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Category: 1 – Liquidity Trader- Money Trends

How Fed and Treasury policy, Primary Dealers, real time Federal tax collections, foreign central banks, US banking system, and other factors that affect market liquidity, interact to drive the financial markets. Focus on trend direction of US bonds and stocks. Resulting market strategy and tactical ideas. 4-5 in depth reports each month. Click here to subscribe. 90 day risk free trial!

Holiday Wishes and Publication Schedule

Lee Adler

I want to wish you and your family Merry Christmas, Happy New Year, Happy Holidays, and Happy Festivus, the holiday for the rest of us.

I will celebrate by looking around Warsaw for an open Chinese restaurant where I can get takeout. I won’t be eating in this year (I wonder why).

Today at Malbork Castle, Malbork, Poland
Today at Malbork Castle, Malbork, Poland 12/22/21 

I want to thank you especially for allowing me the privilege of doing this work that I love, for you for the past 21 years. Whether you’ve been a subscriber for the past 21 days, but especially if you’ve been around for most or all of those years, your interest and confidence in me is a gift that I always appreciate! I hope that you enjoy and learn nearly as much from my reporting as I do from doing it.

I know that you will probably be enjoying the coming days with your families and hopefully not paying much attention to the markets. I’ll use that opportunity to take a break myself over this week. There will be no Liquidity Trader, Technical Trader, or Gold Trader posts between now and New Years weekend. Regular publication will resume in the New Year, with a bevy of reports. So be sure to stay tuned for that.

If anything strikes me as noteworthy over the coming week, I’ll throw up some quick comments on the Capitalstool message board and in my Twitter feed.

So to you and yours, Happy Holidays! See you in the New Year!

Lee

PS. I apologize for the fact that if you subscribe to more than one of the services, you have gotten this email once for each of them.  Sorry for clogging the inbox! 😁

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Get Ready for a Slow Moving, but Perfect Storm

Lee Adler

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The conditions we were looking for last month have happened.

11/21/21 Whether there’s a default or not, the debt ceiling will be lifted, probably sooner rather than later. When it is, a tsunami of Treasuries will flood the market, mostly in T-bills. But there could also be a huge slug of makeup supply at the long end. That would send bond prices into the dumpster, and T-bill rates and bond yields flying.

How much chaos would the Fed bear before issuing another huge emergency round of QE? That’s the question, ultimately. But in the interim, the event that everyone would see as a positive, raising the debt limit, could be the quintessential “sell the news” trigger leading to a broad based crash in all asset classes.

This is what we need to be on the lookout for as this saga progresses. Therefore, I still don’t want to xxxxx xxxxxx xxx xxxxxxx xxx xxxx (subscriber version). From the liquidity perspective, I hate the intermediate term outlook for xxxx.

But I’m still comfortable following the trend on stocks, remaining long until the market tells us otherwise, especially if that happens around the lifting of the debt limit.

So that’s where we are. Will it? This report has the answer.

The debt ceiling was lifted yesterday, December 16, and stocks have been getting pounded for the last two days. This could be the moment we’ve all been waiting for, in terms of market action in stocks. I’ll address that in more detail in the Technical Trader reports.

Right now in the third week of the month we’re in peak QE week, as the Fed settles its MBS purchases this week. It’s the most bullish QE vs. supply imbalance we’re ever going to have. This is the end my friends. I can’t believe, but we’re on the Eve of Destruction.

That’s because the Treasury will now issue a massive amount of new supply in a very short period of time. It has a goal that calls for raising $600 billion to restore its cash account to the desired level. Plus it must raise additional funds – who knows how much – to repay other internal government accounts it raided to stay below the debt ceiling.

It means that there will be a lot of supply, A LOT, over the next couple of months.

What’s worse, the Fed is cutting its QE purchases at the same time. Talk about a Perfect Storm. Fed QE has funded more than 100% of the Treasury market in recent months. The norm since the Fed began QE in 2009 has been 85-90%. When it cuts QE to zero in March, it will still have a small amount of MBS replacement purchases, but that won’t even be a rounding error in terms of the amount of debt the market will need to fund.

The canny Fed and Treasury have, however, created a $1.6 trillion slush fund to help absorb those Treasuries. It’s the Fed’s RRP program, where money market funds, banks, and dealers can deposit the cash they got back from the T-bill paydowns that they got from the US Treasury since February. This report has the charts to show exactly how that worked. The correlation is perfect.

