RRP Liquidy Tap Fueling the ai bubble Repo Market Nifty 50 Market crash

RRP LIQUIDITY TAP IS NOW EMPTY — WHAT NEXT FOR THE AI BUBBLE? | INDRAANIL GUHA ENGLISH

Risk assets, led by the high-flying AI stocks, have all witnessed a very sharp pullback in the month of November. But what exactly are the key factors behind this correction in risk assets?

Analysts and experts around the world have cited a plethora of factors — ranging from AI stocks being overvalued to interest rates in Japan moving higher — as the drivers behind the recent pullback.

But if you ask me, I believe there is only one real factor behind the recent pullback in risk assets, as indeed behind any major pullback in history, and that factor is - Liquidity becoming tight!

In this video, I intend to discuss this very liquidity dynamics, with a focus on this rather nondescript and not-very-well-known liquidity pool called the Federal Reserve’s Reverse Repo Facility (or the RRP in short).

And that’s because the RRP has been at the very center of the liquidity dynamics driving the AI rally in recent times, and therefore, only if we understand the dynamics behind the RRP do we stand any chance to build a framework to accurately assess how much runway is still left for the AI rally to run further from here, and more importantly, also assess when this rally is going to run out of steam, signaling when it’s time for us to finally move out of risk assets for good!

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