Takeaway: This webcast aired on Wednesday, June 23, 2021 at 1:00pm ET. Replay is available below.

Dear Hedgeye Nation,

We are excited to bring you another heavy-hitting macro-dose of financial insight with our newest Real Conversation on HedgeyeTV

Throughout June, Hedgeye CEO Keith McCullough hosted a special Real Conversations series with four leading market strategists: Inflation Tsunami: Investing During A Rising Inflationary Tide

In this edition, our Director of Research Daryl Jones was joined by Jeff Snider, Head of Global Research at Alhambra Investments.

For access to the entire slate our special "Inflation Tsunami" interviews, click here.

ICYMI | Snider: "The System May Be More Fragile Than People Anticipate" - Snider 6.23 1PB

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Jones: The first topic I wanted to talk about was reverse repo. You have tweeted about this, and I think this is very accurate, that a lot of people don't even know what it is. They'll Google it, they'll read about it on Investopedia, they'll go on TV and talk about it in very broad terms. On a basic level, the reason I bring this up is that we've had a real ramp in reverse repo a couple days ago. Maybe you can explain in layman's terms exactly what this is, why it is ramping up, and what the implications potentially are? 

Snider: Well, from a policy perspective, and how the reverse repo window is designed to work, it's a tool for the Fed to soak up excess reserves. That is the idea behind it. When there is an excess of bank reserves or cash or any sort of thing like that, the Federal Reserve provides an alternative for cash lenders to actually lend cash to the Fed. The reason they would do that is because they set a rate for the reverse repo, which theoretically no one would lend less than that rate, because why would you? 

If you are going to lend to the Fed at say 5bps, then you wouldn't lend to somebody else for anything less than that. So by soaking up all these excess reserves and putting a floor rate under money markets, it allows the Fed in theory to control money markets from the bottom so they can put a floor on money market rates to keep everything into the policy range, which is really all the Federal Reserve cares about. 

Are we keeping the Federal funds rate, the effective rate, and all the related rates inside the policy range? Reverse repo is nothing more, at least from the theoretical perspective, that's really what it's supposed to do. So if there is an increase in excess reserves and you see money market rates outside start to fall, you would expect that use of the reverse repo would go up because it provides money market participants that alternative to do something else with their free cash. 



Jeff is a guest contributor at Hedgeye who is known for his ability to discuss the arcane and esoteric aspects of macro in a clear and concise manner. He is described by Alhambra as "not an economist, which is probably why he's been able to develop a working model of the global monetary system. His research is unique and informative in ways an economist would never consider."

Check out Jeff's recent "Hedgeye Investing Summit" interview with Keith: ICYMI | Snider & McCullough: The Fed Is Trying To Play Bad Cop

Read his recent guest contributor piece on Hedgeye.com below: The Outlook And Outcome Of Global Fragility (脆弱性)