Lee AdlerThe setups have strengthened.
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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The June selloff was 265 points high to low. So far, the current selloff has hit 278. Bigger? Nope, not in percentage terms. This one is -7.7%. That one was -8.2%. So, we can still say that this time isn’t different.
Yet. But there’s smoke. Plenty of it.
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Well…
The selloff that we expected as a result of the scheduled month end liquidity shortage happened.
Just one problem.
It came a week later than expected. Unfortunately, in a business where timing is everything, that matters. When the selloff didn’t happen right away, I stopped expecting it. Ooops. Apparently we need to build into our forecasts an allowance for a one week lag between money injections and market reactions.
So this week, the market had a little Wile E. Coyote moment, looked down, and plunged. But suddenly yesterday, it sprang back to life.
Why? The Fed didn’t step in. It is maintaining its schedule of about $18 billion per week in Treasury purchases, and a similar or slightly larger amount of MBS purchases which varies according to the amount of MBS prepaid off the Fed’s balance sheet the prior month. No change there.
As we know, those are forward contracts which only settle in the third week of the month. The September settlements start Monday, September 14. We need to watch out for that.
In the meantime, Dr. Evil’s sidekick, Mr. Minus-chin, the keeper of the US Treasury cash hoard, rode to the rescue yesterday.
Should we expect more of the same?
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Gold’s pullback has come to the line in the sand. Here’s what to expect.
Here’s why the other shoe hasn’t dropped yet, but where it might.
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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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After years of following and reporting certain banking indicators for hints about how liquidity is impacting the system, and vice versa, that’s the question I’m now asking myself.
Well, there is an answer. And you need to know it! For your financial health, and for your sanity.
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There’s evidence that gold has shifted into trending mode, so I’ve added a few more mining picks to swing.
Following the crowd would have made you the most money. But now what?
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