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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!

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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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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Bears Beware, Money Managers Are Finally Spending their RRP Slush Fund

Last month’s discussion of the US Treasury doing bond buybacks on the heels of a reeling bond market has faded into the background, thanks to a well timed bond market rally. The mere talk of buybacks reignited fixed income animal spirits, if there is such a thing. Now we can get back to the discussion of the one thing that actually matters for sustaining hope induced rallies.

Cash.

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That’s because the rallies so far have been based on hope, rather than fact. All of the talk, all of the speculation, about when the Fed will start easing is just that. Talk. But in the market, ultimately, only money talks. For market prices to rise in the face of ever increasing supply of new securities, there needs to be more money available to fuel the demand to absorb that supply. Otherwise, in the immortal words of Randolph Duke, “Prices will fall.” Non subscribers, click here to read this report.

We focus on the Fed as the all powerful Lord of money. The Fed mostly giveth, but since March, the Fed hath been takingeth awayeth. Non subscribers, click here to read this report.

But there are other sources of temporary money. Not the least of which are the financial assets, especially US Treasuries, themselves. Once created, they become collateral for credit which can fuel rallies that last much longer than most of us expect. But only for as long as prices are rising. Because once that stops, sellers start tiptoeing to the exits. Non subscribers, click here to read this report.

Eventually, prices rise to resistance levels where sellers appear, including dealers and others who want to build short positions. Without new capital, whether central bank money, or fiscal largesse, or profits, which are then added to capital, (as opposed to extinguishing debt or spent on consumption), all rallies must fall by the wayside. Non subscribers, click here to read this report.

Which is where this one should go. Because the sources of quasi permanent money like Fed QE just aren’t there right now. However, there are a couple of potential sources that are so huge, and so liquid, that we need to be cognizant of them. They are the Fed’s RRP slush fund, that so far has remained over $2 trillion. And the US Treasury’s piggy bank, that has been hovering around $600-650 billion, which is where the Treasury wants to hold it for a “rainy day.” Non subscribers, click here to read this report.

Such a rainy day might be another debt ceiling impasse, coming to a theater near you next year. Or it might be a bond market meltdown. The last chapter of that long running bear market brought out the talk of the Treasury doing a big series of buybacks of longer term paper, to keep the rise in long term bond yields at bay. Non subscribers, click here to read this report.

That talk, and the belief among some investors that bonds had gotten cheap, and that a recession was coming, triggered speculative, leveraged buying of bonds again. So the bond market was off to the races. Amazingly, stocks haven’t melted down under the strain of that bond market buying. But this rally in both stocks and bonds looks pretty much like the last one and the one before that. All of which has led to a nowhere market. Non subscribers, click here to read this report.

It reminds me of 1973. Back then, in the early years of the Great Inflation, the market kept hitting lows and rallying, hitting lows, and rallying, and rallying again. It didn’t go down much all year, but it didn’t make any progress in those rallies. Early 1974 was more of the same, until the bottom dropped out that summer. The market just treaded water for over a year before it drowned. Non subscribers, click here to read this report.

I’m not saying that this market will do the same thing. Maybe Wall Street is so smart today, and has so many tools, that it will successfully anticipate the Fed’s policy reversal. The front running might then lead to a real bull market when the Fed opens the floodgates. Non subscribers, click here to read this report.

But think about this. If the markets refuse to go down; if stocks and bonds continue to bounce around, then what incentive does the Fed have to ease policy? If the Fed was so prescient in seeing this inflation coming—not—then what makes the Street think that the Fed will be able to foresee a brewing financial calamity. Like the last time, the Fed saw nothing until it was too late. Like this inflation. The Fed saw nothing until it was too late. Non subscribers, click here to read this report.

Nope, I’m skeptical. Historically, the Fed has always been slow in recognition, driving in the rear view mirror, reactive, rather than proactive. It never seems to understand the forces it unleashes with policy responses that have grown increasingly insane with madmen like Greenspan, Bernanke, and Powell at the helm. Only Yellen shrank the balance sheet, but Powell reversed her, showering unprecedented largesse on his banker overlords and cronies. Non subscribers, click here to read this report.

Until he was blindsided by the consumer price inflation that he caused with his monetary outburst. It’s an ugly, sad saga that we have chronicled here for two decades, and that we’ve used as the basis for understanding and forecasting the markets with some degree of success. And which I hope to continue by simply observing and reporting the trends in the data. Non subscribers, click here to read this report.

In that regard, in this report, let’s take a look at whether there’s any sign that money managers are about to pull cash out of that $2 trillion RRP fund to buy bonds or stocks, or anything for that matter. And xxxx xxxxxxx xxxxxxxx xxxxxx.  xxxxxxxxxxxxxxxxxx xxxxxxxxx xxxxxxxxxx xxxxxxxx xxxxxxxxx xxxxxxxxxx xxxxxxx. That’s right, stocks and bonds. Non subscribers, click here to read this report.

That helps to explain the rallies and holding actions in the two asset classes. And it is a warning to bears that the next major downleg in this bear market, if that’s what this still is, may be many months away, similar to the 1973-74 experience. Non subscribers, click here to read this report.

It means stock traders should give a thought to buying the dips AND selling the rips. Both trading from the long side, and short selling, will require good market timing through technical analysis, as the market bounces around in shorter swings than we would like. Flat rangebound trends are likely to remain the rule, not the exception. Non subscribers, click here to read this report.

