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Category: US Treasury Market and Tax Revenue Trends

Analysis of new Treasury supply and major demand market segments to estimate market liquidity impacts for bonds and stocks. Click here to subscribe. 90 day risk free trial!

Take the Threat of this Triple Whammy Seriously Now

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The stock and bond markets face a triple whammy at the end of this month. In this report I’ll show you what those three things are, why and how they will impact the market and what you should do about it (subscriber version only). These three things coming together as soon as xxxxxx (subscriber version only) will pose a grave threat to the Treasury market, to short term interest rates, and ultimately to the stock market.

US Economy Just Went Over a Cliff

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Wall Street wiseguys and the mouthpieces of the Mob @CNBC and @WSJ don’t know it yet, but the US economy went over a cliff in the last two weeks. They don’t know because they’re not tracking the real time Federal tax collection data like we are. And that data shows us that’s what happened.

Here’s the data, what it means for the market and for us, and some suggestions on how we might view it and use it to possibly profit in the short run, and protect ourselves in the longer term. There are an unusual number of variables, unknowns, and yet to be knowns in this outlook, but we have a general idea of a couple of likely scenarios on how the next few months might unfold. If you want to avoid the catastrophe that lies ahead, it behooves you to be familiar with those scenarios, and to track the variables as they become known.

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Real Time Tax Data Hot Like the Weather

I wanted to take a short break from my short vacation to get this post out. I’ll take a few more days hiatus and get back to a regular schedule posting next Monday.

My headline for the revenue update last month was Seven More Weeks of Bond Market Nirvana. Well, that’s four weeks down and three to go. But it could be 3 months. Because tax revenue momentum is still, hot, hot, hot, like the weather where I am in central Europe. They’re calling for a high of 100 on Thursday, here in Bratislava, where I’m currently sweating out a short visit.

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Real Time Tax Data Shows Nirvana for Stocks and Bonds, But It’s Temporary

Withholding tax revenues rose sharply again in May (chart in subscriber version). Non withheld taxes also rose sharply. The economy is growing faster than the Fed would have you believe, and that the Wall Street mob seems to believe.

Revenue momentum is hot, hot, hot. But spending is hotter (table in subscriber version). The impact of economic stimulus will lead to economic overheating and embedded inflation.

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Meanwhile, the Treasury’s bloated cash account is coming down slowly. To get to the level legally mandated by the budget law by the deadline (reported in subscriber version), the Treasury will need to continue T-bill paydowns. This will continue to provide a bid for both stock and bond prices.

But that will all reverse, and we know when. The Treasury’s excess cash will be gone. Enormous monthly deficits will then need to be fully funded by borrowing. Hundreds of billions in new Treasury debt will start hitting the market for months to come. The pressure on the markets will multiply instantly.

Both bond and stock prices would begin to decline rapidly. The Fed would be forced to act.

The media is reporting the Fed is thinking about getting ready to talk about tapering bond purchases. Forget about it. It’s ridiculous. When the Treasury gets down to its required cash level, not only will the taper talk masturbation end, but Fed yield control, with unlimited QE, would be in play.

A slow Fed response would come too late to prevent real, and possibly lasting, damage to market prices of stocks and bonds (Treasury yield and price charts in subscriber version).

Meanwhile the US Treasury has pumped $600 billion into the accounts of holders of expiring T-bills since late February. Those holders are mostly money market funds, but include dealers and other big institutions. Dealers and big investors deploy that cash to buy longer term Treasuries and, in some cases, stocks. More paydowns are coming. That’s short term bullish for both bonds and stocks.

But beware! The end is nigh! And we know when. This report shows you how we reach this conclusion, and when you need to take action to either take advantage or get out of the way. With 9 beautiful charts and tables to show you exactly how and why we reach this conclusion!

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Have a question about Liquidity Trader? Click the chat link at the bottom right of the page, and I’ll be happy to answer your questions. I am often available to chat with you directly between the hours of 5 AM ET and 4 PM ET weekdays. At other times I’ll respond by email.

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Here’s Why We Should Sell In June, Before the Swoon

Withholding tax revenues exploded higher in April. Everybody knows the jobs number will be huge. The withholding data says not huge enough. But I’m not here to game that because the BLS makes up the number in the first release then revises it 7 times over 5 years to fit the tax data and unemployment claims data. The BLS survey first release is essentially statistical horseshit.

The April tax windfall is bigger than it looks because the base period was during the US economy’s shutdown last year. However, the total appears to compare favorably with April 2019, until we consider wage inflation. Then the rebound is just back to the April 2019 level.