The Treasury paid off that paper systematically so that it would stay under the debt ceiling. That money is now just sitting there in overnight, same as cash, RRPs, waiting to re-absorb all the new Treasury supply that’s on the way.

Or is it? Nobody is forcing the money managers holding those RRP funds to rebuy Treasuries. They may like holding riskless Fed RRPs even more than they like holding Treasuries. So maybe not all of that $1.6 trillion will be available to absorb new supply. That’s where the problems start. When the RRP holders decide they’ve had enough. The slush fund won’t last forever. We’re tracking it closely and should know exactly when it is signaling a big problem.

Of course the Fed could force the issue, by ending the RRP program, but there’s still the point where that fund hits zero, and simply isn’t there to absorb new supply. At that point the market would face an intractable problem. Lots of supply and no ready cash to absorb it. We know exactly what would probably happen then, because we know the positioning of the Primary Dealers at all times.

Rates and yields would xxxxxxx xxx xxxx (subscriber version). Bonds would xx xxxxxxx (subscriber version). Dealers and banks would xxxxxxx xxx xxxx. Massive Fed intervention xxxxxxx xxx xxxxx  xxxxxx.

We should soon be able to estimate the timing of that.

For now, I really don’t foresee a way out of this. Only the timing is in question. I’m staying away from the xxxxxxx xxx xxxx (subscriber version), and looking for xxxxxxx xx xxxxxxx xxx xxxxxx xxxx.

Get the rest of the story and ideas on how to handle what’s to come  spelled out and illustrated in the subscriber version.

Subscribers, click here to download the report.

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Prepare for Market Doom, the Moment of Truth Is Here –

Lee Adler

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The moment of truth has arrived. The debt ceiling deal is done. After a final paroxysm of T-bill paydowns totaling $209 billion this week, all that market support from the US Treasury will go in reverse. The Treasury market will get slammed with a tidal wave of supply to start to repay all the internal accounts that the Federal Government raided to stay under the debt ceiling.

Under the circumstances, I thought this would be a good time to look at Primary Dealer positions and financing, along with the usual QE and supply data in a report to follow. In any case, there are no surprises.

This situation is unfolding on the timetable we expected. The wildcard is the Fed’s RRP slush fund, which has been hovering around $1.5 trillion. The uncertainty lies in the fact that we don’t know how long that will last. What we do know is that the drawdowns will start very soon, perhaps this week.

The Primary Dealer data might give us some idea of how long the RRP slush fund will last before the bond market really starts to crack. It’s not an open and shut case that the holders of the RRPs will use all $1.5 trillion of it. I continue to think that some will stay put, content to leave their cash in these overnight RRPs with the Fed instead of moving back into T-bills. The sooner the amount of RRPs outstanding levels off, and the higher the level remaining outstanding, the more bearish it will be for Treasuries and stocks.

But first, since we last looked at the Primary Dealer data in late October, the dealers have dumped a ton of long Treasury inventory. They’re still highly leveraged, but their net long position is the lowest it has been in 4 years. They’re getting prepared for the worst. Whether that will help them weather the storm is an open question that we will monitor closely.

At the very least, we need to be prepared for xxx xxxx xxxxx xxxx (subscriber version) in stocks, and what should turn into xxx xxxx xxxxx xxxx in Treasuries and other fixed income securities. Here’s what I would do about that.

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

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Why It’s Big Trouble that Real Time Tax Data Shows Economy Still Growing Fast

Lee Adler

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The withholding data is the real deal. It continues to show the US economy growing rapidly. Inflation will continue to run very hot, and the Fed will remain under pressure to reduce QE. That showed up this week in Powell’s statement that the Fed will stop saying the bad word, “transitory” because people misunderstand what the Fed means by it.

Of course the real reason is that the Fed has been horribly, disastrously wrong, yet again. Just another in a series of compounding policy errors that work like compound interest over long periods of time. After a while, suddenly you’re talking about real money, and unimaginably big problems. So the Fed has a big problem now of its own making. There’s really no way out of this that doesn’t result in a mess.

The other change out of the Fed this week is that Fedheads are now talking about doubling the rate of cuts in QE. That would bring QE to zero by March instead of June.

Mark my words. That’s not going to happen. The markets will crash before that, and the Fed will reverse course, and restart QE, yet again. But how much damage will have been done already, and will the market still have the ability to get up off the mat again and punch the lights out on the upside?

My outlook now has more of a hard edge than it had a month ago. The Fed has demonstrated its cluelessness yet again. Therefore, I think that it is much more likely to be too late in response to the approaching “unexpected” crash that “no one could have predicted.”

