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!
But is the market really oversold? I don’t think so. Bull market oversold parameters are one thing. Bear markets have different parameters. Remember that it required massive liquidity growth just to keep stocks on a bull trend. That growth became insufficient to support bull markets in both stocks and bonds since mid 2020. That’s because the US Government was sucking up almost all of the Fed’s QE. Non-subscribers, click here for access.
Now the Fed not only isn’t funding that, it’s pulling money out of the banking system that would have been available to support new Treasury supply. At the same time, it’s causing the Treasury to have to issue even more supply, so that it can redeem the Fed’s expiring holdings on which it now wants repayment. That causes forced liquidation of all asset classes, not just bonds. Non-subscribers, click here for access.
So in order for the market to be truly oversold in this new ballgame, how low must it go? We don’t know. I’ve made a shadow channel on the chart as a first guess. But it’s really a wild guess. We just don’t know how deep a selloff will result in enough of an oversold condition to generate a rally that lasts more than a month, let alone a major bottom. Non-subscribers, click here for access.
There are other ways we can look at this data that may be instructive, but for now, we’re even more in the dark than usual. Meanwhile, everyone who is guessing about a Fed pivot can go right ahead and be my guest. Because, as we all know, money moves market trends. Talk is only good for blips. Try to catch them at your own risk. Non-subscribers, click here for access.
In this report, I update our regular look at the big picture liquidity indicators that will tell us exactly in what direction, and when, the markets will make their next big moves. Non-subscribers, click here for access.
The specific step taken by the Treasury was in its quarterly survey of primary dealers, released Friday in connection with the financing plan to be announced Nov. 2. The 25 dealers were asked for a detailed assessment of the merits and limitations of a buyback program for government securities. When the last financing plan was released in August, the department’s industry advisers on the Treasury Borrowing Advisory Committee recommended further analysis of the issue. https://finance.yahoo.com/news/momentum-builds-creation-treasury-bond-174307311.html
The Treasury is holding $650 billion in its cash account at the Fed. This “rainy day fund” was set aside for just such occasions. And let’s not kid ourselves. When big government agencies start talking about doing something, it’s as good as done. This is going to happen, and when it does, it will push bond prices higher. And that will also give stocks a lift. Non-subscribers, click here for access.
So the questions are when and how much. As to when, the big boys are publicly speculating that it will be early next year. But looking at the bond market crash, and knowing what we know about Primary Dealer positions, leverage, hedging, and the crashing bond market, it will certainly be xxxxxxx, perhaps xxxxx xxxxxxx xxxxx. Non-subscribers, click here for access.
Liquidity metrics for the US government debt market are approaching crisis levels after a year of steep losses for bonds caused by rising inflation and Federal Reserve interest-rate increases, and with the central bank simultaneously cutting some of its holdings, the situation may worsen. Treasury Secretary Janet Yellen expressed concern about it last week.
Duh. Like I haven’t been reporting this for the past 2 years. And they’re just getting around to recognizing it. Geeze. They’re the rocket scientists. I just have a sixth grade education (I went to Temple) and I did not stay at a Holiday Inn Express last night. Non-subscribers, click here for access.
Taken together with Yellen’s recent comments and extreme volatility in the UK bond market in recent weeks, the query suggests “that the November refunding will likely show more progress toward opening a buyback facility,” JPMorgan Chase & Co. rates strategists said in an Oct. 14 research note. Strategists at Bank of America Corp. predicted a rollout in May 2023.
Are you kidding me? May 2023? The markets will have ceased to exist by then. I predict (in my best Amazing Kreskin voice) xxxxxxx xxx, or maybe xxxx xxxxxxxx. Non-subscribers, click here for access.
Under current circumstances, which include large federal deficits, a buyback program would have different purposes. They include adding liquidity to parts of the market most in need of it, and allowing Treasury bills to be sold in more consistent quantities, with proceeds used for buybacks of securities less in demand.
That’s just BS. The purpose is to stop and reverse the bond market crash, however temporarily. And we know that it will be temporary. The effect will end when they run out of cash. Which will be at whatever level of cash they feel they need to hold. We don’t know what that is. Non-subscribers, click here for access.
Furthermore, once they get to that point, and the market has rallied because of their buying, they’ll start borrowing again to build up their cash account back toward their magic number of $650 billion. Once they start to do that, it would reverse the bullish effects of the buybacks. So prepare for a roll coaster ride over the xx-xx months following the beginning of the program. First bond prices will soar and yields will come down. Then prices will rollover, and finally crash again with yields rising in tandem. Non-subscribers, click here for access.