But momentum is hot, hot, hot. The economic news will be hot, hot, hot. Bond traders will have an excuse to sell. Stock traders will have an excuse to buy. But excuses don’t matter. Money talks. And we follow the money. We know where it is, and where it’s headed. Click here for a 90 day risk free trial to Liquidity Trader Money Trends reports. 

Despite the hot momentum of tax collections, spending is hotter, and the deficit is massive. Back of the envelope calculations continue to suggest that the US Treasury will run out of cash in XXXXX (subscribers only). It will then need to radically increase supply. The xxxxx (subscribers only) quarter will then be crunch time for the markets. Click here for a 90 day risk free trial to Liquidity Trader Money Trends reports. 

Meanwhile the US Treasury has pumped nearly a half trillion dollars into the accounts of holders of expiring T-bills. Those holders include dealers and big institutions. They deploy that cash to buy longer term Treasuries and, in some cases, stocks. That’s short term bullish for both bonds and stocks. More paydowns are scheduled for the next couple of weeks. Bullish for both asset classes.

The new TBAC supply estimate suggests that the paydowns will end this month. The Treasury will be set to increase issuance in the xxxxx quarter (subscribers only if we extrapolate current flows. Does this mean it will be time to sell in June and prepare for the swoon? Or do we have more time for holdin’ and hopin’? This report has the answers.

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Stimmy Gonna Leave Its Mark… In Bond Trader’s Underwear

Back on February 5th, I wrote in this report:

The withholding data strongly suggests that more stimulus isn’t needed. As vaccine distribution widens, the economy should heat up on its own. Any additional government juice will heat it up even more.

What the unintended consequences of that will be, we can only guess. Here’s one guess. Institutional balanced fund managers will dump Treasuries and buy stocks.

That will first lead to a blowoff in stocks, which seems to be underway now. But a collapse in the bond markets that’s not offset with equal profits for Primary Dealers from stocks, could lead to a crash in stocks too.

I repeated that message in early March based on the February tax data.

So we knew very well that blockbuster jobs numbers were coming. The BLS (Bureau of Liar Statistics) may lie sometimes, but the tax data doesn’t. All you need to do is look at it. Wall Street eConomists can’t be bothered.

The US Treasury is kind enough to report its tax collections to us EVERY SINGLE DAY, one day after it is collected and counted. Who could ask for better data than that? Pure, raw, unmanipulated, hard data, that not a single Wall Street, or academic, eConomist pays any attention to.

Instead, they watch the heavily manipulated, after the fact, subsequently massively revised, government economic data. Then they spin it to fit their narrative. Wall Street has something to sell you. Academic eConomists are either selling, acting as paid shills, or are simply on ego trips.

There are a handful of good ones out there, and some who are doing serious research, I guess. We don’t hear about them. But the ones who show up repeatedly in the Wall Street media are shills often getting paid to represent a certain political or business point of view.

Conversely, we focus on the hard data. No interpretation needed. It is what it is. Compare this year with the same period last year. Put it on a chart or two. See how that comparison is moving along month to month. And you know EXACTLY what the economy is doing in real time without having to guess what some lying liar eConomist is trying to sell you.

In March, withholding taxes rose at the same rate as in February, which was very, very strong. I show you the trends via a nice chart and a couple of tables in this report, and I tell you what it means for the Treasury market, and what it implies for stocks.

And that is that we are headed for a big cliff. Enjoy the party while it lasts. I’ll tell you when we’re near the cliff.

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Treasury’s Bond Market Rescue – Get Ready For the PONT Spread Bulge

The US Treasury’s attempt to rescue the Treasury market began in mid February. It’s not going well. They’ve managed to stop the hemorrhaging. Prices have stopped falling over the past two weeks. But they haven’t turned the tide.

And that’s the problem. Primary Dealer inventories accumulated since last March are way under water. The dealers are the walking dead. If bond prices don’t rally, the Fed will have no choice but to start yield control and infinite QE, and it will need to do it soon.

The Fed must always maintain the appearance that their Primary Dealer strawmen, are alive and functioning as market makers as always. There’s no alternative. This month, the Fed and US Treasury have begun colluding to prime the pump, and they’re about to aim a firehose of liquidity at the problem.

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Infinite QE Is Coming Despite Skyrocketing Economic Growth

Last month, I headlined this report, “We Don’t Need No Effin’ Stimmy.” That’s even more true now. Withholding tax collections are skyrocketing. It’s good news for the economy, but terrible news for the financial markets.

We are only days away from Infinite QE.

Here’s how we know, and why it won’t be bullish this time.

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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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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!

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