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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!

Here’s The Evidence That The US Treasury is Bailing Out Stricken Primary Dealers

Lee Adler

The bear market in Treasuries that started in August devolved into an outright crash last week. Meanwhile, evidence shows that cash in Primary Dealer accounts has exploded to the highest level in history, with the biggest weekly increase in history. There’s also circumstantial evidence that that cash came directly from US Treasury, away from the publicly visible means that we already saw last week.

We are not surprised there’s a crisis. You and I have been watching the situation deteriorate for months. My first guess was that the trouble would start when the 10 year yield crossed 0.8%, That was premature. It was just a preliminary. Then I guessed it would be 1%. Sure enough, within a few weeks after crossing that level, things deteriorated rapidly into last week’s climax.

While the Fed sat on its hands, saying, “Nothing to see here, all is well,” the US Treasury sent in the cavalry. As I covered in the bulletins I sent you over the past week, the Treasury has announced $160 billion in T-bill paydowns. These put cash directly into the accounts of those who hold the expiring bills. This includes dealers, banks, and big investment firms of all types.

Two of those paydowns, totaling $96 billion settled on February 23 and 25. The Treasury, no doubt working with the Fed, absolutely wants the crash in bond prices to reverse. They know damn well that the stability of the system is at stake here. I believe that we have passed the point of no return. They must get Treasury prices back up, or else.

The Treasury will almost certainly continue these cash injections. They still have plenty of money left to do it. It is still sitting on $1.38 trillion in cash.

But oddly, dealer cash accounts rose by more, and Treasury cash fell by more, than what we can account for with these paydowns, and the other things we know about. Here’s the evidence, the implications of it, and a strategy to potentially profit from the coming crisis.

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

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US Treasury Injects Another $30 Billion Into Market

Lee Adler

The US Treasury announced today that it would inject another $30 billion into the markets, in an attempt to forestall systemic meltdown. It will pay down another $30 billion in T-bills on March 4.

This brings the 2 week total to $155 billion and it is NOT ENOUGH. Investors and dealers got back $55 billion in cash on Tuesday and another $41 billion today, but they are not buying longer term paper with that cash. The continue to hold short term paper. Some bought stocks yesterday, but today margin calls against losses in longer term Treasuries have spread into stocks.

I have been forecasting this since the bond market turned last summer. The process is unfolding as expected. We had guessed that once the 10 year yield rose above 1%, the problems would start and cascade as bond prices fell and highly leveraged dealers got slaughtered.

Because these massive cash injections from the Treasury are not stemming the meltdown, the Fed is likely to follow up with its own intervention.

This could have an effect opposite to the one desired. It could trigger a collapse in market confidence. Instead of buying more paper, dealers might opt to use the cash to pay down debt and deleverage.

It’s likely at this point that they are approaching zero capital. At this point, they are merely straw front men for the Fed.

I will post updated reports for Liquidity Trader subscriber, with more details and charts, and an ongoing look forward on what to expect on Friday and/or Saturday. For access, take a risk free trial today.

For more on this see Treasury Announces It Will Inject ANOTHER $25 Billion For $125 Billion Weekly Total.

Also:

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Treasury Announces It Will Inject ANOTHER $25 Billion For $125 Billion Weekly Total

Lee Adler

The Treasury is injecting still more cash into the market, on top of the $96 billion it already staged last week. It announced on Tuesday (Feb 23) that it will do a third round of T-bill paydowns, this for $25 billion, settling on March 3. This is on top of the $55 billion that is settling today, February 23, and the $41 billion to be settled on Thursday, February 25.

This means that the US Treasury will have injected a total of $125 billion in cash into the market in a week.

These announcements have done no good so far. The prices of longer term Treasuries continue to crash, as this chart of the 20 year Treasury bond ETF shows. It remains to be seen if the actual settlements of the cash, starting today, will help.

As collateral calls go out to dealers, the selling has begun to impact stock prices, as I have long forecast would occur. The crisis that I have warned about is upon us.

Do not be lulled into a false sense of security by the sanguinity of Jaysus Powell and his henchmen at the Fed and in the Wall Street media establishment.  The financial system is yet a again at an existential crossroads, and the Fed has yet to indicate that it understands the seriousness of the problem that it has caused with its ever larger and larger systemic bailouts and encouragement of ever increasing moral hazard.

