The stock market is extended, and liquidity measures are at extremes.
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Expanding Market Liquidity – Despite the Federal Reserve’s ongoing Quantitative Tightening (QT), liquidity within the financial system continues to grow. This expansion is driven by private lending, repo markets, and government spending. This shows the market’s ability to generate liquidity despite the Fed’s shrinking its balance sheet. Non-subscribers can click here for access to the full analysis.
Stock Market Resilience – Stock prices remain elevated at trend extremes, reflecting bullish sentiment and plentiful liquidity. While markets are extended, no clear sell signals have emerged yet. However, the potential for a bear market to begin is high. We remain on the alert for signs that it is imminent. Non-subscribers can click here for access to the full analysis.
Debt Limit and Treasury Dynamics – The upcoming re-imposition of the debt limit could support the markets. This report explains why and how. Non-subscribers can click here for access to the full analysis.
Role of Repo Markets – Delivery vs. Payment (DVP) repos have been central to market speculation and liquidity growth. Repo has funded the Federal Debt, increasing the money available for asset speculation. Rising repo activity correlates strongly with stock price increases. They’ve reached an apparent trend extreme. This report looks for signs of reversal. Non-subscribers can click here for access to the full analysis.
Diminishing RRP Liquidity – The Fed’s Reverse Repo (RRP) facility, once a primary source of liquidity, has been drawn down to a nominal level. As the RRP pool shrinks, the market’s reliance on self-generated liquidity through repos and credit creation increases. That means increasing leverage with increasing fragility and vulnerability to rapid, uncontrolled unwinding. This report examines signs that that may be imminent. Non-subscribers can click here for access to the full analysis.
Foreign Central Bank Influence –Foreign central banks play a pivotal role in liquidity flows, with their Federal Reserve custodial holding and foreign RRP activity correlating with market movements. There are warning signs in this data, but no outright sell signals yet. Non-subscribers can click here for access to the full analysis.
Treasury and Bond Market Outlook – The Treasury’s cash balance remains elevated, supporting short-term liquidity through T-bill paydowns. However, rising bond yields and continued debt issuance should continue to apply pressure to fixed-income markets, with eventual contagion into stocks and other assets. These reports looks at the signs. Non-subscribers can click here for access to the full analysis.
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