Repos Explained (and Why The Fed Uses Them)

[@ThePlainBagel]

Happy Friday everyone! Visit bit.ly/mbplainbagel5 to sign up for Morning Brew, today's sponsor. :)

[@Phoenixoverburn]

Hi carig can you do a video on credit unions, ive been considering investing with them and just reinvesting the dividends to provide stable wealth accumulation but i dont see many youtubers talking about it (not YOLO enough for them 🤣). Thanks for reading if u do see this.

[@byronwheeler]

When I think Repos I think of the short name for Repository. In the software development industry we store our source code in Repos.

[@bassman9261995]

Really? Git out of here!

[@MsCravenMoorehead]

You don't Node what you're commit'ing to.

[@maukschilol]

Same here. Git flexible with your interpretation of words ;D

[@MKVRiscy]

This is the best explanation for repos I've ever come across. Your ability to explain things in such a digestible and entertaining way is a seemingly rare skill in the finance sphere

[@charliefinnie]

So true, Richard really is great at making complex topics simple to understand

[@darius2640]

when i hear repo, the first picture that comes to mind is some repo employee sneakily stealing back a new mercedes from a trailer park on the wrong side of the tracks neighbourhood, because some irresponsible individual has got himself into too much debt but will not give up without a literal fight

[@feynstein1004]

Does that employee happen to be named Franklin by any chance?

[@JimMcCann500]

Hey Richard, I certainly enjoyed this video...I remember hearing something about this but didn't really know what it was. I was wondering, however, could you perhaps create a video on the pros and cons of Fiat vs Gold Standard (or any sort of tangible asset based currency)?

[@InvestorCenter]

The fact that you can make a video about the Feds use of repos and make it entertaining is why this channel is so great

[@charliefinnie]

OG comment, ignore the bots

[@PierceJPeterson]

Love all of the cartoon animations you put in your videos and how you explain things in an easy to understand way. Great stuff man!

[@charliefinnie]

Great editing really can go a long way when it comes to conveying your message

[@Gundum]

The next financial crisis will definitely include the repo market

[@spikeygoc]

The fact you can make an entertaining video about the feds use of repos is why this channel is so great 👀👀😅

[@charliefinnie]

Richard really is good at making complex topics entertaining

[@jameshede2730]

We have recently seen a huge increase in reverse repo agreements. This is the gov't selling collateral to banks overnight, which signals that there is too much liquidity in the system. Because money is tied to inflation, while high-quality collateral has a more stable value - even overnight - buying those things makes sense for people dealing with massive amounts of money. But I don't get where the liquidity crisis is, if this is the case. Am I wrong to think that maybe this repo market is perhaps being used for the wrong purposes: to buy cheap collateral, rather than to save a couple bucks on a million to beat inflation?,

[@divyaalok5538]

जय श्री राम🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏

[@kevincruz7987]

I learned about repos in my intermediate accounting class last week haha

[@TooLateForIeago]

Another question: Why allow your bank to get to the point that it doesn't have cash to operate for 24 hours? Even the bulk of Americans living paycheck to paycheck can make it a week or so.

[@yasinnabi]

Wonderful and great content. I enjoyed watching , thanks for sharing it

[@seanagon182]

Great video! Great explanation. It’s just Dawned on me the how Repo similar to QE. Reverse Repo like QT. God Operation Repo. I haven’t laughed that hard in a while man great video!

[@whatsup3519]

I have a question. I am asking this for years.What if share price go zero if not how ? And even if they go how can it recover? How can fundamental play a role in it? And bases on market sentiment or public they wouldn't look at fundamental instead they look on price . So if price go down panic sell cause shre to fall zero . Do it occurs? Pls answer my question

[@kvikende]

Share prices don't go to zero during a panic. Why would anyone agree to give something away for free if it doesn't cost anything to hold it?

[@ThePlainBagel]

A panic sell won't bring a share to zero; so long as there's a chance the company is a going concern, the shares will have some sort of value, although it could be mere pennies. A stock ONLY goes to zero when a company goes bankrupt/out of business, and even then the shares might have some value if the liquidation of the company is expected to lead to some return of capital to shareholders. Hope this clears it up.

[@charliefinnie]

Share prices rarely go to zero unless the business fails, there are literally tons of examples of companies with no revenue but who still have billion-dollar valuations

[@kvikende]

@@charliefinnie No *net* revenue.

