Get mind blown. The feds are cutting off what could be the last lifeline institutions have for borrowing money. They’re hunting down a whopping $720 billion dollars from a reverse repo.
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What is a reverse repo?
A reverse repo is where feds receive money from institutions such as hedge funds or banks due to borrowed securities; usually due to cash flow issues. The reason an institution would borrow money from the feds is because they don’t have other cash reserves. When hedge funds borrow money from the fed it usually means it’s a last resort type of situation.
How does this connect with AMC?
Why is this is significant to AMC and the ape community? The feds need their money back, like now. This could explain all the selloffs in the markets. It seems like institutions have liquidated a lot of their positions in the both the stock and crypto markets in order to pay back the feds now.
If hedge funds and institutions don’t have enough capital left in their margin accounts then they’re going to be in some real deep waters. This could finally be the end of it my friends. Short sellers’ nightmares have truly become a reality. I hear margin calls baby. Lets dive in some more.
The Federal Reserve is stepping in
Right off the bat I want to point out that the Federal Reserve is collecting $720 billion back from institutions who borrowed the money. What’s insane is that this maturity, or expiration date is on NET15 from the issue date of Wednesday June 9th, 2021.
This means institutions who borrowed all this money have to pay it all back by June 24th. This could very well explain why the stock market as well as the crypto market have tanked recently. Institutions need cash ASAP.
It’s likely institutions such as hedge funds needed to liquidate their accounts in order to pay back the feds. I mean what else could have possibly caused the entire markets to tumble all at once?
If institutions were borrowing money from the fed as a last resort, what does this mean for hedge funds moving forward? Will hedge funds who borrowed money from a reverse repo be able to cover their minimum margin requirement? And if so at what costs?
Will hedge funds be able to pay back the feds?
Hedge funds borrow money from repos as leverage, betting that they’re going to make money from shorting stocks before they pay back the feds. Unfortunately for hedge funds, they’re suffering major losses and the feds want their money back.
Any institution that has been shorting AMC, GameStop and other ‘meme stocks’ will be paying back the feds at a loss. But it gets worse for short sellers.
Not only are they paying the feds interest, but they’ve also paid a short borrow fee interest all year to borrow stock. Hedge funds are getting hit with a storm of karma if you ask me.
According to Business Insider, hedge funds lost well over $6 billion dollars since the start of May alone and short sellers have lost another $5 billion dollars since the start of the year. Millions more are disintegrating by the day.
Hedge funds are having a terrible 2021 to say the very least. I said this many months back and I’ll say it again. They should have closed their positions when AMC’s stock price fell back down to $8-$14. But I guess ego is king right? Their year is about to get a whole lot worse.
Key Points
- Reverse repo’s are when feds loan money to institutions having cash flow issues
- Institutions have to pay back $720 billion dollars by June 24th
- Hedge funds continue to lose millions to billions each day and are running out of lifelines
- Short sellers could face margin calls very soon if they cannot meet minimum margin requirements
This is a very exciting time for retail investors. Something incredible is unfolding right before our very own eyes.
Not only is history being written, but justice will be served for the 2008 financial crisis. The average retail investor is about to make the trade of a lifetime.
Will AMC finally squeeze?
I personally think we’re about to start seeing gamma squeeze after gamma squeeze. This will primarily be due to the continued buying pressure from retail investors as well as institutions losing a lot of money, resulting in willingly closing out their positions. And if it’s not willingly then the significant loss of money could lead to immediate liquidation through margin calls.
Short sellers will cave in, they will lose. Whether it’s now or later it really doesn’t matter. But they will. Just like a short squeeze, their fate is inevitable.
AMC Stock – Feds are done with hedgies
I want to leave this video from Trey the man himself regarding this topic on the reverse repo. If you aren’t subscribed to Trey yet be sure to do so.
He’s a technical analyst that sparked this entire movement with AMC’s short squeeze. I have a tremendous respect for Trey and will always give credit where it’s due.
And lastly. . .
If you found this article to be of value be sure to share it with the rest of the community. Most hedge fund affiliate media platforms will not report the positive occurrences that play in the retail investors favor.