As for whether its ok to start buying and holding for the longer run, xxxxxxxx xxxx xxxxx. Non subscribers, click here to read this report.

Get the rest of this dope, amply illustrated, with beautiful color charts suitable for framing, including a clear forecast on what to expect and what to do about it, in the complete subscriber version of the report. Non subscribers, click here to read this report.

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Fed Policy Will Stay Bearish Until It’s Too Late

That’s right. Inflation is dead. But it doesn’t matter, because the Fed won’t pull the stake out of its heart until it’s too late. I’ll get to that below (in the subscriber report, non subscribers, click here to read this report) but first, let’s talk about the interest rate bogeyman. It’s a fake issue, a diversionary tactic. Subscribers, click here to download the report.

Interest rates don’t matter in terms of policy effects on the markets. They are merely a meter of monetary tightness. That tightness is Fed policy, and market interest rates, T-bills in particular, continue to post warning signs about that day in and day out. Non subscribers, click here to read this report.

The Street and its captured handmaiden media mouthpieces keep talking about the Fed raising interest rates. But the Fed has never actually raised rates. It has simply rubber stamped the increases that have already happened in the money markets to the meaningless Fed Funds target rate. And it hasn’t done a very good job of keeping up with market increases. Non subscribers, click here to read this report. 

The evidence shows, ladies and gentlemen of the jury, that the market keeps outrunning the Fed’s rubber stamp. Regardless of all the bullish speculation on when the Fed will pause, or slow down its rate increases, or whatever it is that the Street wants investors to believe, the fact is that monetary conditions are still tightening, and will continue to tighten. And that will keep a lid on the markets. Rallies will continue to make lower highs, to be followed by lower lows. Non subscribers, click here to read this report.

The best meter of those conditions are short term Treasury bill rates, and those are still rising. This simple measure of the market shows clearly that the demand for short term funding continues to be greater than the supply of ready cash. Last week, both the 13 week bill rate and the 4 week bill rate hit new highs, as the Treasury repeatedly came to market with massive new T-bill offerings. Non subscribers, click here to read this report.

But that’s only the beginning of this horror story. The rest is in the report, including the evidence that inflation is already dead, and why it doesn’t matter. Non subscribers, click here to read this report.

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Bond Market Rally is Technically Valid but Belies the Facts

Obviously, no market moves in a straight line, and this one is no exception. The technical analysis says the rally in Treasuries will have legs, albeit likely to be short. Then the underlying forces of supply and demand, with constantly more Treasury supply and limited or even diminishing demand, with a severely weakened Primary Dealer system at its core, will rear its ugly head once again.

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Despite the seeming moderation of headline inflation data, the conditions cited previously in these comments remain in effect. The speculation that the Fed might ease policy on the basis of this week’s inflation news is useless. Markets move on the fact of Fed policy change, not on the basis of Wall Street promoting such changes. Non subscribers, click here to read this report.

For perspective, here’s a look back at key points of the summaries of these Primary Dealer position updates that I’ve posted this year. We start with the most recent… and follow with a look at their current positioning, and the reasons why they present unprecedented risk for investors. Non subscribers, click here to read this report.

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Bad News for the Markets – Not Just Withholding Boomed in October

In Part 1, we saw a rebound in withholding tax collections after 3 down months. October also saw a very strong gain in individual estimated taxes, probably late filers, lamenting how much money they had made. It’s consistent with the strength in withholding. Corporate taxes were lower, but that’s meaningless since so few corporations file in October.

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Excise tax collections were up for a second straight month, an indication of strong retail consumption. That’s a fly that keeps landing in the ointment of the idea that the economy is contracting, or even slowing. All signs point to a strengthening economy, and that is very bad news against a tightening liquidity backdrop. Non-subscribers, click here for access.

This report explains and illustrates the data with a couple of mind blowing charts. It adds up to one of the worst outlooks I’ve ever seen for the bond market, and that’s saying something considering how bod the market has been for the past 27 months. The same data that I cover in these reports has been correctly bearish on the bond market for that whole period. And all of that is terrible for stocks too. Non-subscribers, click here for access.

This report shows you what this real time, real data, means for investing and trading strategy and tactics. In other words how to stay out of trouble in this treacherous bear market. Non-subscribers, click here for access.

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Surge in Withholding Tax Collections in October Indicates Faster Jobs Growth

Federal withholding tax collections rose in October, breaking a string of 3 previous consecutive monthly declines. Guessing the BLS nonfarm payrolls manipulated number is always a crapshoot, but if it resembles reality at all, it will be an upside surprise. According to Dow Jones Marketwatch, the median economic guesstimate is +205,000, a drop from September’s 263,000. But the tax collections are way up from September. In reality, more jobs were added in October than September.

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If the BLS data accurately shows that, and again, that’s a coin flip, then the markets are in for an ugly surprise, as the Fed would have no excuse to pivot, pause, stepdown, or do whatever buzzword that Wall Street wants to sell you today. Non-subscribers, click here for access.

Judging from the Pope Load Jaysus’s incantations under way at this moment, the Fedican doesn’t know what it wants to sell you. The encyclical said one thing, and Jaysus is now speaking in tongues about it. It’s all word salad, and meaningless. Because it’s the money that moves market trends, not the talk.

On the other hand, if the BLS number does not reflect this month’s reality and comes in weak, as expected, then the ensuing economic data will continue to come in stronger than expected and the market will face its Come to Jaysus moment in the days ahead.

On the bullish side, strong tax collections mean … Non-subscribers, click here for access.

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