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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!

Primary Dealers Get a Break from Impending Doom

Lee Adler

Headline Corrected

The storm warnings of extreme dealer leverage have dissipated over the past two months. For the moment, the skies are only partly cloudy with a chance of showers, but no sign of any big storms. They’re still over the horizon. Non-subscribers, click here for access.

Subscribers, click here to download the report.

Dealers are required to buy a significant percentage of every Treasury offering by the deal they made with the devil to be its Primary Dealers. And those offerings keep coming in a never-ending tide. But they were sharply curtailed from late March through early May by the annual tax collection bulge. Those collections enable the US Treasury to pay down debt over that period. That reduction in supply accrues to the benefit of the dealers. It enabled them to not only reduce leverage, but also to add to hedges as the accumulate inventory. So over the past two months they have taken the opportunity to get a little healthier than they were through early this year. Non-subscribers, click here for access.

We know from our other reports on the Fed’s balance sheet and the banking system that the time when trouble is likely is when the Fed’s RRP slush fund runs out. It’s been holding in the 400-500 billion range, but as T-bill issuance picks up it will begin to diminish. We’ll watch that data as always and will keep an eye on the dealers’ positions as the other signs of impending doom begin to appear. Right now, they’re on hold. Non-subscribers, click here for access.

This report shows the pictures that tell the story, and that tells us what to do about it.  Non-subscribers, click here for access.

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Why Sell in May and Go Away

Lee Adler

“Sell in May and go away,” looks like a good idea again this year. The time has come. The time is now. Here’s why.   Non-subscribers, click here for access. 

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April Tax Collections Soared

Lee Adler

Forget the modest increase in jobs reported by the BLS. Withholding tax collections were strong in April. The US Treasury is flush with more cash than expected, well above its target for the end of Q2. This means that T-bill paydowns may extend for longer than just through late May as is normally the case. That is, unless the Federal Government decides to hold on to all of the massive $900 billion war chest that it has accumulated through better-than-expected tax collections and lower spending than last year in April, mostly the former. Non-subscribers, click here for access.

Subscribers, click here to download the report.

This is the second straight month of strong tax revenue. That means less supply. The usual April-May tax bulge cash cow could hang around through June, when the government sees a mini tax collection bulge from June estimated taxes. That could extend the T-bill paydown period into late June or early July before the well runs dry. Non-subscribers, click here for access.

And that, my friends, will be a xxxx xxxxx between now and the end of the second quarter. Non-subscribers, click here for access.

As I wrote in this update last month, “Cash doesn’t guarantee a bull stampede, but it means that the gates are open for them to easily run through.” Non-subscribers, click here for access.

This report gives the details of the April tax deluge, what it means for the market, and how you can use that information in your trading and investment strategy.

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The Fed Doesn’t Matter Any More

Lee Adler

Bulletin- Fed Cuts QT by $35 billion per month. This is irrelevant and immaterial in the face of the mushrooming Treasury supply ahead. Read on!   Non-subscribers, click here for access. 

Subscribers, click here to download the report.

Today is FOMC circus day, with the Chairman’s Dog and Pony Show after the main event.  Non-subscribers, click here for access. 

It’s all irrelevant. The First Law of Market Dynamics—Don’t Fight the Fed—has been called into question since October 2022 when a new cyclical bull market was born despite Fed policy. It was tight then, and remains tight now, as the Fed relentlessly drains money from the system by shrinking its balance sheet.  Non-subscribers, click here for access. 

That won’t change until the Fed does more than talk about it. And why should it change. Inflation marches on, and the markets are doing just fine.  Non-subscribers, click here for access. 

Tight Fed policy hasn’t mattered because the players have been determined to create their own liquidity. Who needs QE when you can just borrow your own cash into existence. With plastic in our pockets, we are all mini central banks. We create credit and money by simply spending what we don’t have because the banks give everybody, especially hedge funds and dealers and private equity, a blank check for credit when they want it.  Non-subscribers, click here for access. 

Of course, the Fed had also set up an enormous sludge fund, oops, I mean slush fund, called the RRP facility. That was set up as a piggy bank where all the money market funds deposited all the excess cash that the Fed had pumped into the system during 12 years of QE. At one point in 2022, that fund exceeded $2.5 trillion. That will fund a lot of stock purchases.   Non-subscribers, click here for access. 

And it has.  Non-subscribers, click here for access. 

Gradually that fund was drawn down as the US Government ran persistent huge deficits and had to borrow the money to fund them. Only since 2021 has the Fed not been there to buy all that debt. That debt issuance, particularly in the form of short-term Treasury bills had sopped up all but $330 billion of the RRP slush fund by two weeks ago, April 15. But since then, things changed as we knew they would.   Non-subscribers, click here for access. 

Here’s what it means, along with a road map of how to drive the markets’ winding roads over the next few months.   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!”

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Watch Closely as Warning Signs Abound

Lee Adler

There were more signs in last week’s banking and Fed balance sheet data that the market has begun to build an important top. But tops take time. This report lays out what to expect. Non-subscribers, click here for access. 

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Last week I wrote that we should still expect a rally in the near term as the US Treasury continues to pay down T-bills. That has begun to play out. The paydowns should continue for another 3-4 weeks. That will be a bullish influence. Non-subscribers, click here for access. 

After that, liquidity will xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx. But it will depend on how much borrowing that dealers and hedge funds will be willing to undertake to buy the immense supply of Treasuries that is headed to market beginning in late May. This is an unknown. Therefore, we must continue to monitor this data every week. 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!”