It is up to us to help new retail investors become aware of the situation at hand and all news related to AMC.
This is why I publish articles that support the AMC community and the cause to the absolute fullest. The public deserves to know this information and they deserve this chance 💯.
Related: What is margin call in stocks? AMC saga
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To be honest, Frank, I am a bit concerned how the squeeze will be managed. I believe the HF still have ammunition. Hear me out:
The HF have pretty much all the visibility they want on what is going to happen next (good or bad). They probably know it’s going to be pretty bad.
However, a strategy that was raised on youtube this morning is that they may very well buy a large number of shares that they will strategically re-sell mid-way during the squeeze to simulate an end of the squeeze and create panic selling among the Apes.
It would be some variant of this tactic:
-squeeze starts to begin, share price goes up to USD 480 (say)
-Eviltadel starts block selling leading to a dive, bombard the market with propaganda and FUD
-Apes believe the squeeze is finishing and rush to sell, leading to a further decrease in stock price
-Eviltadel collects the shares sold in panic, collects money from strategically placed shorts
-Rinse and repeat
Hammering us with this type of tactics, Eviltadel may work its way out. At a cost, but that is one of the surprises they may have in stock for the retail investors.
Any view as how to manage phase two?
cheers,
Brax
Thanks for your comment Brax – it’s one thing to believe propaganda and FUD. Those who do will miss out due to their own naiveness. The people who make money are going to be apes. Apes who do their due diligence and have a strategy as well. I also believe that the community will continue to keep everyone informed regarding manipulative tactics. I don’t think we can easily be tricked into thinking a squeeze is finished when the data says otherwise. We’re in this because of the data, not because of the shill media or anything else. The data got us here so far. We also have to remember that regulations are being placed behind the scenes regarding overleveraged accounts. We have to trust these things in the mean time. And if they fail, then we will expose those entities to the world as well.
What about Lou vs Wallstreet make sure you give him credit…it’s DUE….WAY OVERDUE!!
It’s 15 trading days, not 15 days total. June 30th, not 24th.
Frank,
I’m a little confused. I thought the definition of a reverse repo was where institutions gave cash to the Fed and receive securities as collateral. From the NY Fed website “In a repo transaction, the Desk purchases Treasury, agency debt, or agency mortgage-backed securities (MBS) from a counterparty subject to an agreement to resell the securities at a later date. It is economically similar to a loan collateralized by securities having a value higher than the loan to protect the Desk against market and credit risk. Repo transactions temporarily increase the quantity of reserve balances in the banking system.
In a reverse repo transaction, the opposite occurs: the Desk sells securities to a counterparty subject to an agreement to repurchase the securities at a later date at a higher repurchase price. Reverse repo transactions temporarily reduce the quantity of reserve balances in the banking system.
Thanks for your comment Steve. More than happy to clarify. A repo is when Feds receive money from institutions while a reverse repo is when Feds loan money out to institutions. The chart links to a document where Feds are requesting the money they loaned out to be paid pack. “A reverse repo is a short term agreement to purchase securities in order to sell them back at a higher price”, Investopedia. Why do the Feds want their money back? Perhaps because money being lent out to short a growing company isn’t so smart. In this video Trey draws charts out explaining how this circulates: https://youtu.be/WDRxt5bFsT8 hope this answers your questions 🤝
In that video Trey says Reverse Repo is when the banks buy the Treasuries from the Fed. So the cash is going from the banks to the Fed in a Reverse Repo. I timestamped in the video where he says this https://youtu.be/WDRxt5bFsT8?t=225
Yeah you have it reversed Frank.
Reverse repo is when Feds receive money from institutions while a repo is when Feds loan money out to institutions.
The Fed is taking money in, not giving it out.
Hey! I appreciate the community bringing this to my attention. I have worded the excerpt more accurately.
These are bonds that need to be returned, correct? Not straight cash loans?
The feds loaned cash out to banks and institutions who further lend it to multiple institutions and hedge funds. This amount of money has to be returned. As far as I’m concerned it’s cash, not bonds. Not sure where the FUD of bonds came about.