The imbalance between Fed QE and Treasury supply is ugly as as it gets for the next week, but then it gets less ugly. Here’s what you need to know and how you need to see it to trade successfully.
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Gold is poised for a breakout. Here’s what to look for and a couple new mining picks to swing.
We know that total liquidity is still growing. The Fed is still printing and pumping money into the system at an historic rate. That rate is well above the norms of the original QE back in 2009-10, but well below the peak panic levels of March and April. The Fed has been dialing it back from the extreme pumping it reached at the market bottom in March.
Ay, but theres’s a rub, and it’s not barbecue. It’s an irritant. And the markets won’t like it.
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Last week was wild and wooly. The volatility suggests illiquidity, which at this stage is not bullish. It’s consistent with the idea I’ve espoused in Liquidity Trader reports that the Fed not supplying sufficient liquidity to support an uptrend.
But the technical stuff says, “Ay! Not so fast!”
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The data is noisy, and week to week the changes may not mean much. But in some weeks, it’s obvious that it’s part of a bigger trend, whether confirming or indicating change. Even if there are just hints, this information can be incredibly useful. It is useful because it tells us exactly what the big picture is, while Wall Street economists are still scratching their asses and trying to figure out what the government statistician manipulated data means. And the first report from that data is still 13 days away.
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Act on real-time reality!
Primary dealers have been gradually paying down their outstanding repo loans from the Fed, just as we have long expected. This has momentous implications for the stock and bond markets.
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Gold prospectors look for the mother lode on the range. There are a couple of mining picks for them to swing.
By early Monday morning, the ES futures were trading at 2966, and had traded as low as 2925. 2950 is now critical support. If New York fails to hold that, then the market would be in crash mode again. What would the target of that be? And what if 2950 holds? Is it still bearish?
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The Monthly Treasury Statement for May confirms that the economy rebounded during the month, but more recent data through last week suggests that the rebound has already expired. Signs of renewed weakness come when the numbers are still far from a full recovery. The economy is beginning to weaken again, starting from weakness.
That’s relevant because it means that the Federal government will need to continue to issue massive amounts of debt. It may not be quite as much as in March and April, but it will still be at least double past peak levels.
We also know that the Fed has sharply cut the amount of that debt that it is directly absorbing or financing.
Here’s what this means for your investing strategy.
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A sharp eyed subscriber caught an error on the top of page 4 of this report. I typed “billion,” instead of “trillion,” twice, in reference to T-bill issuance for the quarter. The paragraph should read as follows:
How much more? The TBAC said that $84 billion in Treasury coupon paper (notes and bonds) will settle at the end of the month. It didn’t give details on short term paper issuance, but it projected $2.68 trillion in bill issuance for the whole second quarter. $2.25 trillion has already been issued or scheduled through June 16. That means another $440 billion or so to come in the last 2 weeks of June. In other words, total net new issuance for June 17-30 is projected to be $524 billion.
Sorry for the confusion!
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Lee Adler