Well, it’s that time of the month again. What time is it boys and girls? It’s time to review the US Government’s end of month tax receipts for October. Those receipts tell us exactly how the US economy is doing, without the filter of Federal Agency statistical massage or Wall Street or government bureaucrats telling us what to think. Non-subscribers, click here for access.
Subscribers, click here to download the report.
The monthly BLS fictional jobs report for October has already been reported, with a headline number of +150,000. That’s the artistic impressionism of government statisticians at work. As a result, their first impressions for August and September were revised down by 110,000. So we have a net gain of 40,000 this month. Non-subscribers, click here for access.
Unlike the BLS artistic efforts, tax collections are reality. They tell us how the economy is really doing. Most importantly, they tell us whether there’s any change in the revenue trend that might affect forthcoming Treasury supply. That’s what matters, not the economy. Treasury supply is the 700 pound gorilla of the market. Non-subscribers, click here for access.
There’s been a lot of chatter in the Wall Street captured media this week about forthcoming supply because it’s quarterly refunding time. The media have finally realized that bonds are in a bear market. It only took them 39 months. We recognized it about 38 months ago. I was a month or so late there. Who knew! Once the Fed told us that it would stop buying almost all of the supply, we knew. Non-subscribers, click here for access.
Now the media has also glommed on to something that we’ve been tracking for, oh, only the last 20 years. The TBAC supply forecast. And naturally they are misinterpreting that, along with the meaning of the BLS nonfarm payrolls news. Non-subscribers, click here for access.
I will get to the Treasury supply data in a subsequent report which I hope to get out to you later today. For now, our eyes are on the October tax data, and withholding tax data through November 1, for what they tell us about the likelihood of any change in forthcoming supply. Non-subscribers, click here for access.
Of course, tangentially, the tax data will give us some insight into the direction of the US economy. I won’t say it’s irrelevant. It’s material in that a weakening economy means lower tax revenues and a stronger economy means smaller deficits and less supply. That would change the trajectory of the trend in yields, but not the direction, because unless supply is radically reduced, the market still can’t absorb it at a stable price. Non-subscribers, click here for access.
Do we need to know economic data to have a handle on Treasury supply? Not really, because we can see it from the tax trends, without trying to interpret statistically massaged, delayed economic survey reports. Non-subscribers, click here for access.
Lower revenue means bigger deficits and more supply. More supply would be catastrophic in a market under constant price pressure with existing levels of supply. If supply increases from here, the incipient rally in bond prices would be very short lived, and what comes after would be catastrophic. Non-subscribers, click here for access.
For now the rallies in both stocks and bonds are based on false perceptions. Enjoy them while they last. Non-subscribers, click here for access.
In this report we look at the charts and the data to explain what’s coming so that you’ll have a clearer understanding and a good idea of what to do about it that fits your situation. If you are a professional, you can use this information to position your portfolio appropriately. If you are an individual investor, take this information to your money manager and tell them to subscribe to Liquidity Trader! Non-subscribers, click here for access.
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