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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!

Why Jerome Powell Had a Frog In His Throat

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Did you notice in yesterday’s press conference how Jerome Powell kept clearing his throat. He was apparently choking on the vomit of his own double talk. The lies, self contradiction, and obfuscation were  breathtaking. This man has no conscience. But then, he’s a central banker. What should we expect.

It’s a good thing that Powell doesn’t own a big bond portfolio.

Well, actually, he does. A lot of munies. A lot of real estate funds, and lots and lots of stock funds. But he makes policy to benefit American workers, who can’t afford to buy houses from the real estate ETFs that Powell owns. Supposedly.

That will be the extent of expressing my disgust with yesterday’s spectacle. The purpose of this report is to review the state of real time tax collections as they accurately show what the US economy is actually doing, and to relate that to the unusually important twin pieces of news that came out yesterday. One was the TBAC schedule for the first quarter of 2022, and the other was the Fed’s taper announcement.

The Fed plans to cut $15 billion a month from their purchases until they get to zero net purchases next June. It’s no surprise that at the same time, less Treasury issuance is forecast. The TBAC says that issuance will be cut in half in Q1.

We knew that the strong tax collections would cause issuance to begin to shrink. We knew that the Fed would only taper QE when Treasury issuance began to decline. There’s no surprise in any of this.

One Bloomberg story highlighted the fact that the Fed’s taper was simultaneous with the Treasury “tapering” issuance. There’s just one problem. While issuance will be cut in half from Q4 to Q1, assuming that the next lifting of the debt ceiling doesn’t screw that up, the Fed’s purchases would go to zero under their plan. At the same time, half of the current level of Treasury issuance still amounts to $150 billion per month on average.

Let me say this about that.

The market cannot absorb $150 billion a month in new issuance at current price levels. Bond prices will crater before the Fed ever gets remotely close to zero QE. In fact, just 2-3 months of reduced QE might be all the market can bear.

We know that for the past dozen years with QE, the Fed has funded 85-90% of Treasury issuance month in and month out. They’ve done it with a combination of outright purchase, and indirect funding through cashing out dealers via MBS purchases.

Yellen tapered for a year. Treasury yields soared. Powell came on the scene, choked, stopped tapering, and soon started printing again like there was no tomorrow.

They’ve suppressed bond yields as a result. They have screwed yields to the floor, screwing risk averse savers in the process.

The mirror of that is that they nailed prices to the ceiling. Most of the world’s wealth is tied up in bonds and real estate. Powell and his cronies benefitted immensely from the Fed’s direct suppression of yields and inflation of bond prices.

When Treasury issuance increased, the Fed increased QE to insure that bond holders suffered no losses, and that the residential and commercial real estate bubbles continued to inflate.

But even with that increased support, the yield on the 10 year has risen from 0.50 to 1.50-1.70. We’re about to see what happens when the Fed cuts its absorption to less than 85%. The Fed says it will be flexible. The taper isn’t on autopilot.

I’ll say. Watch what happens when the 10 year yield explodes past 2%. Let’s see how long they stick with this “taper” while Powell and friends’ personal holdings of bonds and real estate funds crater.

We have a couple of wild cards in the mix. These include the xxxx xxxx xxxx (subscriber version only), which is already again beginning to stifle issuance. The Treasury returned to T-bill paydowns last week after issuing $254 billion in net new bills since October 15. They’re already running into the new higher debt ceiling, so they have to start paying down T-bills again while they continue to issue coupon (longer term) debt.

So the games will begin again. With that $254 billion that the Treasury raised in T-bill sales, they managed to rebuild the Treasury cash account from around $50 billion to $311 billion as of November 2.

That’s probably enough to hold off the dogs until xxxxxxx (subscriber version only). At that point, we’re going to have to have another debt ceiling increase. Hopefully this one will be more or less permanent, simply because it’s easier to forecast when we know what the limit will be or not be, for the foreseeable future. Otherwise we’ll have to keep floating like a butterfly as we go.

For now there are things in place that will buy a lot of market shenanigans for a few months. They include the $311 billion in the Treasury account, the presence of the xxxxxxxxxxxxxx (subscriber version only),, and the $1.35 trillion still sitting in the Fed’s RRP slush fund.

The day of reckoning is not today. It probably won’t be xxxx (subscriber version only), because they get a xxxx xxxxxx xxxxxxxxx xxxxxxxx (subscriber version only), that xxxxxxxx xxxx. It might be xxxxxxxx, or xxxxxxx, or xxxxxxxx. I’d guess closer to the later part of that period, but it all depends on whatever develops day to day. That’s why we track this data. We’ll see the changes coming in time to act.

The smart money has already been tiptoeing out the side door. We see that in the 10 year yield bumping up toward the highs again. That’s what I’d key on. I’ve said for months that I don’t want to be holding Treasuries or longer term fixed income investments. That doesn’t change.

