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[Geomean]

The New York Fed's securities lending program provides a secondary and temporary source of securities to the financing market that does NOT expand the fed balance sheet. Securities held in the Fed portfolio are loaned to primary dealers based on competitive bidding in an auction for overnight loans held each business day. Dealers borrowing securities pledge Treasury securities to the New York Fed, plus margin, as collateral for the securities loan. The scope of this program has sky-rocketed since official QE ended.

A number stock market participants have created or are using indicators to follow this borrowing/pledging and found extremely high correlations of the lending/pledging program to the rise and fall of the S&P. And have created trade signals using the data (think Wolf trader, interviewed on TFNN Friday, 1/6 by Larry Pesavento. Www.tfnn.com

While Chase gets the required accounting-balance sheet impact wrong, he is correctly sorting out market impact at the surface and has ferreted out a huge liquidity expansion growth driver that by the math can't be sustained (there are absolute limits on what can be borrowed)

Chase suggested that the fed has continued QE sub rosa through this program. There can be no doubt it has greatly increased liquidity.

This 2015 Fed working paper, " The Scarcity Value of Treasury Collateral: Repo Market Effects of Security-Specific Supply and Demand Factors" quantifies, in part, the price impact on the loaned securities themselves and cites research on its broader impact. Might be worth reviewing this area. It could help explain the levitation some see in asset prices. See https://papers.ssrn....ract_id=2489108