Category: Fed, Central Bank and Banking Macro Liquidity

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.

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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.

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

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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 …

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DVP (Delivery versus payment) Repo, which is the bulk of the repo market, made a new high last week, supporting a bullish trend in stocks. The players continue to be ready and willing to use repo to acquire and finance holding Treasury inventory. Non-subscribers, click here for access. 

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Coupon issuance at mid-month was light which eased the burden on the markets. At the same time, the Treasury has issued a tsunami of T-bills in July and August. That turns into repo. That is insta-money. T-bill issuance is effectively money printing as long as the players are willing to repo the T-bills. If they were not, they would need to liquidate assets to buy the new T-bills. They’d rather hold their stocks and bonds, and use repo to buy the bills. It’s cheap financing for their holdings of long-term financial assets. Non-subscribers, click here for access.

In view of this process, here’s an illustrated look ahead at what to expect to signal a final top in stock prices. See for yourself, understand, and decide based on these specific triggers. Non-subscribers, click here for access.

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After a strong June, tax collections weakened in July. Do they suggest that the widely feared recession may already have begun, or that maybe it’s just a normal correction?  Here’s the answer, as always with the proprietary graphs that you can’t get anywhere else that show you why.   Non-subscribers, click here for the rest of the story.

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Last week we saw that the price to liquidity ratio measures suggested that the rally was in its end stage. The most recent data gives additional support to that idea, with those indicators touching upper trend limits in the week ended July 17. Under the circumstances, market action this week looks like not just a pullback, but more likely, xxxx xxxx xxxxxxxx xxxxxxx xxxxxxx.  Non-subscribers, click here for access. 

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As a result, my focus would be on xxxxxxxxxxxx   xxxxxxxxxx xxxxxxxxxx. Non-subscribers, click here for access. 

The bond market has rallied in July, contrary to my thinking that massive supply would hurt the bond market. The source of the money to support this isn’t clear, but deduction would say that it’s leverage, particularly repo. But repo outstanding has been rangebound. If it subsequently breaks down, that should be a sign xxxxxxxxx xxxxxxxxx xxxxxxxxxxx again. Short-term bills continue to look like xxxxxxxxxxxxx xxxxxxxx xxxxxxxxx Non-subscribers, click here for access. 

This report shows and explains the critical indicators that you need to follow to stay on top of the market as it tops out. 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! 

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!