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What You Should Do With “On One Hand, On the Other”

There’s a lot of that infuriating, “On the one hand–On the other hand,” stuff in today’s report. On the one hand, I hate when that happens. On the other hand, it is what it is.

But the good thing is that there are clear parameters that should tell us what to expect as the week begins.

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The Big Treasury Margin Call is Called Off

With the light supply and the Fed money putting the wind at their backs, Primary Dealers got a gift on top of that. Coronavirus. The panic that induced has driven money out of stocks and into bonds. Just what they needed.

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When the Dealers Will Say WTF and Just Keep Selling

Dealers cut back their fixed income inventories ever so slightly over the past month. They also increased their hedges, but again, slightly. They are still near historical record net long positions, and still carry historic levels of leverage.

With a bulge in Treasury supply on the way, is this where the bond market might trigger them throwing up their hands and saying WTF, despite the Fed?

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Also, I have republished Thursday’s Treasury market update due to a faulty posting with  links to an earlier report. Those errors have have now been corrected. I apologize for the delay!

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Market Conditions Were As Good As It Gets

Supply and demand conditions for stocks and bonds have been as good as it gets over the past month. We can thank the Fed’s Not QE program, and light Treasury supply for that.

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How The Fed’s $100 Billion a Month Make Chart Meltups the Norm

When the Fed pumps $100 billion per month into Primary Dealer trading accounts, we’re not dealing with a level playing field. The Fed has sharply tilted that playing field to the upside. Under the circumstances, meltups become the norm. A whole lot of people fail to understand that and fight the Fed and the tape all the way.

And so it is today. I failed to roll up long SPY call trades last week, not because I thought the market would go down, but because I thought it wouldn’t go up fast enough in the short run.

I was wrong. It’s psychologically difficult to be bullish enough. It’s not enough to be bullish. If you’re not wildly bullish, you’re wrong. The Fed has created a crazy funhouse, and we must view the market in that context.

Here’s how the current funhouse tableau looks from that perspective, with a specific tip on how to trade it.

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These Charts Show That Macro Liquidity And Stock Prices Always Move in Lockstep

It ain’t rocket science. The Fed drives liquidity and stock prices are the first order effect because that’s how monetary policy transmission is designed. These charts show you the way!

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Monthly Treasury Data Confirms Slower Growth- Bullish!

Federal revenues softened in December. That could be just a blip, or it could be the first signs of a looming recession. It’s bullish if it is, and bullish if it isn’t. Here’s why everything is bullish.

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