At some point the problem becomes too big to rectify.

To stay ahead of these developments read Lee Adler’s Liquidity Trader risk free for 90 days!

The balance of this report is from our last update. 

The Treasury is spending this money out if its $1.6 trillion cash hoard.  Treasury officials are obviously in a panic over the plunge in Treasury note and bond prices that accompanies the surge in the 10 year Treasury yield.

With good reason.

This will have an effect similar to Fed QE. Treasury paydowns put cash directly into the accounts of the dealers, banks, and investors who hold the expiring paper. The paydown of the expiring paper will simultaneously create a shortage of paper in which to reinvest cash.

The Treasury’s goal is to force the former holders of the short term bills to reinvest the cash further out on the yield curve in order to stem the rise in yields and the fall in bond prices.

The injection of $96 billion comes just before the Treasury settles the regularly scheduled net issuance of new notes and bonds at the turn of the month. This cash will help the market to absorb that new paper. Net issuance of that paper will be $174 billion. This was as forecast by the TBAC.

The declining bond prices are crushing the leveraged portfolios of Primary Dealers, with the resulting collateral calls. There’s been an imminent threat of contagion into stocks, and ultimately a systemic crash. We’ve seen vestiges of it in the form of downdrafts in stock prices in recent days. So far, they have not been sustained.

I have been warning about this approaching catastrophe for months. It now appears to be upon us. The Treasury’s injection, and any subsequent ones, will mitigate against that risk for the time being.

See these reports for more details, charts, and explanation, as well as strategy viewpoints.

Treasury Joins Fed to Try to Prevent Imminent System Collapse

Free Report – Proof of How QE Works – Fed to Primary Dealers, to Markets, To Money

Liquidity Trader Subscriber Reports –

Primary Dealers are Already Dead – Free Summary

Primary Dealers are Dead – Part 2 – Springtime Coming for Hibernating Bears – Free Summary

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!

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Treasury Announces It Will Inject ANOTHER $41 Billion Next Week

Lee Adler

The Treasury is injecting more cash into the market. It announced today that it will do a second round of T-bill paydowns next week, adding another $41 billion in T-bill paydowns, to be settled on February 25. This is on top of the just announced $55 billion T-bill paydowns settling on February 23.

This means that the US Treasury will inject a total of $96 billion in cash into the market in two days. The Treasury is spending this money out if its $1.6 trillion cash hoard.  Treasury officials are obviously in a panic over the plunge in Treasury note and bond prices that accompanies the surge in the 10 year Treasury yield.

With good reason.

This will have an effect similar to Fed QE. Treasury paydowns put cash directly into the accounts of the dealers, banks, and investors who hold the expiring paper. The paydown of the expiring paper will simultaneously create a shortage of paper in which to reinvest cash.

The Treasury’s goal is to force the former holders of the short term bills to reinvest the cash further out on the yield curve in order to stem the rise in yields and the fall in bond prices.

The injection of $96 billion comes just before the Treasury settles the regularly scheduled net issuance of new notes and bonds at the turn of the month. This cash will help the market to absorb that new paper. Net issuance of that paper will be $174 billion. This was as forecast by the TBAC.

The declining bond prices are crushing the leveraged portfolios of Primary Dealers, with the resulting collateral calls. There’s been an imminent threat of contagion into stocks, and ultimately a systemic crash. We’ve seen vestiges of it in the form of downdrafts in stock prices in recent days. So far, they have not been sustained.

I have been warning about this approaching catastrophe for months. It now appears to be upon us. The Treasury’s injection, and any subsequent ones, will mitigate against that risk for the time being.

See these reports for more details, charts, and explanation, as well as strategy viewpoints.

Treasury Joins Fed to Try to Prevent Imminent System Collapse

Free Report – Proof of How QE Works – Fed to Primary Dealers, to Markets, To Money

Liquidity Trader Subscriber Reports –

Primary Dealers are Already Dead – Free Summary

Primary Dealers are Dead – Part 2 – Springtime Coming for Hibernating Bears – Free Summary

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!

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Treasury Joins Fed to Try to Prevent Imminent System Collapse

Lee Adler

And I’ve spewed a whole lot of words over the past 3 weeks. Scary words. Words including warnings that one of the titans of the trading and brokerage industries has now echoed. Words about QE, the Primary Dealers, and the twin issues of current and expected Treasury supply, and the Treasury’s huge pile of cash, that it has just been sitting on.