On the other hand, when the Treasury is finished buying, the Fed awaits to take the handoff. It has not only the possibility to return to QE, which is unlikely as a first step, it has the $2.2 trillion RRP slush fund that it could force back into the markets. Non-subscribers, click here for access.
Who knows where the Fed will be in its QT program by the time the Treasury cash for the buyback program effectively runs out.? If the PCE and CPI numbers cool enough, they’ll probably stop QT. That looks likely to happen in the next xx months based on past lead time between changes in the size of the Fed’s balance sheet and inflation data. I’ve covered that in a previous report. Non-subscribers, click here for access.
But I want to reiterate that it is not productive to guess and try to front run these things. Despite conventional wisdom that says otherwise, markets respond to money, not talk. Trade the charts, and invest based on actual macro liquidity flows. In that respect, we are not at a xxxxxxx xxxxx yet. Non-subscribers, click here for access.
Meanwhile, the government has piles of cash that could be used to light a bullish fire under securities prices. One is the aforementioned Treasury cash account, and the other is the Fed’s money market fund of money market funds, its unlimited Overnight Reverse Repo (RRP) program. When they use those they could ignite bull runs that will look like bull markets. Non-subscribers, click here for access.
The Treasury and Fed money are demand side impacts. Then there’s always the issue of supply. On the Treasury Supply front, keep in mind that the updated TBAC forecast for the current quarter and advance forecast for Q1 of 2023 will be released the week of November 2. They’ll give us a roadmap on what to expect for the subsequent 4½ months. Non-subscribers, click here for access.
The PPI reading on Wednesday includes data which now enables us to project when the Fed will stop raising the Fake Funds rate. I call it fake because it merely mimics the market, but isn’t actually the short term money market. Nevertheless it’s what the Fed and the Street want you to pay attention to, and it’s what most sheep do pay attention to. I say Bah!
I was able to make this projection using a highly sophisticated algorithm developed by artificial intelligence, that being my brain drawing trendlines. It’s a technique that I have developed over my nearly 60 years of studying technical analysis, including 40 years of computer generated analysis. Non-subscribers, click here for access.
Naturally this formula is far too simple, direct and obvious to be recognized by the high priests of Economism. But I have spent my life specializing in simple, direct, and obvious, which is all that I am capable of. And so, I will attempt to the best of my ability to illustrate it for you. Non-subscribers, click here for access.
Using this secret algorithm I was able to determine that the Fed should announce a pause in rate increases next xxxxxxx. The market will briefly celebrate that, but that will be a big mistake. Because the Fed has never actually raised rates and rates aren’t the problem. They are a symptom. The market has driven rates up and the Fed has rubber stamped that, while never quite getting to where the market already was. Non-subscribers, click here for access.
Now, for the illustration of how xxxxxxx was projected to be the point at which the Fed decides to pause. xxxxxx is when the trend of the Fed raising the Fake Funds rate intersects with a somewhat likely trend of the Fed’s favorite inflation measure, the Core PCE. Non-subscribers, click here for access.
I use the just reported PPI for core final demand consumer goods (PPI-CFDCG) as a leading indicator of where the PCE is likely to be headed. The PPI-CFDCG dropped from an annual rate of +8.5% to +8% in September. This was the first decline in this series, which tends to lead CPI and the Fed’s favorite measure, core PCE, by anywhere from 3 to 12 months. Non-subscribers, click here for access.
I then drew a trendline extrapolating this downturn into the future. The validity of doing that is supported by the fact that the upswing rose on nearly a straight line basis as it followed Fed pandemic era QE with a lag of about 6 months. As goes the money supply, so goes inflation, the one thing that Milton Friedman got right. Non-subscribers, click here for access.
By the way, “inflation,” doesn’t mean only consumer prices. Inflation is classically defined as a rise in the general level of prices. General means everything. That includes asset prices. Modern priests of Economism exclude asset prices from the definition of inflation, so that they can conveniently ignore the jillion percent increase in asset inflation we’ve seen over the past 13 years. Non-subscribers, click here for access.
The only inflation they accepted as real was consumer price inflation. And that is utter nonsense. The refusal to recognize asset price inflation as an element of general inflation is at the very crux of the intractable problem we face today. Now we must pay the price for that willful ignorance. Non-subscribers, click here for access.
