Category: 1 – Liquidity Trader- Money Trends

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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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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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. 

KNOW WHAT’S HAPPENING NOW, before the Street does, read Lee Adler’s Liquidity Trader risk free for 90 days! Act on real-time reality! 

Federal withholding tax collections stalled in October. The jobs report mirrored the tax collections for a change. Non-subscribers, click here for the rest of the story.

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According to economists, external factors were to blame for the slowdown. For once, I won’t quibble. These included the 2 hurricanes that pounded Florida and the Southeast, and the Boeing strike. That strike will continue to impact year to year comps for as long as it lasts. Hopefully, there will be no more hurricanes. Non-subscribers, click here for the rest of the story.

10/4/24 If revenue continues this red-hot growth, it’s even possible that the November TBAC forecast will show at least a small reduction in expected Treasury supply. That’s something to keep in mind with the 10-year Treasury Yield breaking its 6-month downtrend today. This is a shift toward greater bearishness that I think is reasonable, but that could change come early November if the Treasury shocks the market with a supply reduction. Non-subscribers, click here for the rest of the story.

That outlook came to pass, with a small reduction in expected supply for the next 3 months. I will consider that in greater depth along with a detailed supply schedule estimate in a report to follow in a few days. The biggest wildcard, however, is the re-imposition of the debt ceiling on January 2. If past debt ceiling episodes are any guide, the Treasury xxxxxxxx xxxxxxxxxxx xxxxxxxxxxxx. Those paydowns are normally a xxxxxxxxxxx influence. That would start in January. More on that in the next report. Non-subscribers, click here for the rest of the story.

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This week I looked at the issue of bank capital and its relation to bond prices. This is another fly in the ointment that is poised to blow up, especially after Monday’s rout in the bond market. Between this fragility, the extreme extension of stock prices versus bank deposits and money supply, and the possibility of disintermediation pulling deposits out of banks, there’s xxxxxxxxxxxxxxxxx xxxxxxxxx  xxxxxxxxxx xxxxxxxxx. Non-subscribers, click here for access. 

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One other issue is the potential for a sharp reduction in T-bill issuance in November and December. That would xxxxxx xxxxxxxx xxxxxxxxx xxxxxxxxx. Bond buyers, including dealers, would need to either repo their Treasury coupon purchases, liquidate other assets, or take on when-issued short positions against future issuance. Any of those actions could further destabilize the bond market, which xxxxxx xxxxxxxx xxxxxxxx. Non-subscribers, click here for access. 

On the surface, it appears that there’s still adequate liquidity to support the rally, but this thesis is now stretched to the limit. I’m still reluctant to xxxx xxxxxxxx xxxxxx xxxxxxxxx. I would want to xxxxxxxxx xxxxxxxx xxxxxxxxx long positions, and definitely not xxxxxxxxxx xxxxxxxxx xxxxxxxxxx As for bonds, I’m back to xxxxxx xxxxxx. Non-subscribers, click here for access. 

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KNOW WHAT’S HAPPENING NOW, before the Street does, read Lee Adler’s Liquidity Trader risk free for 90 days! Act on real-time reality! 

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