with the repo market. A Quicker, More Reliable Road to Retirement If you're tired of worrying about money, what markets will do next and stressing over your financial future, the information Michael Coolbaugh just released could change your life. Today, the former Wall Street trader is revealing the details of one of his most powerful trading systems in an unprecedented new video. Click here to watch now! Repos, or repurchase agreements, are contracts to lend something, like a Treasury bond, to someone in exchange for cash, with an express agreement to reverse or unwind the transaction the next day. That might not sound like a long time frame, but if someone does it every day, then it can start to make sense. They are stringing together daily transactions that can stretch into years, allowing them to borrow at overnight rates even though they use the funds for much longer. If you own a 30-year Treasury bond at 2.3% but can lend it to someone overnight in exchange for cash at the overnight rate of 1.5%, then you're still earning 0.8% more than you're paying, and you have money to buy something else. The loan needs to be repaid in the morning; just borrow again. Individual investors don't play this game. Hedge funds do, along with other large investment funds. They use borrowed money to increase the size of their portfolios, banking that they can earn more than the cost of borrowing. With interest rates at very low levels, this isn't a high bar to clear. There's only one problem: banks aren't required to make such loans. This Week in Economy & Markets... | 
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