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Lee Adler’s

Lee Adler’s

Category: 1 Macroliquidity™

How Fed and Treasury policy, Primary Dealers, real time Federal tax collections, foreign central banks, US banking system, and other factors that affect market liquidity, interact to drive the financial markets. Focus on trend direction of US bonds and stocks. Resulting market strategy and tactical ideas. 3-5 in depth reports each month. Click here for subscription information. 

August Daily Treasury Statement Data – Danger Signs Persist

Lee Adler

The rest of the investment universe has caught up with us and is now deeply concerned about the bond market. Well known pundits have expounded on the problem, attributing it to all sorts of tangential and meaningless issues. Meanwhile the problem is exactly as we foresaw over the past couple of years, supply. Simply by watching the trends of the data that matters, I forecasted that the inflection point would come in July. That was a few weeks early, but close enough.

We are now in the belly of the beast. Get used to it. Continue to avoid the bond market in any form. And be wary of the potential for contagion.

This report updates the current actual real time government revenues and outlays through the end of August. A marginal improvement in the data changes nothing. The danger remains extreme.

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Primary Dealers’ Plight Poses Big Problem for Bessent Buyback Ploy

Lee Adler

The Treasury will at least double its debt buyback program, but the details that matter most, including how large the increase will actually be and how it will be financed are yet to come. The bigger question is whether it can meaningfully offset near-record coupon issuance. Will it have the intended effect, or adverse unintended consequences. Dealer positioning in this regard is of Primary importance. This week’s Primary Dealer Positions and Financing update looks at where dealer balance sheets, repo financing, and futures hedging stand as the pressure from the tsunami of issuance continues to build unabated.

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Macroliquidity™ – Buybacks- A Really Futile and Stupid Gesture

Lee Adler

Treasury supply has surged to $400 billion in new debt in a single month, and the Treasury has announced it will AT LEAST DOUBLE its coupon buyback operations as Treasury yields threaten to break out while bond prices would concurrently crash. The buyback scheme is a panic signal that fails to account for the fact that it xxxxxxxxx xxxxxxxxxx xxxxxxxx xxxxxxxxx xxxxxxxxxx beyond the insane xxxxxx xxxxxxxx xxxxxxxxxx must already bear.  

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Their Expense is Your Income

Lee Adler

Ten days ago, I was stunned when the stock market did exactly the opposite of what I had forecast for July and August. Based on monstrous Treasury supply pressure that we knew was coming, I had expected a gathering crunch, not just for Treasuries, but also for contagion into other assets.

Not only did that not happen, stocks broke out, and even gold and precious metals started to recover. The Macroliquidity™ model, which I have tweaked and adjusted through the 26 years I have been publishing these reports, failed to foreshadow the stock market breakout. It correctly identified that the bond market would increasingly tighten. That part has played out, although so far somewhat more mildly than I thought. But the stock market breakout to new highs was a shock to the model.

I agonized over it. What did I miss! And then I had a flash of recognition.

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Primary Dealers Show Signs of Dreaded Deleveraging

Lee Adler

Primary Dealer fixed income holdings have fallen since March, and most of the decline appears to be mark-to-market losses. The Treasury keeps adding supply, of which the Fed absorbs only a fraction, leaving dealers to take their share, required by their special status, as bond prices erode and the 10 year yield pushes toward 5%. The result is a deleveraging cycle in dealer balance sheets that raises the risk of forced, disorderly liquidation across markets.

This report shows where the cracks are in the Primary Dealer holdings, financing, and hedging statistics through mid-July. It also includes a look at hedge fund positions in the bond market, which are another canary in the coal mine of deteriorating liquidity conditions across asset classes.

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MacroliquidityTM – Two Charts that Should Shake Your Confidence

Lee Adler

This report features two charts that tell a coherent and sobering story. Repo financing that has quietly fueled this rally is plateauing in exactly the pattern that has preceded every major correction of the last few years. At the same time, junk bond spreads are sitting within a hair of their tightest levels in three years, which is precisely the condition that leads to an eventual unwind that is violent instead of orderly.

I have warned for months that the wave of Treasury supply set to hit in July would open a window of extraordinary risk. Below, these two charts, which you won’t see anywhere else, show why the calm on the surface is the least reassuring thing about this market.

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Liquidity Blowoff – The Final Stage

Lee Adler

The Treasury market is facing a dangerous convergence of forces as a massive wave of new supply hits a financial system fueled by a final, parabolic surge in money growth. Other asset classes, particularly stocks, depend on a stable Treasury market foundation. While stock markets have remained buoyant, the underlying mechanics that have driven years of asset price inflation are reaching a stage of extreme, perhaps terminal, excess.

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Revenue Rot Meets Spending Surge: Treasury Supply Goes Gargantuan

Lee Adler

The federal budget deficit is running far ahead of the CBO’s $1.7 trillion fiscal 2026 forecast, driven by collapsing corporate tax receipts, court-ordered tariff refunds, and a surge in outlays that official war cost figures cannot explain. Treasury supply is already at record levels and the market’s capacity to absorb what’s coming will be severely tested. So will Fed Chairman Warsh’s stated goal of reducing the Fed’s market footprint.  This report has the details, and implications for professional investors.

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Primary Dealers Under Pressure as Their Inventory Value Drops and Short Hedges Surge

Lee Adler

Primary dealers are absorbing record Treasury supply. Evidence implies that there are losses but dealer futures short hedges are at historic extremes, so there may be some protection. The June liquidity cushion is smaller than last year and Treasury supply continues at astronomical levels. These conditions keep the system dangerously close to a stress event starting in July when June T-bill paydowns end. 

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