So now we see the impact of reducing money supply on both types of inflation. The problem the central banks have in their drive to reduce consumer price inflation is that asset prices react immediately and directly to tightening money supply. Consumer prices react with a lag. Asset prices, both stocks and bonds, have already collapsed. Consumer prices haven’t budged yet. Non-subscribers, click here for access.
This is a huge problem for Wall Street. Because of the nature of the Fed’s inflation fight, the tightening of money supply versus rising money demand, is absolutely destroying asset prices in a process that will continue until the Fed stops tightening. Non-subscribers, click here for access.
Again, the Fed Funds rate is irrelevant. To halt the downtrend in asset prices, the Fed must stop reducing the money supply and must start increasing it again by an amount sufficient to absorb almost all Treasury issuance. Non-subscribers, click here for access.
The Fed pretends that it will only stop tightening when the Funds rate that it sets every 6 weeks is supposedly neutral. The Fed’s focus is on the PCE, and the PCE follows the curve of the PPI finished core consumer goods series by a few months, at a lower level. We can therefore project the trend of PCE by mimicking our favorite PPI trend as I showed in the chart above. Non-subscribers, click here for access.
In so doing, the falling core PCE would meet the rising Fed Funds rate in xxxxxx. The Fed will yell “Pause” in a crowded theater, and everybody will rush into the market. There will be a buying panic when that happens. Non-subscribers, click here for access.
But the buying panic will quickly die and the collapse of asset prices will resume unless the Fed also reverses from QT back to QE. Because the money market would otherwise continue to tighten, and short term rates would resume rising. Non-subscribers, click here for access.
The markets get a break in xxxxxxx because the US Treasury xxxxxx xxxxx xxx xxxxxx xxx then. That enables the Treasury to pay down T-bills in xxxxxxxx xxxxxxx xxxxxxx xxx x xxxxxxxx. This will take the pressure off the money market for a few weeks in this coming xxxxxxxx. Non-subscribers, click here for access.
But supply pressure will explode in xxxxxxx because the xxx xxxxxxxx xxxxxxx xxxxxx xxxxxx that month, while at the same time tax revenue xxxxxxxxx xxxxxxxxx xxxxxxxxx xxxxxx xxxxxxpoints of the year. The government’s cash need will soar, and so will its short term borrowing. At that point the markets are very likely to crash again. Non-subscribers, click here for access.
I say again, because the supply demand imbalance in the financial markets between now and xxxxx xxxxxxxxx xxxxxxxxx xxxxxxxx will be the worst it has been in this market. There will be immense pressure on asset prices for the next xxx months. The conditions for a crash are in place. That may force the Fed to act weeks before it gets Fed Funds to a so-called “neutral” rate, which looks like x.x%. A xx and a xx would get us there. Non-subscribers, click here for access.
The destruction of stock and bond prices will be epic by the time this rate path is complete in January. Might that be enough for the Fed’s resolve to crack before they’ve gotten to x.x%? Of course. Or might the Fed hold out until that x.x% rate is reached? Sure. We just don’t know. Non-subscribers, click here for access.
But remember, the Fed merely follows market interest rates, such as on the 13 week T-bill. That rate is merely a meter of just how tight the money market supply-demand balance is. And it is the imbalance of supply of securities over effective demand for them that causes falling prices, and their mirror, rising short term rates and bond yields. Non-subscribers, click here for access.
The dynamic of prices trending lower WILL NOT CHANGE until the Fed reverses from QT, back to QE. And it must do so in enough size to once again absorb most Treasury issuance as it did during the 12 years of the bull markets. Non-subscribers, click here for access.
Anything less than aggressive QE will not end the bear markets in stocks and bonds. It may alter their courses. It will generate rallies on the bear market slope of hope. But it will not end the bear markets. That would take a massive policy reversal by the Fed. Non-subscribers, click here for access.
The other thing to keep in mind is that it will do us absolutely no good to anticipate this so called Fed “pivot.” Markets turn on money flows.The bear market will end when the Fed supplies enough money to end it. Any speculation on when it will end, even if the guess is correct, will hold no advantage whatsoever. What’s the point of being early? Non-subscribers, click here for access.
