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Jerome Powell Has So Much Money, Why Does He Want To Deal With All Of This?

Nothing to see here. For the first time since 2008, the Federal Reserve pumped $53 billion of cash into money markets to ease soaring short-term borrowing costs using repurchase agreements, or a repo. In the simplest terms, an overnight repo allows banks to borrow cash by posting securities and agreeing to buy them back the next day at a higher rate, determined by the repo rate. The repo rate jumped to 10% yesterday from just over 2.25% on Monday.

The central bank said they would inject another $75 billion today due to "technical factors" that led to a cash shortfall. The Fed's shrinking balance sheet over the last few years, increased federal borrowing and corporate tax payments has left banks facing a shortage of funds. The result is soaring short-term rates, which affects both corporations and individuals.

The Federal Reserve's federal-funds rate, which influences borrowing throughout the country, is currently targeted to stay in a range of 2% to 2.25%. The rate has been creeping towards the high end of the range, hitting 2.25% Monday with bids coming in as high as 5% yesterday.

"Bond King" Jeffrey Gundlach believes the spike in repo rates could cause the Federal Reserve to expand its balance sheet. "Is it an imminent disaster? No. The Fed is going to use this warning sign to go back to some balance sheet expansion," said Gundlach.

Not that there's ever a good time for this type of action in money markets, but this week is particularly poorly-timed. The Federal Reserve's rate-setting committee wraps up its two-day meeting today with their decision on interest rates coming this afternoon. The market is seeking at least a 25 basis point cut to the federal-funds rate to get ahead of a slowing global economy.

So in the "greatest economy ever" with stocks just below the highest level in the history of the world, the Fed is now pulling out tools from the depths of the financial crisis while calls for more easing continue to grow by the day.

Leftover Crumbs

  • Maybe they should've stayed with Amazon. Last month FedEx decided not to renew its shipping contract with Amazon. Yesterday, FedEx missed earnings and sales estimates, lowered 2020 guidance and the stock fell 10%. “Our performance continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty,” Chairman and CEO Frederick Smith said in a statement. The lowered outlook reflects the loss of Amazon and increased shipping costs.

  • Well that was quick. Saudi Arabia said oil output is set to return to normal levels by the end of the month after this weekend's attacks took nearly 6 million barrels per day off the market, representing 5% of the global oil supply. Oil prices fell more than 5% following the news, after rising about 15% on Monday, which was the largest gain on record

  • Hopefully your dog can still eat. Chewy, the online pet food retailer, saw its shares fall to new all-time lows after reporting a larger-than-expected loss. The company raised its full-year sales outlook, but that wasn't enough as stock-based compensation expenses caused losses to increase. While shares are still well-above the IPO price, investors who bought after the open on its IPO day are now sitting on losses. Like other popular IPOs Slack and Lyft, Chewy hit its highest level ever the day of its IPO and is now -30% from the IPO-day high.

  • This one didn't even last the length of a dolphin pregnancy. SeaWorld's CEO is quitting, effective immediately, after just seven months at the helm of the theme park operator. The now-former CEO's resignation resulted from disagreements over the board’s involvement in the company's decision making. SeaWorld has been struggling since the “Blackfish” documentary came out in 2013, with attendance still below 2012 levels. The company will now search for its fourth CEO in the last five years. 

  • If you've been waiting to invest in a real life Ari Gold, here is your chance. Endeavor Group Holdings Inc., which is co-headed by the man who was the inspiration for the popular Entourage character, is set to go public this fall at a valuation of $8 billion. The company, which owns Hollywood's largest talent agency and Ultimate Fighting Championship, will be the first talent agency to hit the public markets.