Category: Fed, Central Bank and Banking Macro Liquidity

Market rallies continue to be supported by adequate liquidity, but there are chinks in the armor. Nothing outright says “Sell now,” but there are warning signs that say, xxxx xxxx now. It’s probably too late. Non-subscribers, click here for access. 

Subscribers, click here to download the report.

One item to watch closely is repo usage. Repo growth is absolutely necessary in this market to fund an uptrend in stock prices. And Repo has been dropping like a rock since peaking at the end of September. So far, there’s just a break of the short-term trend, which isn’t significant in the big picture, but it could be if it continues, or backs and fills for a while and then breaks down. Non-subscribers, click here for access. 

We also need to watch the Fed’s RRP slush fund as it approaches zero. That will become one less bullish prop for the markets. It has been a form of deferred QE, or strategic QE reserve, stored up from the old days when the Fed pumped so much money into the system, $2.5 trillion of it wasn’t able to be deployed. Now that RRP money is almost all gone, absorbed by a couple years of Treasury issuance. Non-subscribers, click here for access. 

Meanwhile, total money is still surging, so there’s still plenty of cash around. That’s a reflection of the market generating profits, and money growth, on its own. But it’s not a matter of sufficiency. It’s a matter of willingness to deploy, and that’s at an all time high. The question is how much farther can that willingness be stretched as prices rise higher and higher. Non-subscribers, click here for access. 

The markets are creating money with no help from the Fed. That’s strictly a matter of sentiment, or call it animal spirits. And that can change. That change is what we are looking for in this liquidity data. Right now the markets are especially vulnerable to sentiment changing. Stock prices are more extended versus money supply than at any point in history. Which means that the risk of a sentiment change is higher than at any point in history. Non-subscribers, click here for access. 

For now, the stock market remains a xxxxxxxx xxxxxxx. The bond market has probably already made xxxxxxx xxxxxx xxxxxxxx, but it will be a jagged path that will depend in part on the supply schedule. Yields began to soar as bond prices plunged in recent weeks. But thanks in part to light Treasury coupon issuance this week, ……… Non-subscribers, click here for access. 

Subscription Plans

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! 

Attention New Subscribers! Please check your spam folder for your subscription welcome messages and post notifications and whitelist Liquiditytrader.com. Some email providers like Hotmail and others which use the Proofpoint gatekeeper are blocking Liquidity Trader emails completely. I have been unable to get them to stop. Please notify them to “Let my emails go!”

If you continue to have issues receiving Liquidity Trader emails, just check here daily at 9 AM ET for the latest posts.

THANK YOU FOR YOUR SUPPORT!

Withholding tax collections grew strongly in September. They weren’t alone. Other taxes also showed very strong growth. There’s no evidence of economic slowing. Every real time tax measure points to a rapidly growing economy right through October 1. The Fed is easing monetary conditions into a red hot environment. A rapidly growing economy coupled with Fed easing is a recipe for xxxxxxxxxx xxxxxxxxx xxxxxxxxx . Non-subscribers, click here for the rest of the story.

Subscribers, click here to download the report.

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 xxxxxxxxxxxx…

Subscription Plans

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! 

Not much has changed in liquidity measures since last week’s breakout to new highs. Most indicators have paused. But the market rallies remain well supported by adequate liquidity. Non-subscribers, click here for access. 

Subscribers, click here to download the report.

There are a couple of things to watch. One is that the September T-bill paydowns have ended. These are regular quarterly occurrences that happen when quarterly estimated income tax collections come in. The US Treasury briefly has an excess of cash, and pays down outstanding T-bills. Those are direct cash infusions into dealer and big investor accounts, and they’re virtually always bullish. That prop now goes away until December. Non-subscribers, click here for access. 

The other factor is that the Fed’s RRP slush fund has rebounded as a result of those paydowns, and the stupidity of quarter end window dressing. Much of that spike will disappear on October 1. Then we’ll see how much investable cash remains in the RRP facility, so that we can get a better idea of when that fund will run out of cash, and stop acting as a prop for asset prices. Non-subscribers, click here for access. 