Apparently, it has decided to start spending it. The first big spend is for paying down outstanding T-bills. Surprise, surprise.

We knew Janet had to spend the money. The 2019 budget law requires her to get the recent balance of $1.6 trillion down to $133 billion by August. We just didn’t know how she would do it – spend it directly in payment of the coming new stimulus legislation, or pay down debt.

Monday, we got our answer. I sent you a bulletin on that news. Click here if you missed it. They’re going to start by paying down a whopping $55 billion in Treasury bills expiring next Tuesday 2/23.

If this is the beginning of a policy of using the cash for debt paydowns, prior to the onset of the new stimulus spending, it would be bullish. It would be like more QE. At $220 billion every four weeks, a lot more.

Bullish. Except for one thing.

I’ll get into that in the report. The facts, figures, and outlook, are reserved for subscribers. Click here to download the report.

Not a subscriber yet?

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Meanwhile, I saw a comment yesterday that Thomas Peterffy, the founder of Interactive Brokers, said that in the Gamestop short massacre, the brokerage system had actually come to the brink of collapse.

I told you on January 31 that this could happen, that we should all be very careful about protecting our assets. Peterffy confirmed this.

Here’s what I wrote  on 1/31/21

As the market amply demonstrated last week, margin can also work against short positions. Any big leveraged speculators who were short GME and other stocks that the wallstreetbets crowd decided to attack, saw their equity in the position wiped out, and then some. When they can’t come up with the cash, it puts the brokers, like Robinhood, at risk, and the brokers suffer tremendous losses too.

As the dominoes fall, it puts every single one of us at risk. The SIPC only covers so much, and if we are in stock positions, it can take months for those positions to be released, by which time who knows what might happen.

I just don’t like the risks here, either long or short. I have my personal account with a smallish firm that specializes in technical trading and has been around for years. They’re owned by a Japanese institution. Am I safe? I doubt it. I’m in cash at the moment, but I’m considering moving it back into my bank account and then into T-bills via Treasury Direct.

True, maybe big profits lie ahead on the short side, but I’m not sure I’ll be able to access them if that turns out to be right. Systemic collapse is not a good thing from that perspective.

Yeah, I’m paranoid. If this debt financed, hollow, asset price mountain begins to collapse, I’m just not sure that the Fed will be able to reflate it this time. I think we’re all playing a little Russian Roulette here. We haven’t hit the chamber with the bullet yet, but that clicking sound from each spin is terrifying.

I had posted my concerns about things getting this bad way back in October.

10/2/20 A massive amount of leverage has been floated to buy and hold these [Treasury] positions. If yields break out, the mirror image of a price breakdown, the margin calls will go out. The response in the markets will be ferocious. Overleveraged dealers and hedge funds will sell anything that isn’t nailed down, and some stuff that is, to meet those margin calls.

The Fed will be forced to act again to keep them in business. One of these days, this game will stop working. Even assuming we manage to get short in time, I’m not even sure that being short the market at that point would do much good. What if your brokerage firm collapses?

I’m beginning to think that it would be a good idea to hold some assets outside the conventional banking/brokerage system. Whether that’s T-bills in Treasury Direct, bitcoin, gold, or other assets—these are things we need to think about.

We are most assuredly not out of the woods yet.

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Bulletin! Treasury Paying Down $55 BILLION RIGHT NOW to AVERT CATASTROPHE!

Lee Adler

This is big.

In a panic over the surge in the 10 year Treasury yield and the attendant fall in Treasury note and bond prices, the US Treasury announced today that it would pay down $55 billion in outstanding T-bills.

The funds will settle a week from today, on February 23.

This is cash that will go directly into the accounts of the dealers, banks, and investors who hold the expiring paper. The paydown of the expiring paper will simultaneously create a shortage of paper in which to reinvest cash.

The Treasury’s goal is to force the former holders of the short term bills to reinvest the cash further out on the yield curve in order to stem the rise in yields and the fall in bond prices.

The declining bond prices are crushing the leveraged portfolios of Primary Dealers, with the resulting collateral calls. There’s an imminent threat of contagion into stocks, and ultimately a systemic crash, within the next few days if the plunge in bond prices is not reversed.

