wabuffo

"If you've wondered how committed Washington is to making crypto succeed in the US, that tells you something." I thought the bitcoin maxis were libertarians who espoused a monetary medium free from big government involvement. I guess their new mantra is that "we are all chartalists now!" lolz. Bill

I'll put a marker down and say he can't do it for reasons I've laid out before. But beyond on that, I'm not sure why this should even be an objective for the Fed. There's no upside and only downside since too many reserves isn't a problem, but even a tiny bit too few reserves and things immediately go haywire in the Fedwire payments system and the short-term interest rate the Fed is trying to control. Meanwhile as the US (and global economy) grow(s), the demand for central bank liabilities grows organically so any balance sheet downsizing objective has an ever so slight headwind. Bill

For comparison, here United's Mileage Plus spin-out exec summary page during that Covid summer: https://ir.united.com/static-files/1c0f0c79-23ca-4fd2-80c1-cf975348bab9 This is a "business" with stable & growing revenues & income. United put a value on its Mileage Plus program during this transaction of $21B, IIRC. Today, the entire airline is valued at $29B, FWIW. United paid the last of the debt issued by the SPE last summer - so this is a giant cash box now that gives United almost $8B of growing "float" as a liability on its balance sheet. Bill

All of Buffett's favorites combined - float (get cash today for miles that are spent at some point in the future, with some breakage where miles don't get spent at all) and the ability to print one's own currency out of thin air. I don't think it's an accident that Buffett gravitates towards the airline with the Amex partnership. These loyalty programs also delay profit (and tax) recognition) until the points are used (typically a weighted average duration of 2 years). And what is the real "cost of goods" charged against points revenue to an airline for providing a seat? Plus, the airlines are like a sovereign currency issuer - in addition to breakage, they can depreciate the currency required to spend on an airline ticket at will (up to customer pushback, I guess). We got a sneak peak at how profitable the airline loyalty programs were during the depths of Covid in 2020 when both United and Delta pushed their loyalty programs into bankruptcy remote SPEs. This was done in order for the SPEs to issue debt and upstream the cash to the airline to "keep the lights on". There was so much demand for the debt that the $6.5B was upsized to $9B, IIRC. Here's Delta's summary of its program (for the 2019 year) from its 2020 roadshow for the strategic transaction described above: https://www.sec.gov/Archives/edgar/data/27904/000119312520244688/d27099dex991.htm Bill

Continues to rise - back to levels from a year ago. Bank reserves are still stubbornly under the Fed's $3T target. This is the level the Fed believes is a minimum level in order for the Fedwire value transfer/payment clearing system to function properly while also permitting the Fed to control its target interest rate. You can see the rise in Fed o/n repo (i.e, Fed lends reserves in exchange of Tsys/Agency MBS) in late 2025 around Nov, again in Feb and a small spike on tax receipt day (Apr 15). If you look at a graph of reserve balances, this demand for o/n repo matches up pretty well generally with total system reserves falling below $3T. I would also reiterate the growth in two Fed b/s liabilities that the Fed doesn't control - 1) currency in circulation which grows organically year after year, and 2) US Treasury general acct which is swelling to over $1T due to seasonal inflows of tax receipts in April (also reducing reserves temporarily). Less to do with QE and more to do with well-functioning monetary plumbing. Even so, its a 2% increase from the lows of six months ago. Pretty ho-hum. FWIW, Bill

KNOP - the "floating pipeline" company.... Actually bought them at $5 a while ago, bought them again when the GP made a take-under off at $10 and recently when the take-under offer was abandoned and the stock dipped briefly. And today.... slight bump to the quarterly distro and some vague-ish capital allocation review language.... Bill

Did anyone catch Buffett mutter “they can print money” when talking about the fed with beck quick on cnbc? I assume he understands the true plumbing but@wabuffo do you need to give him a call? He is not the only one who doesn't understand the plumbing. Sad. Bill

He's just pointing to the higher rates/spreads from absorbing this refinance. He is just hand-waving because he doesn't understand any of it, apparently. What would we do without "experts"? Bill