Now, as they embark on another insane response to their previous insane policies, they face the massive compounding of the fragility they have caused in the financial system. The Treasury market simply won’t be able to maintain current prices and yields when the debt ceiling is finally lifted.  The Fed will be sharply cutting its purchases or indirect funding of Treasury issuance just when massive new Treasury supply will flood the market. It will be ugly.

So the rally in Treasuries has once again presented us with a gift horse. If I were trading Treasuries, I sure would not xxxx xxxx xxxx (subscriber version only).

Here are the data, charts, and analysis that tell you why you would want to protect yourself, and even profit from what’s coming at you very soon. It also analyzes the likely timing. Be ready.

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When the Fed Balance Sheet Will Hit the Fan

Lee Adler

This report examines and illustrates the most important line items on the Fed’s weekly balance sheet. It tells you what to look for to recognize when the markets will crash.  Because that’s coming.

The markets are in a state of suspended animation while the Treasury is still paying down T-bills, and the Fed’s RRP institutional money market slush fund remains huge.

But the Fed seems determined to cut QE, with the byproduct showing up as slower growth in its balance sheet.

That will run head on into a surge of Treasury issuance. The debt ceiling will be lifted, and the Treasury will flood the market with T-bills.  The RRP slush fund will act as a shock absorber for awhile, but it will plateau when some holders of RRPs decide to leave their cash parked there for good.

That’s when the real trouble will start for the Treasury market, with stocks to follow.  I track the trends of those key Fed weekly balance sheet line items for you.

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Beware- Debt Ceiling Uncertainty Darkens the Outlook

Lee Adler

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We approach another debt ceiling drop dead date. The next month is thus fraught with unknowns. It makes projecting our QE and PONTs charts beyond the next two weeks all but impossible. We’ll just have to wait and see along with everybody else. Of course we view the world a little differently than everyone else.

Here’s the view through that prism.

Word is that Yellen says the new drop dead date (DDD Day) when the Treasury runs out of money will be December 18. You’ll get no argument from me on that score. The extrapolations of Treasury cash spending and revenue seem to support a mid December deadline. At that point, all new debt issuance will stop, and Treasury spending will be severely curtailed. The Federal government will be unable to pay somewhere around 40% of its bills on average.

Everybody else thinks that a debt default would be a catastrophe. I’m not so sure. No doubt it will throw the Treasury market into chaos, but there will still be vultures buying any dips, knowing that a technical default will be cured sooner or later. A stoppage of issuance will mean that new supply will be zero. How much supply will come from panicked sellers, and whether that will overwhelm demand from dealers flush with QE cash, and hedge funds that are short Treasuries, remains to be seen.

The consensus seems to be that a default will trigger a really bad something something something, in the stock market and economy. The economy? Make me laugh. Irrelevant for our purposes.

But the stock market? A complete halt in government debt issuance could be very bullish…

Get the rest of the story and ideas on how to handle what’s to come all spelled out and illustrated in the subscriber version.

Subscribers, click here to download the report.`

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

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The Fed Pulls The Plug, Macro Liquidity Cruiser Starts Its Turn

Lee Adler

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In the financial markets, money talks. I have observed and reported for many years that talking about a change in monetary policy, announcing that change, and actually executing it, are entirely different matters. The market tends not to anticipate change, it responds to actual changes in liquidity.

While the Fed and the mouthpieces of the mob have talked about tightening policy for months, the Fed only announced that it will finally tighten policy this month. The policy has yet to begin. That changes next week.

The new policy implementation begins now. The Fed actually will reduce its QE purchases for the first time since September 2019. That’s when the Fed undertook its emergency “Not QE” policy in response to the money markets freezing up. That came about from a Fed policy of non-intervention after Powell ended Yellen’s balance sheet normalization in December 2018. From December 2018 until September 2019, the Fed stood by while an onslaught of Treasury supply crushed the money markets.

The new policy that begins now is a tightening because it will reduce QE purchases. Anything that isn’t the status quo purchase rate of a total of $200 billion or so a month including MBS replacements, is effectively a tightening. The Fed will be buying less paper each month.

And so, the actual effects of the new policy begin now. The Fed will reduce its Treasury purchases by $10 billion for the mid November- mid December period. It will cut MBS purchases by $5 billion. It will continue to roll over maturing Treasury holdings and prepaid MBS. The net effect will be a reduction of $15 billion in the first month, and then $15 billion the following month.

