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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!

Federal Tax Collections Now Say Damned If They Do, or if They Don’t

Tax collections have leveled off at a negative year to year rate. The Fed has gone to Congress begging for fiscal support for the US economy, as a result.  Without a deal to raise spending, the economy will continue to languish, and the Fed will continue to print money to support the markets.

Ironically, if and when a new pandemic relief spending program is enacted, that would be bearish.

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Why No More Pandemic Spending Is Bullish

The economic rebound from the depths of the pandemic panic in April and May has ended. The economy may be rolling over again. Bad news for workers and consumers, but not necessarily for investors.

The US Government did no pandemic relief spending in August, and none is on the immediate horizon. Despite that, the monthly budget deficits are freaking enormous and frightening.

Tax receipts are weak and they will provide no relief from those deficits. The US Treasury will continue to borrow massive amounts of money in the markets.

Sounds like bad news for the stock market, right?

Eh, not quite.  Here’s why.

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August Federal Deficit Decline is Worse Than It Looks

Tax collections have leveled off at a negative year to year rate. That will allow the Fed to continue to paper things over at the current level of support it is providing. Here’s what it means for stocks and bonds, not to mention the US economy.

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What If Primary Dealers Are Wrong on Their Bullish Treasury Bet?

No news isn’t no news. The Primary Dealers are in the same posture they’ve been in. They’re still bullish on bonds and that’s an extremely dangerous situation.

It’s like that warehouse packed with explosives in Beirut. One small fire could ignite a conflagration of biblical proportions.

The dealers continue to maintain historically large fixed income positions. Those positions hit record high prices. They’ve accumulated a good bit of inventory near the highs. They remain highly leveraged. Worse, they’ve reduced their futures hedges significantly. They are positioned for even more or a bullish environment in bonds.

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The VIrus is the Economy

The Virus Is the Economy

Common sense says that as case numbers increase, tax collections would fall and vice versa, REGARDLESS of whether governments imposed lockdowns. So my expectation was that as governors across the country lifted restrictions, case numbers would rise, and tax collections would fall.

Well here we are.

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These Real Time Charts Show US Economy Contracting Again in June

The data is noisy, and week to week the changes may not mean much. But in some weeks, it’s obvious that it’s part of a bigger trend, whether confirming or indicating change. Even if there are just hints, this information can be incredibly useful. It is useful because it tells us exactly what the big picture is, while Wall Street economists are still scratching their asses and trying to figure out what the government statistician manipulated data means. And the first report from that data is still 13 days away.

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Long Live the Dead Cat Bounce – It’s Dead

The Monthly Treasury Statement for May confirms that the economy rebounded during the month, but more recent data through last week suggests that the rebound has already expired. Signs of renewed weakness come when the numbers are still far from a full recovery. The economy is beginning to weaken again, starting from weakness.

That’s relevant because it means that the Federal government will need to continue to issue massive amounts of debt. It may not be quite as much as in March and April, but it will still be at least double past peak levels.

We also know that the Fed has sharply cut the amount of that debt that it is directly absorbing or financing.

Here’s what this means for your investing strategy.

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Here’s Why A Recovery Narrative Will Be Catastrophic for Markets

To the degree that it’s true, the idea that the US economy is recovering is a catastrophic notion for the financial markets.

Surprisingly, the withholding tax data supports the idea that a small number of jobs did come back in May. The problem is that the bond market reacted as if a big recovery is on the way. Investors and traders, made a mountain out of a molehill.  Bond prices plunged and yields soared. This is exactly the opposite of what the Fed and dealers wanted and needed. If it’s not reversed immediately, to say that it will be problematic would be an understatement.

Here’s what you need to know.

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