[@alexandermano3028]

Any stock market rise, means someone is willing to pay your stock at an offer cost, and in order for you to gain any, someone must also pay the offer cost, this is how a stock market gains in value, unless nobody wants your offer cost then your on the end of the line to shoulder all the loss, the stocks you bought in the market are non-voting shares and these are a less type of shares and true cost is only 0.001 usd par value ( i.e. Google), Market Cap computation is false, if Google cost 2,710 usd with market cap of 1.794T, if it was offered at 2,715 then i bought only 1 share the Market Cap becomes 1.797T with an increase of only 5 usd for only 1 share, please do the math and also, total market cap is at 30Trillion while total mone in circulation is less than 10 Trillion therefore there is not enough money to cover the stocks. Pls check if im wrong.

[@SenorJoeBiden]

Thanks, Mr. Bagel. How does this differ from the overnight Fed Funds Rate?

[@Polish95Hero]

Why the **** would anyone provide liquidity for the repo market when they can collect yield from short duration government bonds or even deposit excess cash at the fed?

[@fitnesspoint2006]

I can read this text book explanation in a wiki article, you need to give examples of this transaction, what are these daily bank obligations? why would a bank need to borrow overnight hundreds of millions of dollars? and just for one day, only to buy it back? if they were in such need how could they afford to buy the treasury note back the same day? are the banks day trading in the stock market with this money to get a quick gain? need examples

[@pwatom22]

2 to 4 Tr seems horrendously high. Goes to show the fractional reserve requirements are insufficient.

[@sweettwiss1194]

Great video! Can I ask what software you used go demonstrated your video? Thanks!

[@elvispresley3234]

Love your stuff. Please talk a tad slower, and don't trail off. You tend to talk a tad too fast and speed up while lowering your voice at the end of some sentences. :))

[@davidholloway7119]

Could the repo market influence some of the polices we seen around the Coronavirus?

[@gouthamraj5265]

I have a question, Why does bank lend to other banks when the IOER is higher than federal funds rate ? It is safe and risk free? Then why lend?

[@telotawa]

4:34 lol, if you're watching this in 2023, look up what repo rates are now

[@audreylee8043]

I still get confused with borrowers and lenders especially they seem to switch positions at times in the video....

[@Jonny9403]

But why there is a need for a repo market if they just can borrow money from the fed for nearly 0% interest rate? This is a point i don't get.

[@rodsr9906]

In the US, what is the difference between the Fed funds rate and the policy rate?

[@KamokgeloSello]

7:06 What is the difference between the Repo rate and the Federal Funds rate?

[@hunir1]

I’m a repo trader (VP) for a bulge bracket investment bank with 6 years of experience and what you have mentioned in this video kind sir, can only be described as a “school boy” / basic investopedia researched understanding of what repo markets are, the players and how it works. Why are you making a video when you haven’t the slightest clue about this world ? This is complete misinformation. Very disappointing

[@KamokgeloSello]

Hello. At 7:06 he mentions the Federal Funds Rate. Could I kindly ask, if you can be able to help, what is the difference between the Repo rate and the Federal Funds rate?

[@MyFinancialFocus]

I’m a simple man. I see a new plain bagel video. I click. :)

[@schentler]

tech puns incoming read the comments it already happened

[@mjsmcd]

H0w do u convert annualized repo rate to daily repo rate?

[@0DTEVIXCALLS]

They're coming back down

[@juanaguilar7458]

Very nice man. Really explains the topic.

[@wayneshamba6961]

Yo Richard, please make a video about NFTs. I'd love to hear your take on them. And as always, awesome video man!

[@charliefinnie]

That would certainly be an interesting watch

[@yingwong5625]

Sky high rrp by fed right now. Lol

[@NOMVrewq]

Awesome video!

[@roym1444]

Can you breakdown the eurodollar market... And how it effects global fx flows. It's the biggest market but never talked about

[@carloschu7127]

We need to keep an eye on the NY FED Repo, when the chairman of the FED decides ( pivot the market ) to lower interest rate, starts to buy bonds back and QE like there is no tomorrow at the last quater of 2023. Hopefully there is no more war, no black swan events.

[@antonomaseapophasis5142]

Please discuss selling. It is one thing to make an allocation, follow the allocation for a term of more than five years and see it succeed. It is much more difficult, in my opinion, to know how, when, why to sell to actually realize these gains, and do the really important thing of putting that money to work to improve one's life and the security of one's future. E.g. two positions: COST, VDIGX BUY & HOLD positions, but what is your systematic way of reviewing these positions to see if their status is changing and evaluating whether the time has come to realize these potential values as real values which can pay for real purposes?

