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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!

Banking System Fragile As Fuse For Implosion Nears Ignition

Lee Adler

Every time there’s a critical problem in the banking system due to banker malfeasance, the Fed steps in to paper it over and reward the criminals.

That’s why we focus on the Fed more than anything else. Regular review of the banking indicators was useful once upon a time. The Fed has rendered them irrelevant. But I promised to keep an eye on them, and it has been 5 months since we last looked. That’s enough time that, if anything material has changed, we need to know about it. So herein is a review, our first since last December.

In this report, I highlight the charts. Because there are so many, I’ve attempted to minimize the verbiage. I talk too much. The charts really speak for themselves.

The bottom line is that the system remains extremely vulnerable to a decline in Treasury prices that is  coming in xxx (subscribers only). Likewise, the return of optimism in commercial real estate is problematic. The banks are taking no precautions. There’s no sign of recognition of the looming losses.

It means that the entire banking system could be destabilized in xxxxx (subscribers only). The Fed will have to act, massively. History shows that the Fed won’t act in time to prevent a breach of the system. History also shows that the Fed has the power to ultimately make its actions give the appearance of stabilization, leading to the return of animal spirits.

But I don’t know if it will work yet again, and we can at least expect a significant break first. So here’s what I would do (subscribers only).

Now here’s a review of the banking indicator charts.

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

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Treasury Adds to Fed QE to Create Bullish Cash Tsunami

Lee Adler

The balance between QE and Treasury supply has gotten even more bullish and will remain so until xxxx (subscribers only). This should provide a boost for stocks. It should keep the Treasury selloff at bay until xxxx (subscribers only).

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I have previously made the case for the Treasury to run out of money in xxxx (subscribers). If that estimate is correct, the outlook will turn negative in xxxx (subscribers). But for now, bullish liquidity forces remain in place, outside of the usual month end supply pressure.

As delayed tax receipts come in, in May, the Treasury will have even more cash for paydowns. The rest of May into mid June could be very bullish as a result. A selling opportunity for both stocks and bonds will arise as the Treasury approaches the point where its cash hoard is used up.

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

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TBAC Supply Forecast Tells Us When the Markets Should Top Out

Lee Adler

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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Here’s Why We Should Sell In June, Before the Swoon

Lee Adler

Withholding tax revenues exploded higher in April. Everybody knows the jobs number will be huge. The withholding data says not huge enough. But I’m not here to game that because the BLS makes up the number in the first release then revises it 7 times over 5 years to fit the tax data and unemployment claims data. The BLS survey first release is essentially statistical horseshit.

The April tax windfall is bigger than it looks because the base period was during the US economy’s shutdown last year. However, the total appears to compare favorably with April 2019, until we consider wage inflation. Then the rebound is just back to the April 2019 level.

But momentum is hot, hot, hot. The economic news will be hot, hot, hot. Bond traders will have an excuse to sell. Stock traders will have an excuse to buy. But excuses don’t matter. Money talks. And we follow the money. We know where it is, and where it’s headed. Click here for a 90 day risk free trial to Liquidity Trader Money Trends reports. 

Despite the hot momentum of tax collections, spending is hotter, and the deficit is massive. Back of the envelope calculations continue to suggest that the US Treasury will run out of cash in XXXXX (subscribers only). It will then need to radically increase supply. The xxxxx (subscribers only) quarter will then be crunch time for the markets. Click here for a 90 day risk free trial to Liquidity Trader Money Trends reports. 

Meanwhile the US Treasury has pumped nearly a half trillion dollars into the accounts of holders of expiring T-bills. Those holders include dealers and big institutions. They deploy that cash to buy longer term Treasuries and, in some cases, stocks. That’s short term bullish for both bonds and stocks. More paydowns are scheduled for the next couple of weeks. Bullish for both asset classes.

The new TBAC supply estimate suggests that the paydowns will end this month. The Treasury will be set to increase issuance in the xxxxx quarter (subscribers only if we extrapolate current flows. Does this mean it will be time to sell in June and prepare for the swoon? Or do we have more time for holdin’ and hopin’? This report has the answers.

