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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!

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!

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The Stimulus “Magic Bullet” Is Bearish

Withholding tax collections were relatively stable through November. But the 5 day average ticked a hair below November’s low here in early December. New lows would suggest that December’s jobs data will be awful, which will add to the likelihood of more stimulus, both fiscal and monetary. Whether that’s bullish or not depends on the Fed. The wrong fiscal/monetary balance could ignite a conflagration.

The Wall Street captured media constantly feeds us the BS that the vaccine is the Magic Bullet that will save us. But while we wait for that shot, the talk about more, more, more stimulus will continue to be the narrative that drives the pundit excuses for why the markets are doing what they’re doing. “Market Rises on Stimulus Hopes” will be the near daily headline.

This is mindless nonsense designed to divert us from paying attention to the financial markets’ real problems.

We have become inured to these $200 billion monthly budget deficits. But this data has catastrophic implications which I get into in this report.

And this is BEFORE any new stimulus.

As more and more Americans get the virus, and more people know someone who has gotten it, or worse, died, the economy sinks.

The eConomic establishment sees the vaccine as the magic bullet. But we now know that it won’t be available for widespread distribution until next summer, thanks to the Don Trump waving off a bigger, sooner deal with Pfizer.

That means that the US will be dependent on social consciousness to reduce the spread of the virus for at least the next 7 months. Good luck with that. 74 million people believe that the election was stolen, and the virus is a hoax. Consequently they refuse to wear masks and proudly engage in superspreader behavior. That won’t change after January 20. So we face months of worsening economic conditions and ever bigger deficits.

Until then, the only magic bullet is more stimulus. It may or may not cushion the catastrophe besetting many American households. And its consequences for the financial markets will only be guessable when we know the size of the package and the size and shape of the Fed’s response. We know what the Fed needs to do at a minimum, and we know what will happen if it doesn’t do it.

Here’s what to look for.

Subscribers, click here to download the report.

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!

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The Passion of Jaysus

Jay Powell’s first order of business is to keep the bond market from breaking down. When the 10 year yield hit 0.975 last week before backing off, the market was at the edge of the abyss. Leveraged dealer bond portfolios were on the brink of disaster.

Signs of a weakening non-recovery rescued them. Traders sold stocks, which freed up enough cash at the margin to bring bonds back from the brink.

Because of that, the Fed is ok with the weaker economy narrative for the time being.

Jaysus saves the bond market first. Stocks are just the saints of this religion. They get their share of worship. But the bond market is the Cross, the Torah, and the Koran all rolled into one. It is the focus of the worshippers. It is the altar upon which the really big money acolytes pray.

So the Fed looks at signs of weakness with relief now, because it sends the big donors in the pews. And the small part of the collection plate that the Fed doesn’t fill, those donors keep filling. And Jaysus keeps saving. Or so it appears.

But this seeming miracle is an Act that won’t work for long. Because if too many worshippers reject the saints of stocks, Jaysus himself runs a similar risk. If the flock loses faith in Him, the Church of the Fed will collapse. The bulls will all die and burn in the fires of financial market hell.

As for the bears, it’s too late. They’re so dead, they’re beyond resurrection. Nobody is short the market.

In the end, only liquidity matters. The Fed can create liquidity, but an economic narrative that leads to selling of any asset class can destroy that liquidity just as fast, or faster, than the Fed creates it.

So for that purpose we keep an eye on a few real time economic indicators that few others are watching, to keep us abreast of how the Wall Street economic narrative is going to play.

We’ve known for a couple of months that the “recovery” was a non-recovery. The Wall Street mainstream is starting to catch up with that.

This report updates us on what’s happening now in Federal tax collections, and therefore what the narrative is likely to sound like in the weeks ahead. It prepares us to be ready to act ahead of the most likely scenarios in the financial markets.

Here’s the bottom line.

Subscribers, click here to download the report.

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!

Real Time Tax Collection Data Supports Jobs Report

Tax collections improved in October, but are still well below pre-pandemic levels. The US may look like it’s recovering, but it’s still in the hole it dug when Covid19 first hit. That means that Fed policy isn’t likely to change any time soon.

And it also means that we should expect a stimulus package of some kind, at some point. With the uncertainties surrounding a divided government regardless of whether a new Administration takes over, guessing how much stimulus there will be, and its timing, is a fool’s errand. The one thing that we do know is that whenever it comes, the bigger it is, the more bearish it will be.

And if they spend the $1.7 trillion on hand mostly to pay down debt, that would be very bullish.

Meanwhile, economic data is useful for guessing what Fed policy will be, and under normal circumstances might be useful for making an educated guess about fiscal policy. It’s not possible to translate this data directly into an expected market outcome. It always comes down to measuring the strength and persistence of the trend through technical analysis, and more direct liquidity inputs, such as the PONTs. That’s essentially the difference between the quantity of Fed QE versus the amount of new Treasury issuance.

This data gives us an outline of where the economy really stands, and what it means for the outlook for stocks and bonds.

Subscribers, click here to download the report.`

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!

Disjointed Economy Points To Bad Things

Last week I was surprised when the US Government’s retail sales data hit a new high. No way, I said.

Well, Way!

Yes, some retailers are seeing booming sales, particularly online, and … wait for it…

Grocery stores. Even after pulling back from the lockdown spike, they’re still up more than 7% year to year.

Now there’s a basis for a thriving, growing US economy.

Not.

And of course, there’s the surging growth in e-commerce. I’ve put it on a chart along with grocery sales going back 5 years for perspective. The average growth rate, which was already a sizzling 10-15% per year, has roughly doubled in e-commerce. The average growth rate for groceries has tripled. Apparently pandemics are good for some businesses.

Something struck me about this chart, apart from the COVID driven surge. Over the past few months, the annual growth rates in both series have been plummeting. “Growth” ain’t what it used to be. This drop implies contraction since July.

But my purpose here is not to pretend to be an eConomist. I just wanted to point out the government statistics, particularly those that the financial news headline writers feature, don’t tell the whole story.

Furthermore, we know that these sales are just coming out of the hides of other businesses. Lodging, travel, recreation, and transportation sales have collapsed. Gross tax collections show us the truth. The US economy is dead in the water, not growing at all, while remaining at a level a few percent below what it was last year at this time. It’s hard to gauge just how much in real terms, because we really have no clue how high inflation really is. But the nominal actual totals are lower and flat.

That’s what this report focuses on.

The issues then facing us are whether this will be the basis for more stimulus. That would mean more spending, more debt issuance, more pressure on the financial markets, and a need for more Fed support to prevent a market meltdown.

Here’s what the current Federal tax collections data tells us about what the real condition of the economy is, and what to expect as a result.

Subscribers, click here to download the report.`

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!