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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!

The Magic of Rising Stock Prices Driving Liquidity, Driving Prices

Lee Adler

The Fed’s weekly real time balance sheet data and its slightly lagged data on the condition of the US banking system still show little sign of an imminent end to the stock market rally. Only the Foreign Central Bank trend is negative, and that on its own isn’t sufficient to turn the market. It needs help, and there’s none to be found. The bulls are running wild. Non-subscribers, click here for access.

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As they do, prices of stocks rise. And that creates its own vicious cycle of liquidity creation leading to higher prices, and so on. This is how manias become entrenched. They continue until they are exhausted. We look for signs of exhaustion both in the technical market data, which I report in the Technical Trader reports, and in the liquidity data that I report here. In neither case are there signs that this rally is finished yet. But I’m on the lookout.  Non-subscribers, click here for access.

The end may come quickly, so we need to be prepared and vigilant. Complacency is the trader’s enemy. We must guard against that.  Non-subscribers, click here for access.

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Tax Collections Took Off in a Stunning Reversal in February

Lee Adler

Withholding tax collections soared in February to their highest level in 13 months. If this is not just a flash in the pan or data anomaly, it could mean smaller than forecast deficits ahead. Smaller deficits translate to less than expected Treasury supply. But less than expected isn’t less in real terms. Supply will still be huge, and still a problem for the market to digest over the longer term. Non-subscribers, click here for access.

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But in the short run, the strongest revenue collection period of the year starts now. Corporate income taxes for last year are due on March 15, and both annual individual and quarterly individual and corporate income taxes are due April 15. Which is why, every year from mid March to late May, the annual revenue windfall leads to paydowns of Treasury bills. Non-subscribers, click here for access. 

Those paydowns put cash back into the pockets of the holders of the paid down T-bills. That cash figruratively burns holes in the pockets of those entities, mostly professional investors, who then use that cash to buy longer term fixed income paper and yes, stocks. That’s why we normally see a seasonal rally in the stock or bond market, or both, in the spring. The timing varies, but significant strength in April and May is the rule. Non-subscribers, click here for access. 

When the paydowns end and the government starts borrowing heavily again, the markets often sell off.  Non-subscribers, click here for access. 

So should we expect anything different this year?  Here’s the answer, and an explanation of why that is, and how to take advantage of it.  Non-subscribers, click here for access. 

Liquidity analysis gives us the context, or the map of the general direction where we can expect the markets to head over the next few months. That helps us to better understand the message of the technical charts.  Non-subscribers, click here for access. 

Meanwhile, the Fed’s RRP facility, which has been the source of much of the money contributing to the stock and bond market rallies, continues to be drained. However, the rate of withdrawals has slowed dramatically. As a result, the money in that pot looks likely to last longer than I originally expected, especially if T-bill paydowns increase on the strength of greater than expected revenues. This report also shows you exactly what that means for the markets.  Non-subscribers, click here for access. 

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We Don’t Need No Stinkin’ Fed – We Make Money from Nothing

Lee Adler

Neither the Fed’s weekly real time balance sheet data, nor its slightly lagged data on the condition of the US banking system yet shows any sign of an imminent end to the stock market rally. On the other hand, there’s plenty of evidence of an entrenched mania. And they usually don’t end well. Non-subscribers, click here for access.

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We can deduce that the fuel for this rally has several sources. They’re not finite. This is a matter of where there’s a will there’s a way. Non-subscribers, click here for access.

Some of it is bond portfolio liquidation. Some is margin. Some is foreign money inflows. None of it is coming from the Fed. This is all about animal spirits, and the power of animal spirits to create money from nothing and stocks for free. Just borrow the money into existence. Or move it from something else, or somewhere else. That can go on and on until the mass psychology exhausts itself. When that happens, it usually does so with a vengeance. Non-subscribers, click here for access.

This process is sustainable until it isn’t. We, like the Fed, are data dependent, and that data includes both the liquidity data and the technical analysis data that I cover in the Technical Trader reports. So far neither set of data is screaming “It’s over!” Until they show signs of topping out simultaneously, we have to let it ride. The theater is crowded, but there’s no point in screaming “Fire!” yet. Non-subscribers, click here for access.

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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!

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Market Sentiment vs. Liquidity Reaches Historical Hysterical

Lee Adler

In last week’s report, we noted that “One of the key measures of animal spirits versus liquidity has reached an historic level of insanity that could mark the end of this move. Or it could signal the beginning of even more craziness.” Non-subscribers, click here for access.

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The market’s verdict last week was “more craziness.” But the liquidity readings still are not cooperating. That craziness should end with a thud in the next couple of weeks. We’re already seeing the indigestion in the bond market. I think that that’s a sign of things to come, with worse news ahead for Treasuries and other fixed income. And then for stocks. Non-subscribers, click here for access.