They said they’d be flexible. In other words, if the markets tank, they’ll be back with more QE. The idea that they’ll continue cutting purchases for the 7 months it would take to get to zero, is a pipe dream. But it’s possible that they could cut for at least xxx-xxx months (subscriber version) before running into problems big enough to stop them.

I wrote months ago that the Fed could only reduce QE if the Treasury cuts issuance. That’s on the schedule this month, particularly as the new debt ceiling again restricts issuance.

But reduced issuance isn’t no issuance. After the dust settles and the debt ceiling is finally lifted or suspended for the long haul, the US Treasury will still be issuing an average of $150 billion per month in net new debt. If the Fed cuts QE for two months to new purchases of $90 billion per month after two months, and MBS replacement purchases average another $50 billion or so, the Fed will still be taking down directly or financing indirectly 93% of new issuance. No problem there. The market could sail right along with that.

But higher bond yields mean higher mortgage rates. Higher mortgage rates mean fewer refinances and fewer MBS prepayments. We don’t know exactly how much. But it will be an exacerbating factor. At the peak of the refi boom, Fed MBS purchases totaled $120-130 billion per month. Now they’re down to $100-110 billion per month, and they will drop more as mortgage rates rise.

If the stock market remains relatively stable going into January, the Fed will continue to cut its total outright purchases of Treasuries and MBS. They’ll go to $75 billion in January, and $60 billion in February. At that point, let’s say MBS replacements drop to around $40 billion a month. Then total Fed purchases would be around $115 billion and Treasury issuance would still be $150 billion. Then we’re talking about 77% of new issuance.

The benchmark for the Fed for the past dozen years has been to directly absorb and indirectly fund a total of  xx% (subscriber version) of new issuance. The only time they went lower for any length of time was during the Yellen balance sheet bloodletting from October 2017 to December 2018. That did not go well. Once the 10 year breached 3%, the panic was on. Powell took over, panicked, reversed course, and began QE to infinity and beyond.

Now we’re going to find out again how far they can push the “tapering” fantasy. They told the market that they’re going to be “flexible.” Which means that they’ll reverse course at the first sign of trouble.

The issue is where that will be. First benchmark to watch on the 10 year is txxxx xxxx xxxx xxxx (subscriber version). If that’s cleared, and I have little doubt that it will be, the pressure will be on.

The Fed’s media mouthpieces will start floating the trial balloons around then. But remember! Guidance schmidance. Money talks, and BS, even Fed BS, walks. Once the pressure on the markets begins to manifest itself, the market won’t reverse course just because of a few words from the Fed. The market will only reverse when the money starts to flow again.

As Johnnie Cochrane famously said, “The Fed must pump, or the market will dump.”

With that in mind, we look at the macro liquidity chart (subscriber version) to this point and see that nothing has changed. Stock prices continue to track with rising liquidity. But that rise is about to slow, and month after month for the next xxx-xxx months (subscriber version) months at least, the Fed will tighten the screws. My guess is that around xxxxxxxx (subscriber version), we should start to see negative impacts in the financial markets. Treasuries will come under pressure first. Stocks will follow.

Be ready for things to change. The Fed is tightening. Rule Number One now points in the other direction for the first time since the Yellen bloodletting of 2017-18.

All spelled out and illustrated in the subscriber version.

Subscribers, click here to download the report.`

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

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Why Jerome Powell Had a Frog In His Throat

Lee Adler

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Available at this link for legacy Treasury subscribers.

Did you notice in yesterday’s press conference how Jerome Powell kept clearing his throat. He was apparently choking on the vomit of his own double talk. The lies, self contradiction, and obfuscation were  breathtaking. This man has no conscience. But then, he’s a central banker. What should we expect.

It’s a good thing that Powell doesn’t own a big bond portfolio.

Well, actually, he does. A lot of munies. A lot of real estate funds, and lots and lots of stock funds. But he makes policy to benefit American workers, who can’t afford to buy houses from the real estate ETFs that Powell owns. Supposedly.

That will be the extent of expressing my disgust with yesterday’s spectacle. The purpose of this report is to review the state of real time tax collections as they accurately show what the US economy is actually doing, and to relate that to the unusually important twin pieces of news that came out yesterday. One was the TBAC schedule for the first quarter of 2022, and the other was the Fed’s taper announcement.