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Warning Signs Abound, But Ignore Them for Now

Lee Adler

That’s because they’re early, and an intervening temporary force should drive xxxx xxxx xxxxx.

Non-subscribers, click here for access.

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The warning signs from the Fed’s weekly real time balance sheet data and slightly lagged data on the condition of the US banking system continued last week. The market has acted badly, but this isn’t likely “IT” yet. Non-subscribers, click here for access.

xxxxxxxxxxxxxxx began in early April, and they will continue to xxxxxxxxxxx xxxxxxxxxxxx  the markets for the next 4 weeks or so. Most of that xxxxx will be coming over the next two weeks. As a result, any additional market decline from here is likely to be xxxxxxxxxx. Non-subscribers, click here for access.

Timing that will be tricky and a matter for technical analysis. My technical work has suggested that ideally a 6-month cycle low is due xxxxxx xxxx xxxxxx. A couple of weeks on either side of that would be normal, so we need to be alert, as illustrated in Monday’s Technical Trader report. Non-subscribers, click here for access.

We can expect a bigger selloff once the Treasury starts borrowing again, on balance, probably around the xxxxxxxxxxxxxx, and especially when the Fed’s RRP facility is effectively out of cash, which isn’t likely until xxxxxxxxx. Non-subscribers, click here for access.

Meanwhile, let’s run through the charts and data so that you can see the logic behind this conclusion. First a review of how this conclusion has evolved over the past couple of months. 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!”

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March Withholding Tax Collections Actually Stunk

Lee Adler

Withholding tax collections looked very strong for March, at first glance. But there was a one day anomaly in the data that skewed the monthly number hugely positive. It was the only day like that. When I adjusted that day to something consistent with the direction of the rest of the month, suddenly things didn’t look so hot. Non-subscribers, click here for access.

Subscribers, click here to download the report.

That said, more revenue is more revenue, and for March at least, there was more revenue. That means less Treasury supply. Add that to the positive seasonality of tax collections adding cash to government coffers which in turn leads to massive paydowns of Treasury bills, and April and May still come out as cash cows for stocks and bonds. Non-subscribers, click here for access.

And that’s normally bullish, regardless of all of the market histrionics of the past week. Of course cash doesn’t guarantee a bull stampede, but it means that the gates are open for them to easily run through. Non-subscribers, click here for access.

As you know, this is only part of the big picture. It’s an important one though. This report tells, and shows, you what you need to know to understand what to do with your portfolio to protect yourself from what’s to come, and even profit from it.

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Banking Data Says This Is Last Hurrah for Stocks

Lee Adler

The Fed’s weekly real time balance sheet data and its slightly lagged data on the condition of the US banking system have flashed warning signs that the rally is on its last legs. xxxxxxx, Treasury bill paydowns have begun on schedule, and they will xxxx cash xxxx the markets for the next 6 weeks.  Non-subscribers, click here for access.

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This will lead to xxxx xxxx xxxx for stocks, and should also xxxx the bond market. A big xxxxxxx in bonds hangs in the balance. Stocks should be xxxxxx off and on through April and part of May before the xxxx xxxx xxxx xxxx vomitorium.   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!”

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The End Is Not Nigh

Lee Adler

Or maybe it is. The Fed’s weekly real time balance sheet data and its slightly lagged data on the condition of the US banking system have begun to flash warning signs that the rally is on its last legs.  xxxxxxxxxx, Treasury supply conditions for the next 6 weeks will be favorable for xxxxxxxx xxxxxxx xxxxxxx. Non-subscribers, click here for access.

Subscribers, click here to download the report.

Tax revenues in March and April create a cash bulge for the US Treasury. It normally uses that cash to pay down a couple hundred billion in T-bills in April and May. They plan to do so again this season. The money from paying off those T-bills will flow into investor accounts. Some of that money will be used to buy stocks and bonds. That should cause xxxxxx xxxxxx xxxxxxxx into mid to late May.

But we shouldn’t ignore the signs that this will be the xxxx xxxx xxxxx for this stage of the bull run. A bond market rally should also be another opportunity to xxxxx  fixed income.

Get the report now, for specifics.  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 Raise Red Flag

Lee Adler

The dealers just set a new record extreme of leverage against their bond positions at the end of February. Then they sharply pulled in their horns in early March. Scared much? Non-subscribers, click here for access.

Subscribers, click here to download the report.

Or maybe they’re preparing for the worst in another way. After all, they are required to buy a significant percentage of every Treasury offering by the deal they made with the devil to be its Primary Dealers. And those offerings keep coming in a never-ending tide. The dealers have no choice but to take on inventory, and hopefully get rid of it as fast as they can under current circumstances. Non-subscribers, click here for access.

But what if they can’t? What if there aren’t enough buyers to relieve them of that excessive inventory in a market where prices are falling. Or should I say falling because of the excess inventory? There are too many bonds and the Treasury keeps issuing more and more and more. So the dealers hedge. They hedge by shorting Treasury futures. There’s a ready market for that.  Non-subscribers, click here for access.

Until January, they hadn’t been doing too much hedging. There was some, but it wasn’t notable. They were pretty sanguine about the bond market and their small hedges. But then something changed. They hit a switch and started shorting the Treasury futures like mad. Now they have built up the largest short position in Treasury futures that they have had since 2022. They have enough futures shorts to more than offset the net long position in their Treasury coupon inventories.  Non-subscribers, click here for access.

Something has changed in their outlook. We need to pay attention. This report shows you the change, tells you what it means, and what to do about it to protect yourself. Non-subscribers, click here for access.

Subscribers, click here to download the report.

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

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! 

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