We Study Billionaires - The Investor’s Podcast Network TIP262: REPO Markets - What it is & What's happening (Business Podcast)
Sep 29, 2019
Macro economist Luke Gromen shares his sharp insights on the REPO market and its current challenges. He explains the significance of the REPO rate and how regulations post-2008 are shaping today’s financial landscape. Gromen discusses why increased Quantitative Easing could lead to a soaring stock market, contrasting U.S. and European interest rates and their effects on investments. He also offers strategies for retirees navigating volatility and underscores the importance of diversifying assets like gold during uncertain times.
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Repo Market Basics
- The repo market is the essential plumbing of the financial system, facilitating short-term loans.
- Dealers lend securities for cash with a small haircut, providing cheap and safe financing.
Repo Market Mechanics
- Repo markets involve two types: Fed funds (uncollateralized interbank loans with the central bank) and repo (secured loans between banks).
- Banks exchange assets for cash at an agreed interest rate, typically between the federal funds rate and a small premium.
Luke's Prediction
- In June 2019, Luke Gromen predicted the repo market issues, stating it was "broke."
- His prediction came true in September with a significant spike in repo rates, highlighting his foresight.