The Fed plans to cut $15 billion a month from their purchases until they get to zero net purchases next June. It’s no surprise that at the same time, less Treasury issuance is forecast. The TBAC says that issuance will be cut in half in Q1.

We knew that the strong tax collections would cause issuance to begin to shrink. We knew that the Fed would only taper QE when Treasury issuance began to decline. There’s no surprise in any of this.

One Bloomberg story highlighted the fact that the Fed’s taper was simultaneous with the Treasury “tapering” issuance. There’s just one problem. While issuance will be cut in half from Q4 to Q1, assuming that the next lifting of the debt ceiling doesn’t screw that up, the Fed’s purchases would go to zero under their plan. At the same time, half of the current level of Treasury issuance still amounts to $150 billion per month on average.

Let me say this about that.

The market cannot absorb $150 billion a month in new issuance at current price levels. Bond prices will crater before the Fed ever gets remotely close to zero QE. In fact, just 2-3 months of reduced QE might be all the market can bear.

We know that for the past dozen years with QE, the Fed has funded 85-90% of Treasury issuance month in and month out. They’ve done it with a combination of outright purchase, and indirect funding through cashing out dealers via MBS purchases.

Yellen tapered for a year. Treasury yields soared. Powell came on the scene, choked, stopped tapering, and soon started printing again like there was no tomorrow.

They’ve suppressed bond yields as a result. They have screwed yields to the floor, screwing risk averse savers in the process.

The mirror of that is that they nailed prices to the ceiling. Most of the world’s wealth is tied up in bonds and real estate. Powell and his cronies benefitted immensely from the Fed’s direct suppression of yields and inflation of bond prices.

When Treasury issuance increased, the Fed increased QE to insure that bond holders suffered no losses, and that the residential and commercial real estate bubbles continued to inflate.

But even with that increased support, the yield on the 10 year has risen from 0.50 to 1.50-1.70. We’re about to see what happens when the Fed cuts its absorption to less than 85%. The Fed says it will be flexible. The taper isn’t on autopilot.

I’ll say. Watch what happens when the 10 year yield explodes past 2%. Let’s see how long they stick with this “taper” while Powell and friends’ personal holdings of bonds and real estate funds crater.

We have a couple of wild cards in the mix. These include the xxxx xxxx xxxx (subscriber version only), which is already again beginning to stifle issuance. The Treasury returned to T-bill paydowns last week after issuing $254 billion in net new bills since October 15. They’re already running into the new higher debt ceiling, so they have to start paying down T-bills again while they continue to issue coupon (longer term) debt.

So the games will begin again. With that $254 billion that the Treasury raised in T-bill sales, they managed to rebuild the Treasury cash account from around $50 billion to $311 billion as of November 2.

That’s probably enough to hold off the dogs until xxxxxxx (subscriber version only). At that point, we’re going to have to have another debt ceiling increase. Hopefully this one will be more or less permanent, simply because it’s easier to forecast when we know what the limit will be or not be, for the foreseeable future. Otherwise we’ll have to keep floating like a butterfly as we go.

For now there are things in place that will buy a lot of market shenanigans for a few months. They include the $311 billion in the Treasury account, the presence of the xxxxxxxxxxxxxx (subscriber version only),, and the $1.35 trillion still sitting in the Fed’s RRP slush fund.

The day of reckoning is not today. It probably won’t be xxxx (subscriber version only), because they get a xxxx xxxxxx xxxxxxxxx xxxxxxxx (subscriber version only), that xxxxxxxx xxxx. It might be xxxxxxxx, or xxxxxxx, or xxxxxxxx. I’d guess closer to the later part of that period, but it all depends on whatever develops day to day. That’s why we track this data. We’ll see the changes coming in time to act.

The smart money has already been tiptoeing out the side door. We see that in the 10 year yield bumping up toward the highs again. That’s what I’d key on. I’ve said for months that I don’t want to be holding Treasuries or longer term fixed income investments. That doesn’t change.

Assuming that the 10 year yield does break out above xxxx (subscriber version only), that’s where I think we’ll really start to see the wheels come off. First in the bond market. But down the road in stocks too. It may not be an immediate worry, but at some point in xxxx xxxxxxx xxxxxxxx xxxxxxxx (subscriber version only), it will be.

The technical analysis of the stock market itself should tell us when the turn is under way. I wouldn’t short the market stock market heavily until the TA tells me that it’s safe to do that. It hasn’t told me that yet. Although I have a couple of toes in the water in the swing trade chart picks list in the Technical Trader reports.

Subscribers, click here to download the report.

