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Category: 1 – Liquidity Trader- Money Trends

Reports on the Fed and Treasury, Primary Dealers, real time Federal tax collections, foreign central banks, US banking system, European banking system, and other factors that affect market liquidity. Resulting market strategy recommendations. 6-7 reports each month. Click here to subscribe. 90 day risk free trial!

Treasury Joins Fed to Try to Prevent Imminent System Collapse

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.

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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!

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!

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

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.

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

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.

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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

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.

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KNOW WHAT’S HAPPENING NOW, before the Street does, read Lee Adler’s Liquidity Trader risk free for 90 days!

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

We Don’t Need No Effin’ Stimmy

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.

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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!

Bloomberg US Treasury (BUST) Channel Sends Bullish Signal

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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You Can See How Dark Matter and Dark Energy Drive Stocks Higher

I have tried in these reports for the last twenty years to identify the most important forces driving the stock market. To some extent, I’ve been successful at that, although sometimes a bit early, or a bit late, in recognizing just what the hell is going on. I just hope that my analysis has helped you along the way.

But there are many forces to which people like me, operating on the outside of the system, are not privy. And there are forces at work that no one can see or understand.

Stock market analysis requires many disciplines. Unlike, physics, for example, it’s not rocket science. Hell, it’s not even science. But while physicists and astrophysicists understand more and more about how the universe works, there is much more that they don’t understand. For every theory that they confirm, more questions arise.

They say that approximately 80% of the mass of the universe is “dark matter.” They don’t know what it is. And there’s “dark energy,” that they don’t understand either. They see their effect, but they can’t see the cause, and don’t know what either of them is. So they observe and measure the effects, and make predictions and develop theories based on that.

Liquidity analysis isn’t science, but like physics, when we observe things, we find plenty of dark matter and dark energy. They move things. I don’t know what those dark forces are, but you and I can see their effects in the markets. We can measure those effects, and make predictions from observing them. We call that study, “Technical Analysis.” It’s the other facet of my research.

When darkness engulfs the forces driving the effects, then we all must pay particular attention to the patterns of those effects and learn what we can from them, that is, the technical analysis. Liquidity analysis provides, to the extent of the forces that we can see and measure, the context.

The Composite Liquidity Indicator is a hybrid of fundamental liquidity analysis and technical analysis. When I last reported on it about two months ago, I was forced to conclude, much to my surprise, that the stock market was oversold.

In other reports, I have shown my analysis and conclusion that when the 10 year yield rose above 1%, the Primary Dealers would be in trouble, leading to the potential for a crash.

Those two conclusions aren’t mutually exclusive. It’s a matter of timing. Markets only turn on a dime at bottoms. Tops take time, a lot of time. They can last a year or two.

The current situation reminds me of 1987, however. Then, the bond market began to crash in May. Stocks crashed in October. Will there be a similar 5 month lead time now? Doubtful. It’s a different ballgame today with the Fed aggressively supporting the market week in and week out, and vowing to do whatever it takes to keep the bubble from bursting.

In addition, we know that the dealers and other leveraged players are hedged. Apparently, those hedges are working well enough for now. They’re also getting a boost from individual stock traders.

So is my analysis and conclusion about the likelihood of a stock market crash following on the collapse of bond prices since August just flat out wrong? Or is it merely a matter of time?

I think the latter, but the financial system has far more moving parts than even the biggest institutions can track and understand thoroughly. Furthermore, there’s always something new that we hadn’t thought of before.

You have probably seen the reports about how a community of traders on Reddit is gaming the short side, madly buying call options on stocks that are heavily shorted. This forces options market makers who are writing and selling the calls to them to hedge by buying the underlying. These actions have resulted in ferocious short squeezes.

We all know that story with TSLA. But the poster child lately has been GameStop (GME), a struggling retailer whose stock was $4.00 a share, six months ago.

(Sorry about the busy-ness of this chart. These are what I use for my own trading and for stock picks in the technical trader. They are much larger in my charting program, so the detail is clear).

So the game now is to simply buy stocks of heavily shorted, troubled companies. The worse the fundamentals, the more bullish it is.

Alas this isn’t new. There are whale speculators who have made lucrative careers of just engineering short squeezes. The difference now is that the public is in on the game.

So not only are we dealing with dark matter, we’re dealing with a parallel universe that operates in reverse of what we consider normal.

To sum up, I made the huge call that the stock market would follow the bond market in crashing, because Primary Dealers were overloaded with long inventory and overleveraged in financing it. I set a line in the sand of 1% on the 10 year. Last month, they crossed that. Stocks are still going up.

Here’s what the components of the Composite Liquidity Indicator show us about that, from the perspective of the space-time continuum, dark energy, black holes, Black Scholes, Einstein’s Theory of General Relativity, Maslow’s Hierarchy of Needs, and, of course, Hobbes’s, “It’s solitary, poor, nasty and brutish to be short this market.”

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The Composite Liquidity Indicator (CLI) Says Honor Thy Father and Thy Mother

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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Here’s Why Front Loaded Stimulus Will Be Catastrophic for the Market

Both bonds and stocks have weakened over the past 2 weeks. It’s a sign that the Fed isn’t supplying enough QE.

We’ve known for a long time that it wasn’t enough to support twin bull moves in both asset classes. Have we reached the tipping point where it’s insufficient for either to move higher while the other descends?

The answer, my friends, is blowing in the wind—the wind of margin calls now blowing through dealer balance sheets as leveraged fixed income positions continue losing value.

Meanwhile the $2.9 trillion Biden stimulus proposal may boost the US economy, but it will be a disaster for the increasingly fragile stock and bond markets. Here’s why, and what you should do about it.

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