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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!

US Treasury Throws A Shocker to Reverse the Stock Market Outlook

The stock market rally has stuttered and stumbled over the past 9 days. We now know why and, knowing that, we can forecast what comes next.

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The US Treasury announced this week that it would issue another $67 billion in net new T-bills next week. That’s on top of $9 billion coming today. At the same time, they have not revised downward TBAC forecast net coupon issuance. Non subscribers, click here to read this report.

WTF! Don’t they know there’s a debt ceiling in place, and that they hit it on January 19? Usually under these debt ceiling impasses, the Treasury stops issuing debt on balance for the duration that they’re at the ceiling! They literally CANNOT legally issue more. Non subscribers, click here to read this report.

But WAIT! There’s more! Non subscribers, click here to read this report.

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Withholding Taxes Fell Sharply in January

I started this update before the jobs report, was interrupted, and came back to this Yooge upside surprise. I apologize for this reading being disjointed. However, it’s clear that this BLS report is makeup for severely understating the December jobs gain, which was apparent from the huge surge in December withholding. January’s withholding has largely reversed that. Here’s what this means for your trading.

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Composite Liquidity Should Be Bearish, Here’s Why It’s Not Right Now

Composite liquidity is flat and will remain so until the Fed restarts QE. That should be bearish, but it’s not right now. There are a couple of reasons for that. And they are reasons to hold off from looking to get short right now. But are they reason enough to go long? Here’s the answer.

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A Funny Thing Happened on the Way to the Debt Ceiling

When we last looked at Primary Dealer positions and financing in November, it looked like the dealers were in dire straits. Massively leveraged in the bond inventories, with falling prices, and inadequately hedged. It looked like the beginning of the end.

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But it wasn’t. As she had in the past, in a different role, Janet Yellen rode to the rescue of the dealers, the bond market, and indirectly the stock market and stock investors. In December, as we noted at the time, the US Treasury began paying down T-bills, first in small amounts, and then in mass quantities. Non subscribers, click here to read this report.

That made all the difference that was needed to prevent disaster, and to turn the outlook at least mildly bullish in the short run. The US Treasury was acting in loco parentis, or in this case, contra loco Fed. The Treasury pumped money into the market. The mechanism is different than when the Fed does it, but the effect is similar. Money goes into the markets. Securities prices rise. Non subscribers, click here to read this report.

While I noted and reported this to you back in December it wasn’t clear to me why the Treasury was doing that. Call it a lack of situational awareness. Mea culpa. But now we know. And we also know what to expect. We’ve been here before. Non subscribers, click here to read this report.

Here’s what happened, and what we can look forward to in the next several months. Non subscribers, click here to read this report.

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Withholding Taxes Are Soaring

Federal withholding tax collections soared last month and continued to do so in the first few days of January. I wondered if this was an anomaly, but correlated data supports it. Regardless of what the BLS reports this morning, which is always a crapshoot, there is no doubt that there was a jobs boom in December. Sooner or later that will show up in the jobs data. The Fed won’t like it, and neither will the market. But whether it will be this morning, or in next month’s data that this surprise shows up, I don’t know.

What I do know, and what you should know is the following. These are real, hard facts that you can act on.

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Holiday Wishes from Lee to You

With the holidays here, I know that you and your fellow subscribers will be busy with more important things, so I will also take the opportunity for a little down time.

I will post a swing trade chart picks update this weekend. Then I will take a few days to relax and enjoy the season before resuming regular publication after New Year’s Day.

I wish you and your families the Merriest Christmas and Happiest New Year, Happiest Hannukah, Kwanza, and Festivus for the rest of us.

I want to thank all of you for helping me to have a very good year. Here’s to a good 2023!

Lee

Composite Liquidity Still Bearish, No End in Sight

The US Treasury has been pumping a gusher of cash into the market ecosystem in December, but Composite Liquidity remains flat. And that, my friends is bearish.

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The Treasury continues to need a hundred billion a month or so in funding that it gets by selling long term debt into the market. That constant new supply of debt that it sells in the market puts a lid on any attempted bullish moves in either stocks or bonds. Non-subscribers, click here for access.

The components of macro liquidity are still not conducive to being able to fully absorb that supply, and therefore put in a bottom to the liquidation of stocks. Liquidation of stocks will continue to be a necessary feature of absorbing the constant supply of Treasuries (not to mention increased debt issuance by other sovereigns).

