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Primary Dealer positions and financing indicate elevated risk, but debt ceiling dynamics, and resulting market liquidity conditions should delay the next bear market until later this year. Non-subscribers, click here for access.
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Discover how macro liquidity trends are shaping the financial markets in 2025. From surging bank deposits to the implications of the Federal Reserve’s QT measures, this report uncovers the forces driving stock and bond markets today. Explore the pivotal role of repo lending, Treasury actions, and money market fund balances in sustaining market momentum—or signaling potential shifts ahead.
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Federal withholding tax collections were strong in December. Ongoing strong revenue growth could reduce Treasury supply to give the markets xxxxxx xxxxxxxxx xxxxxxxx. Non-subscribers, click here for the rest of the story.
The debt ceiling is the wild card. As long as it remains in place pending a deal between Congress and the Trump administration, Treasury supply will be reduced. Normally the supply reduction is achieved via T-bill paydowns, with that cash going back to the original holders of the bills, including major investors, dealers, and banks. Strong revenue growth could mean months of T-bill paydowns lasting through May and June from the annual March- April tax bulge.
The bottom line from the tax revenue perspective is that it will continue to xxxx xxxxxxx xxxxxx market trends, potentially in both stocks and bonds for the duration xxxxxxxxxxxx xxxxxxxxxx xxxxxxxxxx in place. Once xxxxxxxx xxxxxxxx xxxxxx, then the Treasury supply problem will return with a vengeance. Until then, the markets remain in La La Land, where all appears well.
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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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Uncover the Hidden Forces Driving Today’s Markets
The latest Macro Liquidity Report reveals the trends, risks, and opportunities reshaping the financial markets as we head into 2025. With unprecedented liquidity levels and historic market valuations, the interplay between fiscal policy, central bank strategies, and global money flows is creating powerful dynamics that every investor needs to understand. Subscribers, click here to download the report.
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Liquidity Trends That Defy Expectations
Why are stock prices still climbing? What could it mean for market sentiment ahead?
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The Debt Ceiling Wild Card
How will the return of the U.S. debt ceiling in January influence liquidity flows and market direction?
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The Repo Market’s Critical Role
Discover the engine driving today’s markets and why its movements are pivotal.
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Money Market and Foreign Liquidity Signals
Explore how institutional cash balances and foreign deposit trends are shaping the outlook for U.S. stocks and bonds.
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The Macro Liquidity Report delivers exclusive insights backed by real-time data and expert analysis. Whether you’re managing risk or seeking opportunities, this report helps you stay ahead of market movements.
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Stock Prices and Market Liquidity: Extreme Valuations and the Path to a Potential Bear Market
Stock prices are currently stretched beyond any extreme levels seen since the 2000 Internet/Tech bubble peak when compared to market liquidity. However, this alone isn’t enough to trigger a sell signal. Liquidity continues to grow, and there’s nothing to stop it from expanding further. Similarly, stock market valuations, which reflect long-term market sentiment, are likely to become even more extreme in the foreseeable future. Non-subscribers can click here for access to the full analysis.
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Liquidity Growth and Stock Market Valuations: What Investors Need to Know
Despite the current extreme valuations, liquidity is still on the rise, providing support to the market. This continued growth in liquidity and sentiment could drive valuations to even higher levels, prolonging the bull market. Non-subscribers can access the full report for in-depth insights. Non-subscribers can click here for access to the full analysis.
When Market Sentiment Shifts: Preparing for a Potential Bear Market and Crash
When market sentiment does eventually shift, it is unlikely to result in a typical correction. The greater risk is a significant bear market, potentially with one or more market crashes along the way. While we are not at that point yet, this report explores what investors can expect as market conditions evolve. Non-subscribers can click here for access to the full analysis.
Impact of the Debt Limit and Political Factors on Stock Market Timing
The re-imposition of the U.S. debt limit on January 2 could trigger the usual political instability that accompanies these episodes. This report highlights how these political factors could impact the timing of the next stock market peak and what investors should anticipate for the future of the market. Subscribers can download the full report for detailed analysis.
