Category: 1 – Liquidity Trader- Money Trends

In the mid month QE update, I concluded the intro summary with this warning:

1/16/21 At this point, it seems like we are on the edge of the precipice. The risks are enormous. At the very least, I don’t see the likelihood of significant upside for either stocks or bonds.

Likewise, this could very easily go south in a big way. The Fed would need to act. Would it be too late? Would the market even respond?

We live in dangerous times, both politically and financially. Falling asset prices would lead quickly to a shortage of cash.

Now it appears that this may be beginning, but the trigger did not come from the weakening of the Treasury market. It came from a place called /wallstreetbets (let’s call it wsb), a community on the Reddit message boards. You probably never heard of it before last week, but by now you have become an expert.

However, if you are just returning from a 2 week trip to Mars, this is the public group of wild and crazy day traders which engineered an epic short squeeze in the aptly named GameStop (GME). They drove its price from $4 a few months ago to over $500 in the premarket on Thursday.

In the process, they triggered the collapse of one multi-billion-dollar hedge fund and severely wounded potentially many others, along with their lenders, and one or more brokers.

The best known of those brokers is Robinhood, which hosts many of the wsb types. Robinhood began getting clobbered by the massive moves in GME, with customers unable to meet margin calls. So Robinhood decided to stop traders from opening positions in GME and a few other stocks that the wsb crowd was pumping. It apparently lost a cool billion in the process, forcing its biggest backer to come up with the cash to keep it from collapsing.

Apparently Robinhood is really Robinhoodlum, a strawman front operation for the evil Sheriff of Nottingham, aka, Citadel. Robinhoodlum’s sole purpose is to be the skimmer for Citadel godfather Ken Griffin, not the skimmee for wsb maniacs.

No doubt, this little Game Stoppage has blown up to the point that it destabilized the market. On the surface, we’ve seen bigger market moves to the downside than the upside in the past week. Moreover, I’ve seen bid ask spreads on many stocks widen markedly, especially in the first hour of New York trading. It suggests that dealers are having issues maintaining orderly markets. Narrow spreads signal plenty of liquidity. Wide or widening spreads signal liquidity shortage.

Think about it. The Fed is pumping $160 billion or so a month into Primary Dealer accounts, and we have an incipient liquidity shortage. Mind boggling.

This is the fruit of the poisoned tree that the Fed itself planted when it started bailing out hedge funds who got themselves in trouble with their insanely leveraged, sick gambling habits, more than 30 years ago.

The first of note was LTCM back in 1998. From that point on, the Greenspan put was in place. It evolved into the even bigger Bernanke put. He institutionalized it with ZIRP and QE. As Bernanke said back in 2010, “We pick winners and losers when we make monetary policy. The banks and hedge funds and dealers are the winners. Screw your grandma and grandpa who worked hard and saved all their lives to earn a little interest income to spend in retirement. Their spending doesn’t help the economy. The Hamptons crowd helps the economy by hiring dishwashers, bartenders, tennis instructors, and pool boys to entertain the trophy wives of the Wall Street banker and hedge fund titans. ”

Now it’s just the Fed put. Permanent ZIRP and ever larger QE, whenever its needed.

The banks and dealers and gigantic leveraged speculators all know that they can commit financial malfeasance, and even outright fraud, with impunity because the Fed will always bail them out.

They also know that the Federal Government, starting with the Obama, Holder shakedown racket, and Trump being a crony crook, will never charge any of them with a crime. All they need to do is siphon a few billion from their ill gotten profits, pay it to the Government Protection Racket, and they get a Get Out of Jail Free Card.

Now we have $160 billion a month QE and it’s not enough to maintain orderly markets. It’s never enough. That’s because these Wall Street parasites will always figure out a bigger wealth transfer scam after the current one breaks, brings the financial system to the brink, and progressively weakens the US economy, as they hollow it out with their crooked,  flim-flam financial engineering and skimming schemes.

But too bad for them. A few small time wiseguys at wsb have figured out the game, and they are armed and dangerous, much to the chagrin of the Wall Street mafia and its captured media mouthpieces, CNBC, Wall Street Journal, Financial Times, especially FT. They have all been wailing and bleating like stuck pigs. They features slimy pitchmen like Leon Cooperman, egged on by the likes of the pathetic Street apologist Scott Wapner, to cry and piss and moan about the public actually taking over their crime enterprise.

They’re not the only ones, just salient examples of the clips I have seen on Twitter. They’re all disgusting.

But I digress. Here’s the QE imbalance forecast for February. It gives us an outline of what to expect.

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This was inadvertently posted a moment ago with the wrong headline and post link. Sorry for the error!

Macro Liquidity continues to bulge. The stock market has followed. It became oversold versus the surge in liquidity that the Fed initiated in March 2020. And it hasn’t looked back since. Should we expect to see stock prices become overbought again before the next big crash?

Stock prices have caught up with liquidity but with liquidity expected to continue rising stock prices could continue to rise along with it.  But the balance is shifting and we may not need to see Overbought again on this chart before the next crash. Here’s why, and how I’m approaching it.

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Back in September I wrote to you about why I was giving up on the banking system indicators. I’ve reposted that rant in an addendum to this report. Essentially it boils down to this. 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.

The banking indicators were useful once upon a time. The Fed has rendered them irrelevant. But I promised to keep an eye on them, so herein is a review. It makes me sick and should make you sick too, but we’re not here to fight the Fed. We’re here to make money by understanding and playing according to the Fed’s rules. The Fed’s first order of business is always to protect its banker clients. And it does that very well indeed.

Once again trouble is brewing, and the Fed will need to come up big again to prevent it from blowing up the banking sector. If history is any guide, the Fed will be there. It may be to the detriment of those who don’t own capital, but they don’t matter. The Fed doesn’t care about them, and refuses to take responsibility for the intractable problems that has caused our society.

Consequently, being a bear for the right reasons does not pay. To make money in these markets you must play on the side of the criminals that run the show, the Fed and its client banks.

These banking indicators help us to understand just what they’re doing, and where the landmines might be that one day could blow this whole game to smithereens.

This brings us to a recurring theme. The first sign of potential systemic blowup would be an upside breakout in the 10 year Treasury yield. It would mean that the Fed had lost control, and that the system was careening toward an abyss from which there might be no Fed response big enough to escape.

We’ll take a look at that, but also some other problems in the banking system balance sheet that the banks and the Fed are pretending don’t exist. Well, they exist and they’re bubbling up just below the surface, to burst forth one of these days in the not too distant future.

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The Fed’s policy remains stable at about $170 billion per month in QE, give or take a few billion depending on the level of MBS replacements. The balance sheet is growing on trend.  The stock market is tracking with it, as usual.

This will lead to a huge problem when the economy begins to react to enlarged stimulus.

This report discusses how to position trading strategy to take advantage.

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