FUDSTOP, Charlie makes a prediction that could make you a millionaire!

Libor is huge. … and its going away
LIBOR underpins more than 400 trillion of financial products including retail mortgages, private student loans, corporate loans, derivatives and other financial products
There were a couple of bad actors that were manipulating and the regulators wanted to fix LIBOR so they wanted to fix this whole issue but at its core, the interbank lending market no longer exists. They wanted to deem libor nonrepresentative because it can’t be fixed and its not based on real transactions. We have panel banks that there aren’t real trades for me to base my rates. And why would I subject myself to fines that I’m not responsible for. So alexander brought all the panel banks to the table and submitted that all banks would continue to use LIBOR until the end of 2021. So when we talk about LIBOR transition, the way we refer to it and after 2021 we aren’t guaranteeing that we would submit LIBOR quotes. There are some newsday articles that are suggesting that there may be clarity but its not a guarantee. In the US MARKET, goodbye LIBOR, HELLO SOFR. In June 2017, the ARRC identified the secured Overnight financing rate (SOFR) as its preferred alternative for USD LIBOR
-Secured: ased on trades in the triparty, cleared bilateral and certain other US treasury repo markets
-Overnight: The rep rates used are overnight and reflect borrowing for one business day
-Financing Rate: Represents secured funding costs for financial institutions pledging US Treasuries
The reason SOFR is surpassing 800 billion in trades because it represents the United States Repo market, it’s the deepest and most liquid borrowing market in the US and its based on its secure trades. We will continue to see people transact in fully secure treasuries. However, that’s a very different rate from LIBOR. Libor is based on an uncollatarized rate vs SOFR which is secured overnight repo rate. There are various tenors, all forward-looking. The challenge in order to derive a forward looking termrate and still be compliant after the financial crisis.
Some of the critique of the SOFOR there is some volatility, in September in 2019 there was a tremendous spike in the repo market, you had tax time, and effectively you didn’t have the right match in supply and demand.
So lets focus on what happened this year. There was a speak divergence between LIBOR vs SOFR. What you can see here very clearly as the, we saw SOFR decrease, we saw fed rate decrease, and we saw LIBOR increase. So as a borrower, I think that the preference is that something that moves with the fed rate. You want something that is lower and you don’t want something that spikes during a correction.
The reality is that LIBOR is going to cease to exist as a credit entity and the transition is going to be going into SOFR
Does the shift to SOFR mean that the FED will be administrating the Fed rate?
Yes, it is planning to continue to administer the rate. No one is going to think that the FED is going to engage in any manipu