Lee Adler
Since my last Primary Dealer position update at the end of August, the research/marketing arms of Goldman, Citi, BofA, UBS, and Morgan Stanley recommended buying Treasuries. These firms are all Primary Dealers. There’s supposed to be a firewall between research and the trading desks. But connect the dots. Dealer inventories are choked with Treasuries that are losing value. The research departments tell the public to buy Treasuries because they are now a bargain. That sure looks like marketing their proprietary inventory, doesn’t it?
And what needs to happen for that to change
Technical indicators have confirmed a synchronized upturn in two important intermediate cycles. Cycle projections point higher in the near term, and updated long term cycle projections point significantly higher. This report shows the confirmation signs and delineates the trend levels that would need to break to indicate a change in the outlook.
Crash helmets and life vests
Total tax revenues grew in September but outlays grew more. The Federal deficit is trending toward an annual rate of $2.7 trillion, which translates to a quarterly average of $675 billion in net new Treasury supply, with no improvement on the horizon. This is a crushing burden for the Treasury market, which should cause bond prices to trend lower, and yields to trend higher, indefinitely.
Consider a bore market
Intermediate cycle lows have formed, and cycles are conducive to strength in the weeks ahead. But what if there’s no strength? For now the setup would favor …
When Kevin Warsh came aboard as Fed chair, he let it be known that reducing the Fed’s footprint in the markets was one of his goals. No more QE market interventions. No more forward guidance. He would move forward by going backward, to the good old days, when young traders stood by the news ticker on Thursday afternoon waiting for the word from Dr. Doom, Henry Kaufman, and Dr. Death, Al Wojnilower, on how they read the Fed’s tea leaves, from changes in M1.
Could be rounded bottoms or spike heels
Intermediate cycle lows are set to form, but this morning’s weak pre market raises questions about the shape. Monday’s closing level should tell tales.
Treasury Just Sent Piles of Free Money to the Markets
Resistance is futile, or is it?
I have reversed the usual posting order this week, posting the lengthy and detailed Macroliquidity™ report on Monday instead of later in the week as…
The Treasury supply surge was trimmed this month, as the Treasury spent cash to pay down T-bills and double up buybacks. It did not help. Treasury prices cratered and yields surged. Significant chart levels have broken, and another breakout, through 5% on the 10 year appears imminent. The implied measured move target of that would be x.xx%.
The market is holding just under resistance, with the S&P 500 stalling at a multiple trend convergence zone and support suggested just below. Longer-cycle indicators show signs of a top, while the 6-month cycle remains uncertain. Short-term cycles are in a down phase, though a 4-week bounce is expected to begin from a low due xxxx xxxx xxxx. The Dow, VIX, and cycle screening data all have cautionary setups, although the market’s long-term uptrend channel remains intact.