We track Treasury supply because Fed policy comprises only one side of the supply/demand equation. Treasury supply makes up the bulk of the other side. The information we have on Treasury supply is known, either in advance or at least in real time. Tax revenue is the primary determinant of changes in supply. We merely need to monitor the tax revenue trend, and legislation that affects the Federal Budget to get an idea where supply is headed in the near term.
We’ve now seen xxx months of falling withholding tax collections. That’s a xxxxx, but it was mitigated in September by very strong quarterly estimated individual and corporate taxes. But those are lagging because they are based on the third quarter as a whole, not just September. Non-subscribers, click here for access.
On the other hand, excise tax collections were up, an indication of strong retail consumption. So that’s a fly in the ointment in terms of the idea that the economy is contracting. But it’s too small an item to matter to total revenue. Non-subscribers, click here for access.
September revenues got a boost from quarterly estimated taxes, as always. We expected that. As a result, the Treasury paid down a significant amount outstanding T-bills during the month. Again, no surprise. But it certainly didn’t help the markets much. Maybe the Treasury market a little toward the end of the month. But if that’s all a “good” liquidity month can do, watch out for the next two months. Non-subscribers, click here for access.
The point is that September was as good as it gets, and as good as it will be, until xxxxxxx, when the xxxxxxxxx xxxxxxxx xxxxxxxxx xxxxxxx will again create a temporary budget surplus. That will be used to pay down T-bills again. But xxxxxxx xxxx xxxxxxxx will be a drought, with heavy Treasury supply, which would be made worse by weakening tax revenues. Non-subscribers, click here for access.
The Fed will exacerbate the problem with QT. It will tell the Treasury to redeem $60 billion a month of the Fed’s Treasury holdings. That’s an extra $60 billion a month in Treasury supply that the US government will need to issue so that it can repay the Fed. Investors and dealers will be forced to absorb that, because the Fed cavalry isn’t riding to the rescue to take up the bulk of supply. Non-subscribers, click here for access.
The xxxx xxxxx months will be the worst supply demand imbalance we have seen so far in this bear market. I would expect both stock and bond prices to xxxx xxxxxxx xxxxxxxx xxxxxxx. Any rallies should be xxxxx xxxxx, and should xxxxx be xxxxxxxx xxxxxxxxxxx. Non-subscribers, click here for access.
Federal withholding tax collections declined in September for the third straight month. Predicting the BLS jobs data is always a crapshoot, but after 3 months of real weakness in withholding taxes, this should be the month when reality catches up with the BLS.
But will the BLS report a decline, when the consensus is for a gain of 275,000 jobs? Not likely.
But more importantly, declining revenue means more harsh reality for the Treasury market in the form of more supply than the TBAC had forecast that the Treasury would issue. We can’t project that indefinitely, but at least in the near term it means additional supply on top of already heavy forecast supply. Non-subscribers, click here for access.
9/3/22 But the fact is that if tax revenues are weakening, Treasury supply will only increase, regardless of what Wall Street says about the economy. Treasury supply will increase just as the Fed requires the Treasury to add $60 billion a month in new debt sales to the public to pay off the Fed. Non-subscribers, click here for access.
In addition to that extra supply from QT, and a weaker economy, the Fed is causing demand to weaken. Not only is the Fed no longer the primary buyer and financing agent in the market, but it is also choking demand by removing the cash from the banking system that would otherwise be available to fund Treasury purchases. Non-subscribers, click here for access.
The accompanying weaker economic data will be spun as bullish, while in fact it will not be. At least at first. The bottom line is that the weaker tax revenues are not bullish. It will only be bullish when the Fed finally reverses policy. All I can say is, “xxxx xxxx xxxx!” Non-subscribers, click here for access.
The dealers have significantly hedged their bond longs since April, but the price damage that we expected, in both bonds, stocks, and everything else, was an inevitable result of that. To deleverage means to liquidate existing positions. Liquidate means sell. The dealers and their biggest customers have been doing just that. To build up hedges, they’ve also been selling futures, adding to the pressure.
This market selling pressure comes as no surprise to us. The forces of this spiral have been building for the past two years, first as Treasury supply overwhelmed the market beginning in August 2020, and then subsequently, as the Fed moved to tighten policy. The dealers have never been properly positioned for this. It’s the mirror image of their massively wrong positioning in 2007 that triggered the 2008 crash. Non subscribers, click here to read this report.