I continue to estimate that it will effectively run out of money in xxxxxxxxxxx, or xxxxxxxxx at the latest. That’s when we’ll find out whether animal spirits are sustainable on the basis of repo borrowing alone, along with the attendant increase in leverage. Non-subscribers, click here for access.

Subscription Plans

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! 

Attention New Subscribers! Please check your spam folder for your subscription welcome messages and post notifications and whitelist Liquiditytrader.com. Some email providers like Hotmail and others which use the Proofpoint gatekeeper are blocking Liquidity Trader emails completely. I have been unable to get them to stop. Please notify them to “Let my emails go!”

If you continue to have issues receiving Liquidity Trader emails, just check here daily at 9 AM ET for the latest posts.

THANK YOU FOR YOUR SUPPORT!

Primary Dealers remain modestly net xxxx the bond market, including both their securities portfolios and futures hedges. That’s a problem, considering not only what’s going on right now, but what has been going on for the past 3 months. Non-subscribers, click here for access.

Subscribers, click here to download the report.

Technically Treasuries are near an important inflection point on the charts. Repo shows extended leverage among dealers. They are slightly xxxxx overall, which isn’t bullish for the big picture. They are leveraged to the hilt and they’re taking hits. Non-subscribers, click here for access.

Hedge fund positions in Treasuries have blown the basement out of their record short position. The mind boggling short position is based on a hedged carry trade that just keeps getting bigger and bigger. This is partly a function of ever increasing supply. Non-subscribers, click here for access.

That has the potential to trigger an unstable unwinding. So far it hasn’t. The rally goes on and their short position keeps getting bigger. It’s not clear how long it will be until this breaks. We must remain vigilant for a sign, whether it be in the liquidity data or the technical side. Non-subscribers, click here for access.

Between both the dealers and the hedge funds we see these enormous positions, extreme leverage, and one-way hedged bets. Whatever way this breaks, the move should be big and fast in both bonds and stocks. However, we don’t yet have a tell on which market takes the hit, and which takes off. Or maybe with the extreme leverage, they both implode. Something big is coming, but when and how are still unclear. We need to be vigilant for something big. Here’s what to do in the meantime while we lie in wait, ever watchful. Non-subscribers, click here for access.

Subscription Plans

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! 

Withholding tax collections grew enough in August to support existing market trends. Non-subscribers, click here for the rest of the story.

Subscribers, click here to download the report.

Meanwhile, after my repeated warnings that the tax collection data did not support the BLS monthly nonfarm payrolls fiction, the other shoe dropped. The BLS announced a downward benchmark revision of 800,000 jobs for the year. This was due to an average monthly overstatement of “only” 67,000 jobs per month. Non-subscribers, click here for the rest of the story.

And let’s not forget the monthly revisions, which are often material. What a joke. I’ll stick with analyzing the tax data, which tells us all we need to know about the all-important Federal revenues in real time. That, secondarily, tells us something about the US economy, and how much excess liquidity it might be generating from business profits and employment income. Excess income becomes excess liquidity in bank accounts and money market funds, available to buy stocks and bonds.

Regardless of how misleading the jobs reports may be, nominal revenue growth, from both jobs and inflation, has been strong enough to restrain the growth of Treasury supply and enable the US Treasury to build an enormous hoard of cash while cutting bond and note issuance.

That doesn’t change the fact that there’s still a tsunami of supply coming. But if the mix emphasizes T-bills, the market can readily fund that through using the T-bills as collateral for repo at 97% of face value.

Of course, whether it will do that or not depends on psychology, which we consider with the analysis of ratios of stock prices to liquidity in other reports.

There’s not enough evidence yet in the tax data to suggest that that strong revenue growth holding back the growth of Treasury issuance has changed. Withholding tax revenue rebounded in August enough to xxxxxxxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxx July. There’s enough revenue to xxxxxxxxx xxxxx expected T-bill xxxxxxxxxx xxxxxx xxxxxxx result of September estimated tax collections. The Treasury has already posted a modest T-bill paydown for this week. We’ve estimated that xxxxxxx xxxxxx xxxxxxxx, once the quarterly tax windfall is collected on September 16.

To see the data for August visualized and learn what to expect …

Subscription Plans

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!