Author: Lee Adler

I have been meaning for weeks to hunt for correlations in the data between bank loans to shadow banks and stock prices, and between bank repo loans to the direction of stock prices. The road to hell is paved with good intentions, right? I spent a couple of hours looking at the data every which way, and I found some occasional correlation, but other times there was none. Sometimes hunches don’t pay. It was a lot of time spent for nothing. But some time spent for something. Non-subscribers, click here for access.

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Where I continue to find a strong correlation is between the direction of the Fed’s RRP slush fund (down) and stock prices (up). That has been persistent over the past year. The evidence supports the idea I first put out here a couple of years ago. That is that when the RRPs would start coming down, it would be a bullish signal for stock prices. Here’s the proof, with the amount of RRPs outstanding plotted on a negative (or inverse) scale. See chart in report.  Non-subscribers, click here for access.

The implication here is that as long as the total RRPs are decreasing (rising on this chart), then stock prices are likely to continue rising.  Non-subscribers, click here for access.

So, we will continue to keep an eye on that. This week, there was an uptick in the RRPs, and stock prices started to waffle. A precursor to something? Maybe…  Non-subscribers, click here for access.

There are other signs that something big is about to happen.  Non-subscribers, click here for access.

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The private money and credit creation process and the resulting bull market in stocks is at loggerheads with the Fed’s policy of shrinking the balance sheet. Traders and investors are now in clear violation of The First Commandment, Rule Number One, “Don’t fight the Fed.”  The question now becomes who blinks first. The lawbreakers, or the law? Non-subscribers, click here for access.

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A couple of high frequency, real-time measures show us important sources of the money funding this stock market rally. These measures should give us hints of when this process is coming to an end, which will correlate with, if not cause, a stock market top. Non-subscribers, click here for access.

So, if you fight the law, will you win? Here’s the answer. Non-subscribers, click here for access.

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Since the beginning of June, withholding tax collections have rebounded a bit, and stabilized at a level that is certainly better than the negative readings of the past 3 months. However, the nominal year to year gain of x% as of July 3 is still below the inflation rate of employee earnings of x% in recent months, so it continues to signal a weak economy. But it is stronger than it was in the March-May period, in other words, sequential growth, month to month. Non-subscribers, click here for access.

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The BLS nonfarm payrolls survey of employers is dated as of the 12th of the month. While it is supposed to represent conditions in June, the fact is that as of June 12, HR managers report conditions mostly based on end of May payrolls. At the end of May, half-month payrolls were down x% year to year, not adjusted for inflation. Non-subscribers, click here for access.

That compares with a x% year to year decline at the end of April. It suggests that as of the June 12 survey date, there was significant jobs xxxxx. The June nonfarm payrolls report would be strongly xxxx if it were accurate. Non-subscribers, click here for access.

Unfortunately, as we have noted month in and month out, the BLS survey methodology and adjustment process results in so much distortion and noise in the first release that there’s virtually no correlation between what the BLS reports and employment tax receipts. Non-subscribers, click here for access.

As a result, the BLS has been overstating jobs gains for months. Maybe this will be the month where the rubber band snaps back to the real trend. Eventually the BLS will get there through its monthly revisions and annual benchmarking when the biggest adjustments occur. That’s when the BLS fits its survey data to tax data. Non-subscribers, click here for access.

Consequently, interpreting the first monthly release and attempting to relate to stock prices and guesses about Fed policy is a fool’s errand. Obviously everybody on Wall Street wants to participate. Non-subscribers, click here for access.

The jobs release only matters for a millisecond as the market reacts to it. Then the market returns to trend. The real significance of the withholding data is not what it tells us about the jobs report. It is what it reveals about current revenues and the trend of revenues. It is the variability of revenues that tells us what to expect about Treasury supply in the near term. Non-subscribers, click here for access.

And Treasury supply is what matters. Here’s what to expect, based on the current real time tax collections data. Non-subscribers, click here for access.

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