[@Trunks9Thousand]

There is only one key thing left I would like to get answered. Why do banks need 2-4 Trillion daily in cash to "meet their requirements"? What are these trillion dollar requirements, it cannot be people demand money in cash, so what is it and how can the demand be this large? Thanks!

[@acholouscognoscente]

Thank you, bagel man.

[@Derekjcb]

the repo rates shot up since this video

[@customersupport9055]

WHO ARE THESE BANKS GETTING CASH FROM? I don’t get it. Why is there a liquidity crisis if banks make money, can someone explain this to me?

[@customersupport9055]

I get that strong banks/fin ints can lend to these weaker banks, but why? Where does money come from exactly? Like why does the central bank have to step in and what exactly are bank reserves that come from the central bank? Explain please!

[@customersupport9055]

How did the Fed Reserve step in exactly, you talk about the Fed being this overlord.. but what exactly did it do when the repo rate shot up. I need answers!

[@icyblue4541]

From the federal reserve. If you go back and check repo arrangements you’ll see indices go up shortly after these transactions occur and significantly. When price loses the support of the first of a sequence of transactions the move reverses completely at times. It’s actually a big indicator when combined with critical levels.

[@Cat-zc8nj]

I just assumed repo meant repossession because of those repo shows lol.

[@charliefinnie]

I was the same lol

[@hectorarreola3375]

lmao, I also thought the repo man first.

[@SpaceRanger9840]

Repo market = pawn shop

[@AJonVolk]

Repos and the financial system remind me of a a TV show called skins. There's a bit where a girl recovering from bulimia talks about tactics to make it look like she has eaten when she hasn't. One of these tactics is chopping up all of the food on the plate and moving it around while talking a lot and making eye contact when she takes one of the 3 bites she intends to before diverting the other person's gaze somewhere else. Then she would make up a reason she needs to leave suddenly and leave a mostly full plate of food on the table while looking like she has eaten. Central banks will move a lot of numbers around and talk a lot then direct people's attention to CPI or Interest rates before running out of the spotlight and leaving people to focus on those before they think any further into the system and wonder why Repos or the fractional reserve system actually needs to exist. All of these weird derivatives seem to be in place purely to make more money out of things that already exist. I might make a video on this...hhhhmmmm

[@lc285]

Repo crisis of September 2019 sounds like a computer virus infected the financial system. Like AI algorithms running rampant. What financial injections occurred when these repo rates spiked?

[@skolarii]

If you see a headline about spike in repossessions, make sure you have a ton of liquidity and prepare for the best discount sale of your life. This joke is brought to you by the 2008 meltdown bois

[@aaronhassell8615]

Enjoy your videos, thanks for making! Do you ever do requests? Would you ever make a vid about what to look for or look out for in small caps? Thanks!

[@fitfirst4468]

Damn, looks like our friend Richard has been hitting the gym

[@senebobo1007]

Hyperfication

[@KageNoTenshi]

so basically a pawn shop

[@i_i8924]

ITS STILL REAL TO ME DAMNIT!

[@yaropolkstalride9145]

Can we say that it was a tiny QE/QT program from the Fed providing liquidity into repo market?

[@charlesnguyen6510]

Hey Bagel, I also live in Canada. My question is where do you buy your polos?

[@AugustNocturne]

Awesome Richard. Great to have you in Canada. Not at all an easy concept to understand. So glad to find the explanation here. Keep pumping out great content!

[@drajitshekher]

Did i understand it completely, no. But i did learn enough to realise the use and significance of repo. Thank you

[@PsycheKane]

Thank you, I'm ashamed to say I've never been able to understand this topic as well a Central bank's policy rate

[@92AkshaySharma]

Very informative. Thanks for explaining. Please do another video on what is fed funds rate

[@roym1444]

Also were is the most reliable source to get repo data/information to spot any ripples in the market

[@tomasnunez8518]

Lord bless

[@manav.1404]

Personally my favorite finance educator

[@charliefinnie]

Definitely the one who talks the most sense

[@aldenfriend9625]

… shit

[@ExtraSteps]

What software do you use to edit your videos and would you recommend it for someone just starting out?

[@jhwyung1]

Great video! Now do Securities Lending and Borrowing!

[@mchristie]

Would love to see a video on how dividends are arranged and paid. For example, could I have $1000 invested in stocks but each day trade to another stock and collect a dividend payout ever day? I assume not, but why not?