In that context, every rally in stocks is a gift to short sellers. Non-subscribers, click here for access.

As I discussed in the last review, it’s not useful in this environment to view the market as oversold. In this report I show you the charts that give the reasons for this view. And I propose both strategies and tactics to take full advantage of this environment. Non-subscribers, click here for access.

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Fed Steadfast But Treasury Throws a Bullish Curve

I have long operated on the assumption that the US Treasury will follow the TBAC issuance forecast, with exceptions only in obvious emergencies. That assumption was well supported by the facts, over the many years that I’ve tracked this. That changed this month.

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The Treasury has thrown a curve by suddenly reversing from the scheduled issuance forecast for T-bills to a program of big T-bill paydowns. That started about a week ago, and so far it’s set to continue for at least another week. It has already pumped cash into the accounts of holders of expiring T-bill, and will pump in even more over the next week. That money then goes mostly into the Fed’s RRPs, but some also fans out into other markets. Non subscribers, click here to read this report.

This has all come as a surprise, and there’s no indication of when it will end. One thing is certain. It will end, because the Treasury is rapidly drawing down its cash with these paydowns. The Treasury has heavy outlays in February, and it will need to have a big pile of cash on hand next summer when the next debt ceiling problem rears its ugly head. Non subscribers, click here to read this report.

But while it still has cash and the will to support the markets, it will do so. That will allow the markets to continue these incredible monster bounces that we’ve seen of late. Trending higher, however, is another story. Non subscribers, click here to read this report.

Are the bounces playable? I would not get sucked into the idea that this is some kind of bullish reversal. It’s manipulation. It’s short term. Without the Fed pitching in, it’s not sustainable. Non subscribers, click here to read this report.

So when will the Fed pitch in? This report gives the answer and tells what to do about it.  Non subscribers, click here to read this report.

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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! 

Report Notification Emails

I have just become aware that the email notification system stopped working properly a couple of weeks ago. I have just run an update of the software which hopefully will correct this. Please check the home page of Liquidity Trader for any recent updates in case you missed them.

I apologize for the snafu!

Lee

Federal Tax Revenues Are Slowing

Last week I took a pre end of month look at the withholding taxes for November because of the earlier than usual release of the jobs report. We saw a weakening trend, along with an indication that the BLS jobs data impressionist art might beat expectations.

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As I wrote in last week’s report:

11/29/22 The annual growth rate is trending down, indicating falling revenues. Whether that’s due to falling employee earnings inflation or a slowing economy, or combination of the two doesn’t matter. Only the fact that revenues are declining matters. That implies more supply ahead. Non-subscribers, click here for access.

Another item of note is that the usual 3 month respiration cycle exhalation phase in the US economy expired early. The last two cycles have been sucking in for far longer than they’ve been blowing out. This is another sign of weakening. Non-subscribers, click here for access.

As for the implications for the current jobs report, you never know because the BLS methodology in s so speculative, being based on unsupportable assumptions about seasonal adjustment and the birth and death of businesses. They then fit their previous monthly numbers to actual data for months and years after the fact. Non-subscribers, click here for access.

The first release is impressionistic art. Bad, impressionistic art. It only becomes more realistic after they refit their numbers to real numbers derived from unemployment compensation and tax data.  Tax data that we have in real time. Non-subscribers, click here for access.

That said, the withholding tax collections for November are about where they were in October. That implies that there was no change in the level of jobs, or maybe some decline, given that there is some wage inflation. That’s the reality. The nonfarm payrolls number is something else. Non-subscribers, click here for access.

Dow Jones Marketwatch economists’ survey consensus is for a gain of 200,000 jobs vs. 261,000 reported in October. Based on October withholding, the October number was understated. The BLS often makes up for that in the next month’s number. Bottom line is that the BLS number should meet or beat expectations based on their October number being too low, and the November tax collection level being about the same as at this point in October. Non-subscribers, click here for access.

But I reiterate that this is a sideshow. Whatever the BLS reports, and whatever the initial market reaction, the fact is that the market will go on about following the trend that it has already established. Where we need to be focused, is on the fact that the market will continue to get pounded by new supply. That will limit the size and duration of the current rally phases in stocks and bonds. Non-subscribers, click here for access.

Our review of the month end data from the US Treasury confirms that revenue growth continues to slow. Here’s what that means for investors. GTFO. Non-subscribers, click here for access.

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