Torsten Slok pointed to $10T in gov bond to be refinance, $2T in deficit, sigh.... Treasury securities are pre-funded by the deficit spending which creates the net financial assets for the domestic private sector (and foreign sector via the rest of the world's net export to us) to purchase them. Repeat after me - there is no crowding out. And by the way, if the Treasury didn't issue securities, rates would fall to zero (or even go negative). Its a pity these pointy-headed economists don't even understand any of this... Bill

How did you come across this one? I follow all the BaaS banks pretty closely. Bill

But I will look once more into GDOT, probably for the time after the cash distribution for local German tax reasons. Here's the presentation about the proposed transaction: https://ir.greendot.com/static-files/76c0c810-100e-46ae-8c7a-85107e3a2669 Bill

Maybe @wabuffo looked at them too and have an opinion about them? For me it looks to be a quite unique model they are driving here - low risk loans/assets with low ROA, highly levered and very efficiently run. Don't know them, have not looked at them. What I am buying right now is GDOT (Green Dot). GDOT is a fintech that partners with Walmart, Apple, and Intuit that also owns a bank sub in Utah. GDOT (along with CASH) was one of the pioneers in the development of open-loop prepaid cards in the early aughts. Its a special-situation right now because GDOT is entering into a transaction that was announced last November with a private equity firm + a private AL bank. It will be split in two - the P/E firm is buying the fintech and the AL bank (CommerceOne) is merging with GDOT's bank subsidiary and entering into a long-term MSA to continue to provide BaaS services to the fintech. If it passes regulatory approvals and side-steps a lot of execution risk (both big ifs), for $11.10 per GDOT share you will get: 1) $8.11 in cash, and 2) stock in a new publicly listed bank at <50% of tangible book. But it won't be any ordinary bank - it will be a BaaS bank (like CASH and TBBK). And these banks trade at 2-3x tangible book due to the structurally high ROAs/ROEs from significant non-interest fee incomes & low cost deposits. GDOT has had regulatory issues in its recent past and it had a hiccup which caused it to delay its 10-K from last week into this week so there's some hair on this one. Please do your own due dily here. Bill

TwCitiesCapital... That's a small change - and as I said, the Fed wants to get total reserves to $3t. At the end of Dec, 2025, total reserves were at $2.85T. The Fed has gotten them back to target which gives context to the small change since end of year. Bill

Fed is no longer in runoff. Fed's balance sheet started expanding again in December. Where do you see it expanding? They are now in stasis. It might wiggle here and there depending on things the Fed can't control (US Treasury TGA, currency) - but the Fed is trying to keep its balance sheet flat. Some people point to T-Bill buying, but that's because it must offset the run-off on its MBS portfolio. If it doesn't do that, its balance sheet (and most importantly the total system reserve level) shrinks. The Fed has a "redline" below which it thinks it must not let reserve levels breach. That level is ~$3T. Late in 2025, reserves fell below that level for a number of reasons and the Fed will try to pin that level to its target of $3T +/-. Bill

I think @wabuffo is brilliant. I've learned a lot from reading his previous posts. I appreciate that - but honestly, I am not here to lecture. I really enjoy the free flow of ideas and discussion and just want to participate in that idea flow. Not to sound like an old fart, but it took me a long time to understand how the monetary plumbing of the US works. There are many good authors to seek out who can do a great job of explaining key concepts. Yes - many of them fly the MMT banner! Don't let that be a turn-off. If you ignore their policy prescriptions (I know I do) and just try to follow their explanation of monetary system transactions as one would look at a general ledger of debits and credits, it starts to make much more sense than 99% of the stuff out there from so-called "mainstream" economists. Folks like Warren Mosler, L. Randall Wray, and Scott Fulwiler are where I would start. (if you are interested. If not, no problem). While macro shouldn't be necessary in selecting high quality securities, I have to acknowledge its been a confidence booster for me that I can see through the fog of Fed and Treasury activities in relation to the US economy that keeps me from following the inevitable bearish (and often misplaced) commentary about the outlook for the US economy. Bill