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Wall Street tracked sentiment and flows. Liquidity Trader tracked the dealers—those who make the market. And the cracks are visible.
Primary Dealer leverage has broken above 120% of Treasury and MBS holdings. Dealers are long, underhedged, and overexposed. This isn’t theory—it’s systemic risk starting to unwind. The crash isn’t coming. It’s already here.
Read the full report to see how this was predicted and what comes next.
Read the Full Institutional Report →
Lee Adler | Liquidity Trader | April 2025
1. Introduction: You Watched the Players. I Watched the House.
Wall Street was fixated on sentiment, flows, and technical levels as the S&P 500 climbed past 6100. But I wasn’t watching the players. I was tracking elements of macro liquidity, in particular the dealer complex—the House—because that’s where the risk always builds before the breaks come.
For 25 years, I’ve watched multiple obscure Fed data series that touch Primary Dealer financing, positions, and leverage. I know which ones matter. I know how they fit together. And I know what happens when they crack.
No one else is doing this because no one else thinks of it, or if they do, they keep it in house. The data is too granular. The series names are too obscure. And no one else knows which ones to aggregate, how to weight them, or when they flip from benign to dangerous.
Liquidity Trader is built on that foundation. It offers something almost no institutional PM or strategist has: a clear, real-time window into the structural weak points inside the financial system, with the judgment to know which shifts are noise and which signal the next phase of breakdown or breakout.
The crash that’s now unfolding isn’t a surprise to anyone who’s been following this work. It was embedded in the data—weeks, even months ago. This report shows you exactly how and where the break began.
And yes, while warning about the coming crunch, I also called the Treasury rally—almost to the day. Back in early December, I wrote: “If the Treasury has begun a program of persistent T-bill paydowns, that will support continuation of the rally… An extended debt ceiling impasse with accompanying T-bill paydowns could push a bond rally along for months more than anyone expects.”
That’s exactly what happened. But like all liquidity anomalies, it has a shelf life. When the liquidity cliff hits, bonds won’t be the safe haven the Street expects. That’s the next phase. And I’m already watching it.
As for equities, I warned just as clearly. On December 8, I wrote: “This type of exuberance is typical of end stage bubbles.” That wasn’t a metaphor. It was a structural warning based on market price level relative to money and deposits—metrics most of the Street doesn’t even look at. “When it finally corrects,” I added two weeks later, “my guess is that it will be far more than just a correction.”
And this may just be the opening act. There’s a liquidity cliff coming—timed to the mechanics of Treasury supply, RRP drawdowns, and dealer funding windows. I’ll leave the details for now. But when it hits, you’ll want to have already seen it coming.
2. What the April 3 Primary Dealer Report Shows
This week’s Primary Dealer update confirms what I’ve been tracking since Q4: dealers are leveraged, exposed, and no longer positioned to absorb downside. The risk is now directional—and it’s working against them.
- Net exposure to Treasuries and MBS is long, not hedged.
- Leverage exceeds 120% of their Treasury and MBS holdings.
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Futures hedging is unwinding. Protection is being pared back late, not built early. That’s not risk management. That’s reactive trend-following.
- Futures hedging is late, partial, and fading. Trend-following, not risk-managed.
This is not a technical setup. It’s a systemic tell. When the forced buyers of Treasury issuance become the overexposed longs in a declining bond market, the next move isn’t “volatility.” It’s liquidation.
3. The Market Is Breaking Because the House Is Losing Control
The current crash isn’t just investor repositioning. It’s a breakdown in the liquidity transmission system itself. Primary Dealers are the plumbing. And they’re backed up.
When I see them long, underhedged, and leveraged past 120%—at the same time Treasury supply is on pause but about to surge—I don’t need to guess what comes next. I’ve seen it before.
The difference this time is the Street still thinks there’s a Fed put. But this isn’t about rates. It’s about structure. The dealers can’t hedge what they can’t fund.
4. What’s Missing from Everyone Else’s Research
I don’t know if the big houses track this data or not. Maybe some do—but if they do, they keep it in house. The data is too granular for most—buried in hundreds of obscurely tagged series published by the New York Fed. It’s not labeled ‘risk,’ and most researchers wouldn’t even know what to look for.
What I do know is that I track it and I report it—month after month—so my clients know when the system is shifting.
This is the real core of the system. Not institutional positioning surveys. Not implied volatility. Not ETF flows. Primary Dealer positions and financing.
This report is the only monthly synthesis of Primary Dealer Treasury exposure, repo leverage, securities borrowed, and futures hedging—laid out in real time, with no filters.
It doesn’t predict. It reports. And when the numbers reach historical extremes, I don’t just report, it, I illustrate the condition with charts that give you the clarity you need to reinforce your judgments and decision making.
5. The Crash Is Already in Motion—But the Cliff Hasn’t Hit Yet
Equities are cracking. Dealers are trapped. Treasury issuance will soon explode in size. And the RRP buffer is minimal.
I’ve called this sequence for months. The Treasury rally, the equity breakdown, and now the dealer unwind. But there’s still one shoe left to drop—the liquidity cliff that comes when supply collides with margin strain.
I’m tracking that too. But that’s for Macro Liquidity reports in the weeks ahead.
Here’s what I wrote in past reports forecasting the risk to come:
“This type of exuberance is typical of end stage bubbles.”
— Macro Liquidity Report, Dec 8, 2024
“If the Treasury has begun a program of persistent T-bill paydowns, that will support continuation of the [Treasury] rally… An extended debt ceiling impasse with accompanying T-bill paydowns could push a bond rally along for months more than anyone expects.”
— Macro Liquidity Report, Dec 8, 2024
“When it [stock market] finally corrects, my guess is that it will be far more than just a correction.”
— Macro Liquidity Report, Dec 24, 2024
“Stock prices remain extended versus liquidity beyond any extreme seen since the 2000 bubble.”
— Macro Liquidity Report, Feb 5, 2025
“Bond prices should rise and yields pull back until the debt ceiling is lifted.”
— Macro Liquidity Report, Feb 5, 2025
“If the players getting that cash back from T-bill paydowns opt to simply pay down the repo… then we can kiss the markets goodbye.”
— Macro Liquidity Report, Feb 5, 2025
“When prices do start down, the margin calls will quickly follow. That then becomes a feedback loop that is all but impossible to break.”
— Macro Liquidity Report, Feb 5, 2025
6. Why This Report Exists
Because structural cracks don’t announce themselves.
They show up in the balance sheets of the institutions nobody tracks–the dealers who actually make the markets and fill your orders. Then the market breaks and everyone wonders what happened. This report exists so that question never has to be asked. You are prepared for it. You know what happened because you saw it coming.
If you’ve read this far, you already know: nothing else gives you this visibility. Not on this timeline. Not with this judgment.
7. Institutional Access
If you’re managing real capital and weren’t positioned before the breaks began, you know how costly that gap in visibility can be. Liquidity Trader closes that gap.
What I track isn’t market noise. It’s structural truth. And when it shifts, markets follow.
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This isn’t a model. It’s judgment built on 25 years of Fed-watching.
One system. One edge. One unfolding crash.
I don’t chase the tape. I track the pressure behind it.
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