Treasury issuance has caught up with QE. There are no more excess funds lying around for dealers to use to mark up stock and bond prices. The balance has shifted. It’s not as bullish as it was, that’s for sure. And it could get much, much worse in the weeks ahead before the Fed reacts.
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In normal times, the Federal Government has a revenue windfall in April, and runs a large surplus for the month. