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Category: Fed, Central Bank and Banking Macro Liquidity

Analysis of the major forces of macro liquidity that drive markets. Click here to subscribe. 90 day risk free trial!

TBAC Supply Forecast Tells Us When the Markets Should Top Out

The Treasury Borrowing Advisory Committee (TBAC) is a gang of Primary Dealers and other big investment firms that tells the US Treasury once each quarter how much paper it will need to issue, and when. It provides an estimate of issuance by date and type for the current quarter and the next one. It does so every February, May, August, and November, near the beginning of the month.

The TBAC just issued its reports for the current quarter last week. The report confirms what we expect, a massive supply increase coming. We know exactly when it’s coming, and have a pretty good idea of when it should start to cause problems for the stock and bond markets. With that knowledge, we can now prepare for action to take advantage.

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Markets Awash in Cash – Where, How, and How Long, Revealed

The markets are awash in cash. It shows up on the Fed’s balance sheet. It shows up in the Treasury account, and in Primary Dealer Accounts. It shows up in Reverse Repos.

That cash is coming from the US Treasury’s campaign of paying down T-bills. Those paydowns have totaled $430 billion since February 23. It’s an abomination of market manipulation. But it has worked to stabilize the bond market, levitate stock prices some more, and some more, and some more, and to stave off yet another Primary Dealer collapse.

We can follow these flows via the Fed’s weekly balance sheet statements, and the charts and indicators we derive from it.

The Treasury still has $1 trillion in its account that it must spend down. Annual taxes are still coming in, replenishing that account. The Treasury will almost certainly continue to pay down T-bills until there’s no cash left. I will do a revised estimate of when that will be from the April end of month Daily Treasury Statement. Prior to that, I give my best current swag in this report.

Until then, the cash will continue to flow. This report shows you exactly how this impacts stocks and bonds, so that you know how to play it, and when to GTFO.

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Liquidity is Still Bullish, And Even More So in May

The balance between QE and Treasury supply remains bullish. This should provide an underpinning preventing the stock market selloff from going too far. At the same time, Treasuries have apparently put in an intermediate term low.

May will be even more bullish, but there are trends in place that will end the party, and we have a pretty good idea of when.

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FREE REPORT – Proof of How QE Works – Fed to Primary Dealers, to Markets, To Money

Bogus Bank Earnings Hide The Danger In Primary Dealer Inventory Losses

Primary Dealer data is always among the most important types of data for us. I look at it in as many ways as possible with the data that’s available.

On rare occasions the data tells us that change is under way. Most of the time, it simply confirms what we already had concluded.

Today, the macro data on the Primary Dealers and the big banks does not support the strong bank earnings that the big boys reported this week. The data suggests that a supply tsunami will hit the market soon (at the time projected in one of our recent reports). The Primary Dealers’ difficulties will become paramount, and the Q1 bank profits will have proven illusory.

The markets will have foreshadowed the reporting of that before the news is out, as always. Technical Analysis should sound the clarions as the turn gets under way. In the meantime, this analysis tells us that the conditions for a turn are building toward a crescendo.

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FREE REPORT – Proof of How QE Works – Fed to Primary Dealers, to Markets, To Money

Primary Dealers Go Full Reverse Thrusters

We have finally seen the effects of the bond market crisis in dealer inventories, and it isn’t pretty.

Dealer inventories have plunged by $166.6 billion since February 24. This is not simply repricing of the inventory. This is active, aggressive liquidation. We have reason to believe that it is forced liquidation. We know that because we know the degree to which this inventory was bought and carried with insane levels of leverage.

One chart in the report shows the scale of the drop, and relates it to the direction of Treasury securities prices.

Another shows total dealer Treasury collateral repo versus the yield on the 10 year note on an inverted scale. That shows the direction of Treasury prices relative to their total repo borrowings against their Treasury holdings.

Another chart shows all Primary Dealer net borrowings, which is the net of their repo and other financing from their reverse repo and margin lending operations. That’s plotted versus their total Treasury holdings. This chart is interesting because it shows the total amount of leverage employed against the only the safest collateral held.

Then there’s the mother of all charts. The chart shows a four year history of the direction of Treasury prices, overlaid with total dealer fixed income positions, and net dealer borrowings used to finance those positions. At the bottom is the ratio of the net debt financing to the total fixed income portfolio value.

The correlation between all 4 series is clear. The past is prologue. The implications are horrifying.

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FREE REPORT – Proof of How QE Works – Fed to Primary Dealers, to Markets, To Money

Animal Spirits are Waning and Money is Disappearing

In past reports I’ve covered the fact that the proximate cause of the US Treasury’s massive intervention in the Treasury market is the crash in Treasury bond prices and not yields. Dealers are underwater. They’re drowning. And surprise, surprise, they have engaged in more stupid behavior of the kind that causes systemic crashes.

Why are we surprised?  These same Wall Street Mafiosi are behind every financial crash, and they are never held responsible. Quite the contrary, the Fed bails them out and rewards them for their disgusting, criminal malfeasance and wild gambling with other people’s money.

The financial system with the Fed as corrupt cop on the beat, stinks to high hell, but it is what it is. We just have to understand their corrupt rules and play by them in order to preserve and grow our capital. Understanding that game meant that we’ve had to be bullish most of the time for the past dozen years.

Sad.

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Going Going Gone- We Now Know When The Party Will End

On February 23, the US Treasury pumped $55 billion in cash into the accounts of Primary Dealers, banks, money market funds, and other institutions who had held the T-bills that were expiring that day. These redemptions began the US Treasury’s series of massive, twice weekly paydowns of the US government’s short term debt.

The purpose of the paydowns was twofold. First, the Treasury is required by the current budget law to whittle down its cash from a peak of $1.8 trillion last year, to $133 billion by August.  Treasury Minister Janet opted to start the process by paying down existing short term debt.

That accomplished the second goal, which was to force holders of the expiring paper to buy longer term debt. Despite their protestations that all is well, economic policy makers know that the crash in Treasury note and bond prices is causing a crisis in the Primary Dealer system.

Minister Janet works very closely with Lord Jaysus of the Fed, of course. They expected that the T-bill paydowns would help to reverse the decline in the prices of Treasury notes and bonds by forcing cash into the accounts of dealers and investors. It didn’t work. At least not to the extent that they needed. The full report is reserved for subscribers. 

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The Day of Reckoning Is Upon Us

Stock buybacks have been widely reported as being responsible for much of the bull market. That is undoubtedly true. Buybacks reduce the supply of equities, and put cash back in the pockets of sellers. That cash burns a hole in their pockets, stimulating their demand for the reduced supply of equities that remains on the market.

Of course, that ignores the cause. Free money from the Fed promotes these corporate C-suite financial engineering scams. Executives get to issue ridiculous stock option grants to themselves, then they have their corporation do stock buybacks to push up the value of their options. They can then sell into the rallies that result. Nice work if you can get it.

I have warned for several years that such stock retirements are a two way street, that when prices get high, companies will reverse course and start issuing more stock. That is starting to happen.

Fed and US Treasury Are Ensuring that Macro Liquidity Stays Bullish

What else is new?

Tomorrow, the Fed talks. But Fed talk is cheap. The Fed wants you to think that talk – its talk – moves the markets, or keeps them stable. That’s just utter bull. You and I know that from simply tracking the data for as many years as we have. Bottom line, as always, is, money talks, and the Fed’s BS is just that.

All of the discussion and paralysis by analysis in the media is a sideshow. Mass confusion that consistently misses the point. It all boils down to one simple fact. When the Fed pumps money into the financial markets via the Primary Dealers, stock prices follow the money. Everything else that happens in the economy is tangential and irrelevant to trading.

I started tracking and charting the data that goes into this in 2002, courtesy of the NY Fed print shop. Here’s the chart that started it all. It was made famous in 2012 when Rick Santelli featured it in one of his rants on CNBC.

Many, many people have copied this in the years since I began publishing it about 17 years ago. But they all fail one basic test. Here’s what it is and why it matters. It matters so much that it could mean that the end of the financial system as we know it is at hand.

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Treasury’s Bond Market Rescue – Get Ready For the PONT Spread Bulge

The US Treasury’s attempt to rescue the Treasury market began in mid February. It’s not going well. They’ve managed to stop the hemorrhaging. Prices have stopped falling over the past two weeks. But they haven’t turned the tide.

And that’s the problem. Primary Dealer inventories accumulated since last March are way under water. The dealers are the walking dead. If bond prices don’t rally, the Fed will have no choice but to start yield control and infinite QE, and it will need to do it soon.

The Fed must always maintain the appearance that their Primary Dealer strawmen, are alive and functioning as market makers as always. There’s no alternative. This month, the Fed and US Treasury have begun colluding to prime the pump, and they’re about to aim a firehose of liquidity at the problem.

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