I have been warning about this approaching catastrophe for months. It now appears to be upon us.

See these reports for more details, as well as strategy viewpoints.

Free Report – Proof of How QE Works – Fed to Primary Dealers, to Markets, To Money

Liquidity Trader Subscriber Reports –

Primary Dealers are Already Dead – Free Summary

Primary Dealers are Dead – Part 2 – Springtime Coming for Hibernating Bears – Free Summary

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!

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

Lee Adler

There’s so much confusion out there about how money gets from the Fed into the stock and bond markets. I see the comments in my Twitter feed. People are clueless. Like how M1 is causal. Or how the Fed pumps money into the banking system and that doubles back somehow to speculative bubbles.

This post was originally published for Liquidity Trader subscribers last week. I am posting it here in full now for everyone. If you would like to regularly receive and support this research, please subscribe! 

The amount of ignorance out there is epic. Few people seem to have any interest in the facts about how monetary policy works- the nuts and bolts aspects. And yet, the process is direct, and much simpler than everyone realizes.

Welcome to today’s world of propaganda overload, particularly Wall Street propaganda. There’s an ocean of free “information” out there, and most of it is worth what it costs.

So, let’s talk about the confusion around QE cause and effect, with financial bubbles and money supply. And let’s get to the point — the proof of how QE actually enters the banking system AFTER it gets pumped into the markets, not before.

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Primary Dealers are Dead – Part 2 – Springtime Coming for Hibernating Bears

Lee Adler

The Primary Dealers always hedge their fixed income portfolio positions in the futures markets. Looking only at their bond portfolio positions may not give us an accurate picture of how screwed they are, or are not.

We have data for their futures hedging. It’s called the COTS- the weekly Commitment of Traders. Every Friday, the CFTC publishes the positions of various players in the futures markets. Among those reports is the dealer positions.

The rest of the world focuses on the specs, mostly the big specs—the hedge funds. I say, who cares! I want to know how the dealers are positioned. After all, they’re the ones who run the games. The big specs are just the whales at the tables. Some of them are good players, for sure, but they’re not the House. The dealers are the House. We want to know how the House is positioned.

We need to know this information so that we can make a swag on just how impaired Wall Street might be. We want to do our own stress analysis of what’s happening to the dealer portfolios as bond prices move one way or the other.

We know that, since last August, the trend isn’t going well for them. I can’t quantify exactly where the breaking point is, but I think we’re close, if not already past it. In this report, I continue laying out the circumstantial case.

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!

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Primary Dealers are Already Dead

Lee Adler

Back in 2008-2009, I chronicled how the Primary Dealers caused the stock market crash. They were the most important and least recognized cause of what the media has labeled the Great Financial Crisis.

The dealers were overleveraged and positioned wrong then. They are overleveraged and positioned wrong today.

It’s not that they choose to be wrong. While greed, stupidity, and even criminality are definitely involved, they’re actually forced to be wrong by virtue of their role as market makers and Primary Dealers. When their biggest clients, in particular the US Government, are all on one side of the trade, the dealers must, by definition, take the other side.

Unfortunately, they get increasingly reckless when they do. Even more unfortunately, they almost never face consequences when they do. It’s called moral hazard. And the Fed is happy to enable and promote it.

Of course, there’s an important difference between 2008 and now. In 2008, when that crisis was at its peak, we did not already have the massive flow of money that the Fed steadily pumps into dealer accounts. The Bernanke put, which became the permanent Fed put, did not exist yet. The Fed didn’t start QE until November 2008, well after the crash was in full swing. It did not start direct Primary Dealer QE until March 2009.

Today, QE is a given.

Today we have constant, permanent QE. The Fed now has no choice. Its constant bailouts have engendered ever larger bubbles, and ever greater reckless behavior.

Because of that the system has collapsed. It looks the same as the old system on the surface. But it’s not. The dealers are no longer independent business entities. They are now fronts for the Fed. They are merely conduits for getting the new money into the markets and the banking system.

Despite that, now,  the dealers are again on the verge of precipitating another crash.

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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We Don’t Need No Effin’ Stimmy

Lee Adler

Withholding tax collections have exploded upward over the past month through February 3. Other data confirm the strengthening. Here’s what this means for portfolio strategy and trading tactics.

Subscribers, click here to download the report.

Available at this link for legacy Treasury subscribers.

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!

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