 Hey everyone, this is Dan. In this video, I'll talk about the Overnight Reverse Repurchase Agreements, or ORR. The ORR, maintained by the Federal Reserve Banks, has grown from zero about 18 months ago to more than $2 trillion today. Yet, very few financial analysts have been talking about the ORR. In the July 29 FOMC press conference, with dozens of reporters asking Fed Chair Jerome Powell questions for more than 30 minutes, not a single word was said about the ORR. Why didn't anyone notice this $2 trillion elephant in the room? How does the ORR affect the stock market? I did some digging into the numbers and found something very important that I wanted to share with you. This is the ORR chart published by the San Luis Fed. As you can see, it went from zero in the beginning of 2021 to more than $2 trillion today. What exactly is ORR? According to the definition by the New York Fed, it is a reverse repurchase transaction in that the FOMC desk at the New York Fed sells securities to a counterparty subject to an agreement to repurchase the securities at a later date. Most importantly, reverse repo transactions temporarily reduce the supply of reserve balance of the counterparty. In other words, when an ORR transaction happens, the counterparty, which is a bank or another type of financial institution, receives securities such as U.S. treasuries from the Federal Reserve Banks. The counterparty then deposits money to the Fed. In my opinion, because the ORR transaction reduces the reserve amount of the financial institution, it has a net effect of reducing liquidity of the overall capital markets. Some people might argue that the money traditionally involved in the ORR transactions is the money that the financial institutions would have used for investing in money market funds, and therefore it does not impact the stock market. My opinion is that when the total ORR amount was small, that might have been the case. But when the total amount of ORR has grown to $2 trillion a day, and when the change of ORR amount is in excess of $60 to $70 billion a day on some days, the ORR transactions will most likely impact the stock market. I will show you the data in the next few minutes to prove my point. The Fed total assets and quantitative tightening or QT have been catching a lot of attention lately. How is ORR related or not related to the Fed total assets? This is a copy of the Fed balance sheet published on November 2021. On the total assets side, we see the securities in the Federal Reserve Banks, which is what we expect. On the liabilities side, we see an entry for reverse repurchase agreement, or ORR. During that time, the ORR totaled only $210 billion since then has grown 10 times larger and has exceeded $2 trillion today. This is a chart showing the movement of the SPY ETF since the middle of March. The SPY ETF mimics the movement of the S&P 500. During the time between April 18 and April 20, because of the change in ORR, the Fed reduced $159 billion of liquidity from the market. Soon after that, we see a significant market drop. After the market drop significantly on April 21, the Fed added $101 billion of liquidity to the market by way of ORR between April 21 and April 22. After that, the market stabilized. Then between April 25 and April 29, ORR took out $141 billion of liquidity from the market. Soon after that, we see the market drop. And between June 7 and June 14, ORR reduced $183 billion of liquidity from the market. Not surprisingly, the market dropped quickly during that period. The Fed then added $104 billion of liquidity back to the market by way of ORR on June 24. Then we see the market rebounded on June 24. The market has been recovering since the middle of July. So what's been happening with ORR since the middle of July? I will talk about that in the next few minutes. If you like what you've seen so far, I'd like to encourage you to click the like, subscribe and notification button. It'll enable you to receive notification when I publish my next video. It'll also encourage me to create more videos like this in the future. Thank you very much. Let's continue. I've got a lot of interesting stuff to cover. This is a good time for us to look at the Fed total assets. As we can see from this chart published by the same with Fed, the Fed total assets have been decreasing since the middle of March, which is part of the quantitative tightening or QT process announced by the Fed since the beginning of the year. Let's look at the year-to-day SPY chart again. Based on the weekly data published by the Fed, I've drawn this chart showing the change in market liquidity due to ORR and due to Fed total assets. As you can see, the market liquidity has been reduced by about $600 billion since the beginning of the year. Here again, it's a year-to-day SPY chart. I'm now going to superimpose the liquidity effects of ORR and QT. Can you see the pattern now? When there was a significant reduction of liquidity from the middle of March to the middle of June, the market dropped quickly. Since the middle of June, the Fed has not reduced market liquidity much and the market started to recover. From March 16 to today, QT has taken out $75 billion of liquidity from the market. During the same period, ORR has taken out $562 billion out of the market. In my opinion, the effect of ORR is almost 8 times greater than the effect of QT in the last few months. That is what the $2 trillion elephant has been doing to the stock market. Now you might agree or disagree with what I've been saying here. Not that many people understand ORR, I'm sure this will be a very controversial subject. Hopefully more financial analysts and reporters will be asking and talking about ORR in the next few weeks so that there will be more transparency and understanding of how the Fed policies affect the stock market. As usual, I will very much welcome your comments, questions and suggestions. Thank you for watching all the way to here. I'd like to remind you that I'm not a financial advisor. I share my stock trading strategies and analyses for educational and entertainment purposes only. If you want to buy or sell stocks, you should make your own decisions and you should definitely consult with your financial advisors before you do so. This wraps up my video for now. I will chat with you again in the next few days. In the meanwhile, I'd like to wish you the very best of luck with your financial investments.