The problem now is that their hedging may not be enough. The spiral of falling prices, collateral calls, and more liquidation has now taken on a life of its own. The technical analysis of the Treasury market says there’s more of that to come, with conventional price projections pointing to the xxx% range on the 10 year yield as the next target for the bond market. Needless to say, that should also be catastrophic for US stocks. Non subscribers, click here to read this report.
From past reports:
7/27/22 The bottom line is this. Don’t be fooled by what the media is touting as a massive rally in bonds. Yes, it looks big, and it probably has a little further to go over the next couple of weeks. But in the big picture, it’s nothing. And it’s likely to stay that way. Non subscribers, click here to read this report.
Meanwhile, the dealers have mitigated some of their risk, but they and their big bank parents remain at great risk if bond prices start declining again. That should happen as liquidity begins to tighten again in the second half of August. Non subscribers, click here to read this report.
The bond rally should have a bit further to go, but I’d be a seller on the first technical signs that the trend is turning. And when bond yields start to rise again, and bond prices start falling again, I’d expect stocks to suffer from the same adverse liquidity factors that would be pulling the bond market down. Non subscribers, click here to read this report.
LATE BULLETIN! HOLY COW, as I was proofreading this report, I just checked the Treasury issuance schedule for this week, and the Treasury will issue $40 billion in new T-bills on Monday. That will upset the apple cart, but at this point I won’t rewrite this entire report. Let’s just accelerate the time frame for when I expect the market to begin experiencing tighter liquidity from mid-month, to the beginning of August. We need to be on the lookout for signs of reversal in the bond rally sooner that I originally thought. Non subscribers, click here to read this report.
But at least this news confirms my earlier forecast that the T-bill paydowns would end in July, making for tighter liquidity in conjunction with the Fed’s QT program. And lest we forget, they plan to double the amount of system withdrawals in that program beginning in September. Non subscribers, click here to read this report.
6/13/22 Primary dealers have finally taken aggressive action to mitigate the losses in their bond portfolios. But it is too late. The damage is done, and the pressure will only get worse as the Fed pulls money out of the banking system and forces the Treasury to borrow even more money to pay off the Fed. Non subscribers, click here to read this report.
In everything we look at in the Primary Dealer positions and related data we see only stress and more stress. This is unfolding exactly as we expected. There are no secrets here. We knew all this was coming simply by watching the data and Fed policy as we have month in and month out. It only proves again and again, Rule Number One. Don’t fight the Fed. Non subscribers, click here to read this report.
Shockingly, the Dealers seem not to have followed the Rule, and now they’re screwed, and so is the world of investors. For those who can’t sell short, there are no good options. No pun intended. Non subscribers, click here to read this report.
5/14/22 That all means that a double whammy will hit the market in mid June, at a time when Primary Dealers and the banking system are already weakened by huge losses in their bond portfolios. Some of these highly leveraged dealers will be forced by their lenders or their parent bank holding companies to liquidate anything that they can to pay back the margin and repo loans that funded the purchases of all this paper. Non subscribers, click here to read this report.
There are no doubt other big leveraged players out there with massive losses that will be forced to liquidate by margin calls. The selling will not be limited to the bond market. It will hit stocks too, and anything else that isn’t tied down. Non subscribers, click here to read this report.
If this analysis is correct, the weakness that we have seen in the market over the past couple of months will be seen as but an opening act. Conditions will worsen. Stocks and bonds will decline even faster this summer. Non subscribers, click here to read this report.
4/11/22 So what would I do with this information? The same thing I’ve been doing for the past 20 months. They’re gifts to us on the way to Dante’s Inferno. If I owned bonds, I would sell them. If I owned stocks, I would sell them. And I would keep looking for stocks to short on the rallies. Non subscribers, click here to read this report.
The problem after that is that the Primary Dealers and the biggest banks who own them have enormous hidden losses that aren’t showing up yet on bank earnings statements or balance sheets. As market conditions tighten in the second half of this year and margin calls beget losses, which beget more margin calls, those hidden losses will start to show up. Banks will be forced to liquidate some of their assets and will be forced to report some of those losses. Non subscribers, click here to read this report.
2/20/22The bottom line is that the financial market is moving toward a crisis. Fast. It will continue to do so as the Fed cuts QE first to zero. It will do so even more as the Fed shrinks its balance sheet by allowing maturing paper to be paid off rather than rolled over. If they do that, the pressure on on Primary Dealers will only get worse. They have not established the net short positions needed to manage it. Non subscribers, click here to read this report.
