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Repo Repo Repo...

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For the third day in a row after the 100 point drop in the Dow on Monday the Fed has injected substantial liquidity into the system through the repo market. Monday at 10 a.m. they announced a $5.25 billion one day repo. The stock market recouped one third of its losses by the end of the day. Yesterday to replace this liquidity, they announced a $8.75 billion repo. Today they just announced a $9 billion repo.

You can draw your own conclusions from this activity, but the effect is like a sponge on volatility. Any market decline is met by an infusion of liquidity. The broker dealers that receive this liquidity cannot but help put it to work in some way, either by lending it out to margin accounts or buying securities themselves.

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