Assuming that the 10 year yield does break out above xxxx (subscriber version only), that’s where I think we’ll really start to see the wheels come off. First in the bond market. But down the road in stocks too. It may not be an immediate worry, but at some point in xxxx xxxxxxx xxxxxxxx xxxxxxxx (subscriber version only), it will be.

The technical analysis of the stock market itself should tell us when the turn is under way. I wouldn’t short the market stock market heavily until the TA tells me that it’s safe to do that. It hasn’t told me that yet. Although I have a couple of toes in the water in the swing trade chart picks list in the Technical Trader reports.

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Booming Tax Revenues, Overheating Risk, and The Real Crisis Starts Now

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Federal tax revenues are still growing rapidly, signaling an overheating economy. The debt ceiling will be lifted. And the Fed will begin reducing its QE purchases.

9/3/21 These three things coming together as soon as October will pose a grave threat to the Treasury market, to short term interest rates, and ultimately to the stock market. 

In this report, we’ll focus on the threat to the bond market. Just keep in mind that stocks won’t be immune. I cover that perspective in the Technical Trader reports, but I will refer to them in these reports at critical junctures.

In view of Friday’s BLS nonfarm payrolls report, I just want to remind you that tax data is fact. The BLS jobs data is fiction. It’s constantly repainted after the fact to represent past reality, but it is not current reality. BLS jobs estimates are SWAGs based on severely flawed methodology. They rarely accurately represent actual current conditions, and then only accidentally.

If you want to play the jobs growth guessing game,  the tax data for September showed that the pace of growth in September was 16% stronger than the August number. However, given the BLS’s statistical massagery, their number could be anything. This is really just a game of chance each month.

The August BLS nonfarm payrolls reported increase was 235,000. If that was accurate, then the gain for September would be 235,000*1.16=  273,000. According to Bloomberg, the current consensus for that number is +455,000. But the BLS estimate for August should be revised upward.

Note post BLS release:  It was. The change for August was revised up by 131,000, from +235,000 to +366,000.” Adding that 131,000 to the reported gain of 194,000 = 325,000. That’s still an overstatement relative to the tax data reality. They’ll need to revise down next month. Meanwhile, clueless economists will revise their October estimates down even more, and the stupid guess the number game will go on. 

Furthermore, the jobs data is irrelevant for our purposes. It is tangential to the knowledge we need to understand and successfully trade the markets. Supply and demand rule the prices in the securities market, just is they rule the commodities markets, real estate, labor, and the day to day prices of the things we buy. Each market has its own forces of supply and demand.

For Treasury prices, and their inverse, yields, we’re interested in the supply of demand for Treasuries. There’s no need for secondary or tangential data. We have the primary data. We know the near term supply outlook, because the Treasury publishes it in advance. We can estimate how it might change because we have the real time data on Federal revenues and outlays, and hence the budge deficit and future issuance needs.

We don’t need the silly exercise of pretending to know how many jobs were created each month. We have the withholding tax data. That’s the primary data that tells us how much revenue the Federal Government is taking in, and whether it’s increasing or decreasing.

Withholding tax collections strengthened in September. While more revenue would normally reduce supply, we don’t know where spending will go. That will matter in the longer run.

In the shorter run, the big unknown is whether there will be only a temporary fix for the debt limit, as opposed to something longer term. If it is only a short term fix, we may see accelerated Treasury issuance. That would draw down the Fed’s RRP slush fund much faster than probably would have been the case under a long term lifting of the debt ceiling.

That would be more bearish, sooner.

Note: After I wrote that Congress did agree to a short term fix, with momentous implications. 

9/3/21 The next problem is that the Federal Government should run out of cash in early October. At that point, it must raise or suspend the debt limit. The Treasury will then begin issuing a torrent of supply to replenish the accounts it raided under the “extraordinary measures” it has undertaken since July 31 to avoid exceeding the debt limit.

The pile of cash in the Fed’s RRP program will act as a slush fund to buy the new T-bill issuance. There are a number of moving parts to the outlook for what happens then, including the mix of T-bills versus coupons in the new issuance schedule. Likewise, we don’t know for sure how holders of RRPs will react to any of this. We have no historical precedent to guide us.

The impacts could vary. Either short term rates, or bond yields could xxxxx xxxxx (subscriber version only). We should see the first hints of market impacts when xxxxxx xxxxxx xxx xxxxxx . But one way or another, once the RRP cash xxxxx xxxxx xxxxx (subscriber version only), the real problems will mushroom.

By then it could be too late. It’s possible, even likely, that significant market damage will already have occurred. Therefore the time to act is now. If I owned long term bonds I’d xxxx xxxxx xxx xxxxxx (subscriber version only). Or I’d need to be willing and able to hold to maturity while suffering the loss of purchasing power that rising inflation would entail.

Meanwhile, I would keep a close eye on stock market technicals for any sign that it’s time to stop trying to ride that bubble wave any further.

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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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