On average, their positioning is not good for a decline in bond prices (rise in yields.) Some Primary Dealers are probably well positioned. That means that some, if not most, are not. Those who are not well positioned are almost certainly already in trouble. Non subscribers, click here to read this report.
I’ve opined to stay away from the bond market for the past 18 months. Nothing has changed. Bond rallies are selling opportunities. The pressure on the bond market has infected the stock market, and will continue to do so. I continue to look for swing trade short selling opportunities in the Technical Trader reports. Non subscribers, click here to read this report.
1/25/22But now the Fed is getting out of the buying business. No more backstopping the dealers with constant massive funding. Meanwhile, the dealers are still REQUIRED, by virtue of their status as Primary Dealers, to still buy Treasuries. Non subscribers, click here to read this report.
How exactly will they be able to do that without steadily being cashed out by the Fed to the tune of a hundred and some billion per month, month in and month out? Non subscribers, click here to read this report.
The Fed will probably tell us tomorrow that it’s going to zero purchases after March. The dealers must keep buying. There are only two ways they can fulfill that responsibility. They’ll either have to sell stuff first. Stuff, as in other Treasuries, other fixed income instruments, OR, drum roll please…… Stocks! Or they will need to borrow more money, that is, increase their leverage even more. Non subscribers, click here to read this report.
The Fed remains shockingly behind the curve in raising rates. It hasn’t even been fully rubber stamping the market’s moves. This isn’t a yield curve or an inflation curve. It’s a dead man’s curve. The Fed will speed into it in an effort to try to catch up with inflation. You don’t want to be in the vehicle when it crashes.
What happened in the stock market on September 13 (-178 on the S&P and -1276 on the Dow), was inevitable. The timing was a complete surprise, at least to me, but sooner or later, there would have been a day like this. And I’ll go out on a limb and say that there will be more of them… until the Fed reverses course.
In the last Treasury Supply update for subscribers I warned that the Treasury could do a big T- bill paydown at mid month, but that it was not certain. It would be short term bullish if it does. There’s a complete discussion of the implications of that in that report, with more to follow in the next update.
Today, the Treasury confirmed that it will do a $60 billion T-bill paydown on September 15. That’s enough to fund almost the entire coupon issue the same day.
The information we have on supply is known, either in advance or at least in real time. We merely need to monitor the tax revenue trend, and legislation that affects the Federal Budget and therefore, Treasury supply. We track Treasury supply because Fed policy comprises only one side of the supply/demand equation. Treasury supply makes up the bulk of the other side. Non-subscribers, click here for access.
8/2/22 Federal tax collections were solid in July. The recession that mainstream economists have been predicting, may be coming. I don’t know. But it’s not here yet. Withholding tax collections are still going gangbusters despite a bit of slowing in July. Non-subscribers, click here for access.
Treasury supply was therefore light. In fact, nonexistent for the first 3 weeks of the month. There were $12 billion in net paydowns from July 1 to July 21. The markets were flooded with cash. Non-subscribers, click here for access.
The bond market had a stupendous rally. I had expected bonds to rally based on the light supply, but this was ridiculous. As usual, Wall Street overdid it. Now the time has come to pay the piper. [Reminder- this was posted on August 3.] Non-subscribers, click here for access.
While revenue growth shows no sign of going negative, Congress just passed a spending package that will increase spending. The deficit will begin to grow again. That translates to more Treasury supply. At the same time, investors and dealers will have less cash to absorb it. That will translate to lower prices and higher yields. Non-subscribers, click here for access.
We already saw the effects of the Treasury running out of excess cash in the last couple of weeks. T-bill paydowns ended as I had projected they would in July. New T-bill issuance is suddenly mushrooming. This will pull cash out of dealer and investor accounts and into the US Treasury, which will instantly spend it to pay its bills and obligations. Non-subscribers, click here for access.
That spending increase might even keep the US economy perking along at a solid growth rate, surprising Street economists and portfolio managers. But the cash to support that growth will come from investor accounts and dealer accounts. More money for economic spending, less money for stock and bond purchases. Non-subscribers, click here for access.
The bond rally should reverse, perhaps violently. The stock rally should also end. If there’s something that would sustain these rallies, I haven’t thought of it. [Again, all posted August 3] Non-subscribers, click here for access.
You must be logged in to post a comment.