Subscribers, click here to download the report. Available at this link for legacy Treasury subscribers.

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It Only Takes One House Fire to Start a Conflagration

Lee Adler

Subscribers, click here to download the report.` Primary dealers have reduced their long fixed income positions but they have dramatically increased their leverage. On the one hand, they have reduced their risk exposure, and on the other hand, they have increased it.

It doesn’t make much sense on the surface. But the leverage increase appears extreme, and that’s something to note as the government moves toward its ultimate resolution of the debt ceiling. That will allow a tidal flow of Treasury issuance to batter the market. At the same time, the Fed will almost certainly begin to “taper” its bond purchases. In other words, the supply of Treasuries will increase, while the market’s largest source of demand will diminish.

These facts argue for much higher yields and lower bond prices. The short term timing is uncertain. We’ll rely on the technical analysis of the charts for that. But beyond the next couple of months, all the pressure on yields should be to the upside. Which means bond prices will head lower. That could set off a firestorm in not only Primary Dealer inventories, but bank long term bond portfolios as well.

It doesn’t bode well for a neat and clean outcome for the Fed’s tapering attempt. At some point it will be forced to reverse course. But they’ll try for a while. I think that the outcome in the markets will be chaos to the downside in prices.

This report looks at the particulars of dealer positions, financing, and hedges, as well as the profits and capital trends of the big banks in the aggregate (charts and discussion in subscriber version). These aren’t timing tools but give us some idea where the risk of a blowup lies. Then I discuss the technical charts, key benchmarks and strategy (subscriber version).

Subscribers, click here to download the report.`

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KNOW WHAT’S HAPPENING NOW, before the Street does, read Lee Adler’s Liquidity Trader risk free for 90 days!

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

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US Treasury Says, More Beans, Mr. Taggart! – LINK CORRECTED

Lee Adler

Apologies for the bad link in this report I posted yesterday! Now corrected!

Subcscribers click here to download the complete report.

The Fed poured $132 billion of QE into the accounts of Primary Dealers between October 14 and 21, the regular monthly MBS settlement week. As a result, we got the usual predictable result of a rally in stocks.

But there was only a weak, late holding action in Treasuries. They sold off for most of the week. That’s understandable, considering that the US Treasury sucked $218 billion out of the market that week after the debt ceiling was lifted.

It will pull another $196 billion out this week. At this rate, they’ll hit the new debt limit by xxxxx xxxxxxxxxx (subscriber version). Then the extraordinary measures game and the political/fiscal brinksmanship will begin anew.

At the same time, the Fed will begin cutting its outright QE purchases, and MBS replacement purchases will also decline because of higher rates and few mortgage refis, and thus prepayments. That would normally be very bearish, but remember! They have a slush fund! The Fed’s RRP account, which currently still holds about $1.4 trillion in cash ready to absorb the flood of new T-bills.

In the context of all this new supply pounding the financial market, the stock market rally was pretty remarkable. Stocks rose despite the fact that there was more Treasury supply than there was QE. True, there’s still plenty of cash sitting in the Fed’s RRP slush fund. As I’ve pointed out, this will cushion and help to absorb the supply hit coming from the US Treasury.

Think of the RRP slush fund as a big pot of beans simmering on the money manager cowboy camp fire. Fed QE adds more beans to the pot. The US Treasury keeps eating mass quantities of the beans. It constantly refills its plate, consumes the beans, and passes the gas into the US economy. It can continue to consume those beans until they’re gone, as in when the RRP fund is exhausted. That will happen in some months, especially as the Fed gradually stops adding beans to the pot (tapering QE).

Or maybe not that long. Maybe some of those money managers tending the pot will at some point will be like Mr. Taggert. In response to the Treasury asking for still more beans, they’ll say “I think you’ve had enough!”

That’s when both the stock and bond markets will get really interesting for bears. Of course in my view, the bond market is already plenty “interesting,” and has been for some time.

Media reports have pointed out that professional money managers are overwhelmingly bearish on bonds, as if that’s some kind of contrarian bullish omen. I hate to be a party pooper, but market consensus is often right for long periods, especially when the facts support it. In this case, the facts support the consensus. So I’m xxxxxxxx xxxxxxx xxx xxxxxxx (subscriber version). Treasuries. I wouldn’t want to hold long term debt in this environment.

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For the rest of the story, including the multi colored charts and discussion that will entertain, delight, and enlighten you about what to expect, and what to do about it, subscribe!

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

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