[@BenHC]

Two things to consider. One is the date of record vs ex dividend date, ie. The date you must hold the stock to get the dividend on the dividend payment. This may require you to hold the stock for a period of time before the dividend. Second is the impact of dividend payment on stock value. Would someone buy the stock at the same price you paid after you collected the dividend? So you could buy stocks before their date of record and then trade to a different stock and keep getting dividends.... But you'd keep taking losses in your sales... You'd net out negative most likely. But perhaps Bagel can do a video with more info/examples to better explain.

[@9HotBoatcha]

You can indeed collect the dividends but you need to consider the stock price drop when dividends are paid. Meaning if e.g. Apple pays a 1$ dividend, the stock price loses that same exact amount. Thus, creating a net zero game.

[@thomasa5619]

It’s not always exact but yes usually when a dividend is paid people chase the dividend and the share price fluctuates in a similar fashion It may be important to consider tax implications too, here in australia to receive any tax credits you need 45 days of exposure (either side of the ex dividend date), above a 0.3 delta

[@charliefinnie]

Even if you could time the dividends perfectly, I feel like you would lose out because you'd be basically end up trading but without a proper strategy

[@peters972]

7:29 nb

[@SmashedHatProject]

what made you decide to make your background orange and blue?

[@neal2049]

Ay what is that show about cars being taken? Looks fun.

[@AM-xg4vl]

what are the difference between repo rate and fed funds rate?

[@zzzanon]

Why are fed reverse repos ops controversial?

[@DennisFinancialDoctor]

Repo shows are so entertaining

[@liam-dr3vv]

So the repo rate is not the risk free rate?

[@MC-gs6cz]

The shirt really matches his skin color

[@AnyaKush]

Nope, still didn't get it

[@wantsoobaroo]

First example: repurchase agreement Bank 1: Hey bank 2, i need some cash. Can I borrow some? Bank2: sure, i have too much cash, what do you have in exchange? Bank1: i have these treasury bond + interest. But I'm going to need those Treasury bonds back the next day. (They only need the cash to meet their needs for the day and they rinse and repeat day after day as needed) Example 2: Reverse repurchase agreement agreement Is a transaction between the government and banks. All banks: hey government, i got too much cash. Can I give you cash for your Treasury bonds + interests? Govt.: Sure thing 1st example is basically banks exchanging cash with each other to meet their requirements. 2nd example is the dangerous one. First thing you should ask is. Why is the government buying back their Treasury bonds? Their job is to issue them, not buy it back. It's essentially useless to them, they don't need it to operate. In sense of what's going on- it's that the banks are getting cash + interest for essentially doing nothing but parking their money with the government. If you look at the recent spike, the banks collectively have been parking $1.6Trillion a day. Multiply that by 0.05% and that's $800 million a day in guaranteed cash from interests alone. That's $4 Billion a week, $16 billion a month. Why would they do this while stock market is at record levels? and they'd get way higher returns in the stock market. Now that's a question i can't answer. Just view it as the government printing money. You should ask yourself, where is that money going?

[@TM-hw5tq]

This is a really great video Richard.

[@Trooperos90]

Can u share these smooth led lights?

[@yashmehta7196]

I hear repo, I think Lehman

[@chrisl9508]

His shirt is the same color as him.

[@trikoloko_SPFC]

Now I *NEEED* to watch this TV show 😂

[@TheSmartamey]

Very well explained!!

[@trevorsvandrlik9104]

2:28 😅🤣😂 Love It!!!

[@BasementMinions]

Good to know!

[@alexgarcia6267]

Nice job bro

[@michaelsmith4904]

So what i still don’t understand is why the bank actually needs to borrow overnight. It’s not like somebody is going to come in the middle of the night asking for the money, right? Why can’t they just be short until morning when the funds they are expecting arrive?

[@tylerpeterson4726]

I'm also curious about what sorts of obligations are typically being covered. My guess is that it's mostly inter-bank transfers, like ACH payments that settle late in the afternoon and are also are pretty random as to if that day will be a net inflow or outflow for each individual bank.

[@talal5033]

most banks operate across time zones, and some banks really need securities overnight (reverse repo)

[@dismonia7]

First

[@stoundingresults]

🥇

[@jax9466]

WOW THATS INCREDIBLE

[@Greg766]

Awesome thanks I was waiting for a plain bagel video on this topic.

[@BIGSUCCC]

wish I would have gone long repo rates when watching this lmao