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

Lee Adler

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.

The facts, figures, outlook, and strategy are reserved for subscribers. Click here to download the report.

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Liquidity is Still Bullish, And Even More So in May

Lee Adler

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

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Bogus Bank Earnings Hide The Danger In Primary Dealer Inventory Losses

Lee Adler

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.

Subscribers, click here to download the report.`

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!

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

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Treasury and Fed Go Hog Wild To Rescue Dealers This Week

Lee Adler

I just want to give Liquidity Trader Money Trends subscribers a quick heads up. We always expect extra liquidity around the middle of the month, and we look for rallies at this time because of it. But we just got a little more juice from Doctor Yellen.

The US Treasury is again going hog wild with T-bill paydowns, announcing $62 billion over the past week alone. There’s actually a net paydown in April, after new coupon issuance. Extra slosh for the party.

And, of course, this week is the Fed’s regular monthly MBS QE purchase settlement week April 14-21. They’re pumping $93 billion into Primary Dealer accounts this week. The dealers have been up against it in managing their bond inventories, and the Fed and Treasury are, as always, doing whatever it takes to rescue them.

So all the explanations that you are seeing in the media about why Treasuries are rallying are just so much BS from the clueless mob. It’s about money plain and simple. The Fed and US Treasury are doing a great job of manipulating prices in the short run by pumping a combined $185 billion into the markets, most of it directly into the accounts of Primary Dealers in a very short period.

We were prepared for and expecting this liquidity to boost the markets this week as usual in the third week of the month, but the additional T-bill paydowns over the rest of the month are a new wrinkle that will add even more liquidity than we expected. The end of month period may not be as dry of funding as usual.

This too shall pass, and we know that the end is nigh!

I will cover the issues in depth in one or two subscriber reports this weekend. That will include additional detail on Primary Dealer positioning. Stay tuned!

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Primary Dealers Go Full Reverse Thrusters

Lee Adler

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.

Subscribers, click here to download the report.`

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!

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

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Technical Trader Special Report- This Week’s Swing Trade Picks

Lee Adler

Oh What a Tangled Web We Weave When First We Update a Spreadsheet from Fed Data

I got into a bit of a pickle this weekend when updating my Primary Dealer position and Financing charts. The spreadsheets that I use to create them are massive aggregations of multiple New York Fed data tables. I need to create dozens of linked tables to collect and aggregate that data into two coherent story telling charts.

I made one small change in one of the two workbooks by adding a couple lines to accommodate an extra week of data. Simple, right? That caused a series of cascading errors in the two linked worksheets. The New York Fed doesn’t make it easy, to aggregate this data. In fact, they make it nearly impossible, which is probably why I’m the only one crazy enough to try this at home.

I didn’t realize the error until I was finished and looked at the chart. It was trash. It was all trash.

I spent 3 hours, until midnight last night, rebuilding all of it, after spending 3 hours building it. So I don’t have a finished report on that data as I had intended, nor was I able to get to the technical report on Sunday night as I usually do.

That’s my sob story excuse for presenting the Technical Trader report for you in two parts this morning, which may be a better way to do it anyway. 😀 First, I’ll start with the chart picks, herein. I’ll get the technical market overview out to you well before New York opens.

If I’m lucky, I’ll get that Primary Dealer report out to Liquidity Trader Money Trends subscribers this morning also.

Thanks for your commiseration and support!

Lee

And now, on with the show.

Technical Trader subscribers click here to download the report.

As a thanks to Liquidity Trader Money Trends subscribers for your patience, here’s a link for you to download this report, if you’re interested.

Not a subscriber? Follow Lee’s market analysis and outlook, with price and time targets, and weekly swing trade chart picks, risk free for 90 days!  

These reports are not investment advice. They are for informational purposes, intended for an audience of investment and trading professionals, and other experienced investors and traders. Chart pick performance changes week to week and past performance may not indicate future results, as you know. Trading involves risk, and these reports assume that you understand those risks and manage them according to your tolerance. 

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