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Rumors of the U.S. Federal Reserve's demise – in part because it was "duped" by the biggest bank in the United States – have been greatly exaggerated, though headlines would have us believe otherwise.
MarketWatch declared in April, "The Federal Reserve Has Lost Control of the Financial Markets."
The Wall Street Journal asked in June, "Has the Fed Lost Its Mojo?"
Not only has there been no letup, but fearmongering headlines are being ratcheted up.
Just last week, on Dec. 18, The Economist, with a graphic of a fire extinguisher in the shape of a dollar sign poised over rising flames, cautioned, "Despite the Fed's Efforts, the Repo Market Risks More Turbulence."
Repos (repurchase agreements) are short-term borrowing facilities traded in the fed funds market, where banks and other systemically important financial players borrow from each other. It is frightening that they blew up in September – right under the Fed's nose.
It's even more frightening that the turn of the year could put exponentially more pressure on repo rates, and spiking rates could force selling – with continued selling as margin calls force asset prices lower and lower.
Once again, it looks like we're looking over the edge of an abyss at potentially huge market losses.
But the truth is the Fed hasn't lost anything. At least not yet.
Maybe the Fed was duped by the biggest bank in the United States into restarting quantitative easing (QE). Or maybe it saw what was happening and let it happen to scare the hell out of banks and overleveraged hedge funds.
No one knows the truth there. The Fed's never going to tell.
But, the "Fed's lost control" narrative is fake news. Sure, one hand came off the tiller, but it still has control of the ship. At least for now.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.