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Federal withholding tax collections surged in November on the heels of the October stall. That stall was due to hurricanes and the Boeing strike. We were aware that a rebound was already under way in late October. It continued with a vengeance in November. But much of the growth was a result of delayed demand. It was a bungee effect from the October pullback. Non-subscribers, click here for the rest of the story.
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The bigger picture shows ongoing strong revenue growth that could reduce xxxxxxx xxxxxxxx xxxxxx xxxxxxx the months ahead, especially if the Trump Administration lets the debt ceiling play out. That and strong revenue growth would mean months of xxxxxxx x xx xxxxxxxxxx xxxxxxxxx beginning in xxxxxxxxxxxx and lasting through xxxxxxxxxxxxxxxx. Non-subscribers, click here for the rest of the story.
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Measures of Primary Dealer holdings, financing and hedging are flashing warnings of an approaching stock market top. After surging for a couple of years they’re diverging from supporting bullish stock and bond market price trends. The last time this happened was in 2021, in a process that lasted around 14 months before the market reversed. Non-subscribers, click here for access.
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No two historical periods are identical. But the current divergences and signs of retrenchment have lasted almost as long as the prior instance. Once the mass psychology that fed the bullish trend begins to reverse, the deleveraging starts. That reversal then becomes self sustaining . First it happens slowly. Then it happens suddenly. We want to be on the alert to be out of long positions. We also want to position for shorts before that sudden phase hits. Non-subscribers, click here for access.
Liquidity measures set the context. They’re warning that we’re in the late stage of this bull market. It’s time to be alert to any signs of reversal in the technical indicators. For the bond market, that could be something as simple as the 10 year yield xxxxxxxx xxxxxxxx. Once that happens, the potential for a hard selloff in the bond market increases. That could erupt into contagion to stocks. Non-subscribers, click here for access.
However, there’s a wild card. Come January 2, the Federal debt ceiling will be reimposed. The incoming administration will begin to deal with that on January 20. The new government has yet to tip its hand. Will it allow the clock to run until Treasury cash runs down to zero until it raises the debt limit? Non-subscribers, click here for access.
The Treasury’s practice in past episodes of debt ceiling roulette has been to use Treasury cash to pay down T-bills. Meanwhile it continues issuing coupon debt on the pre-ordained schedule. That has bullish effects for stocks, because T-bill paydown pump cash back into investor and dealer accounts. Some players then deploy that into the stock market. Non-subscribers, click here for access.
That effect would last until Treasury cash approaches zero. If that’s the policy choice, that process takes 5-6 months to reach a climax. At that point, they must raise the debt limit. Otherwise we leap into the unknown where the US government can’t pay its bills. I reveal what that would mean in this report. Non-subscribers, click here for access.
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The coupon offering for the end of the month has been posted. Net new supply $145 billion. My forecast estimate was $130 billion. The language used in the quarterly refunding announcement as to whether the Fed’s QT is included or not is inscrutable. I misinterpreted it, hence my miss of $15 billion. But, indeed, heavy supply is heavy supply.
Either way, this is bad news. It doesn’t even count the new T-bills. But that’s ok because, as we know, T-bills are insta-money. That is, if the players want to use it that way. T-bills also make nice places to sit out.
It’s mind blowing supply. Ponzi Much? Understanding Treasury Debt and Market Fragility
Stock prices remain extended versus liquidity beyond any extreme seen since the 2000 internet/tech bubble peak. But that alone isn’t enough for a sell signal. Liquidity is still growing. There’s nothing to stop it from continuing to grow. And there is nothing to stop valuation, which is nothing more than a measure of long-term market sentiment, from getting even more extreme for the foreseeable future. Non-subscribers, click here for access.
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Indeed, when sentiment turns, this is unlikely to result in merely a garden variety correction. The greater likelihood is a great bear market, with a crash or two along the way. But we aren’t there yet. Non-subscribers, click here for access.
In addition, the re-imposition of the debt limit on January 2 will likely result in the political Kabuki theater that typically accompanies these episodes. This report shows what that means for the timing of the next stock market top. And it explains what the likely result will be, and when to expect it.
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Lee Adler
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