The issue, as always is the timing. We’ve reached a stage in this market that the weekly banking data and real time weekly Fed balance sheet data is more important than ever. Therefore, I will go to a weekly follow up on this.  I’ll show you the charts, tell you what they mean, and we’ll formulate a plan for how to handle the tactical view from the TA.  Non-subscribers, click here for access.

This very well could be the week that was. One way or the other. This report shows what the key is, and what to do about it.  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!

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This Will Be the Week That Was

Lee Adler

A potentially historic week is on tap. One of the key measures of animal spirits versus liquidity has reached an historic level of insanity that could mark the end of this move. Or it could signal the beginning of even more craziness.  Non-subscribers, click here for access.

Subscribers, click here to download the report.

This very well could be the week that was. One way or the other. This report shows what the key is, and what to do about it.  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!

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What’s Up with Down Withholding Tax Collections

Lee Adler

Withholding taxes rebounded in January, but they were still negative year to year in inflation adjusted terms, and barely positive in nominal terms. Non-subscribers, click here for access.

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By any standard, the withholding tax data doesn’t support the jobs report.  Non-subscribers, click here for access. 

But that’s not what matters. Here’s what does.    Non-subscribers, click here for access. 

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Fed Balance Sheet Right Now Says Bears Should Get Ready to Rumble

Lee Adler

Despite the fact that the Fed is no longer the only driver of the markets in one direction, it still plays a role indirectly. So we still monitor the Fed’s weekly balance sheet. It is still the timeliest source of data on several critical market drivers. It’s published weekly, virtually in real time, with data through the current Wednesday, published on Thursday after the financial markets close.  Non-subscribers, click here for access.

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The numbers and the discussion are dry, and can be dense, so I’ve been thinking about ways that I could relate those numbers to the reality of stocks and bond prices on the ground, without putting you to sleep.  Non-subscribers, click here for access.

Then it dawned on me!  Non-subscribers, click here for access.

So, in this report I present a few charts of the Liabilities side of the Fed’s balance sheet. They show us that maybe we shouldn’t be so sanguine about the continuation of this bull market. In fact, it looks like something bad is coming, and soon.  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!

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Primary Dealers Are Maxed Out Again

Lee Adler

The dealers have gone to an extreme of leverage against their bond positions for the second time since last July.  Back then, the extreme lasted for about a month, and it coincided with an intermediate top in stock prices and an accelerated decline in bond prices and the necessary inverse rise in yields.  Non-subscribers, click here for access.

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This report shows the pictures that tell the story, and that tells us what to do about it.

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Weekly Bank Data and Fed Balance Sheet Say the End is Nigh

Lee Adler

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!

Bank deposits, repo borrowing, and the Fed’s RRP facility have been the fuels for the rally. There are strong correlations between them and stock prices. In the past two weeks they’ve reached an inflection point. Depending on how they break, we should get a signal on the most likely intermediate term direction of stock prices. Non-subscribers, click here for access.

However, liquidity only establishes market context. Technical analysis of price trends shows action and timing. Context helps us to better understand the timing indicators when they are ambiguous. I cover that in the Technical Trader reports. Non-subscribers, click here for access.

Subscribers, click here to download the report.

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US Economy Didn’t Crash in December?

Lee Adler

Yesterday I posted a report on the plunge in the withholding data. Non-subscribers, click here for access.

Subscribers, click here to download the report.

That conclusion may not have been correct. A reader brought to my attention that there was apparently a tax law effect. Another tax tracking service estimated that the effect of this change was 17%, so that there would have been a net year to year gain of 6.1%. This would have been the rate of change, in the absence of the effect of deferment of withholding in the prior year due to pandemic relief legislation. December 2022 was the giveback.

In reviewing the data, I noted that there was a 21% surge in year to year withholding tax collections in December 2022. You can see that on the withholding tax chart in the report. Non-subscribers, click here for access. Therefore the effect of the tax deferment may well have been 17%, or close to it. The analysis of that impact appears to be accurate.

Assuming the adjusted figure of a year to year gain 6.1% is correct, then the real growth rate would have been 2% based on recent BLS earnings inflation reported at 4%.  The adjusted data presented in the other report claims that withholding growth was equivalent to the BEA rate of wage inflation at 6%. That implies zero job growth.

I apologize that my analysis posted yesterday appears to be materially incorrect because of this factor. However, my broad conclusions remain the same. There’s still lots of Treasury supply on the way. The deficit will apparently not grow beyond the official forecast but it remains enormous and isn’t going away.

In January, the effect of the deferred withholding back in December 2021 that was recaptured in December 2022, will be zero. We’ll then get an apples to apples comp. I will provide an interim update on the January year to year change during the month.

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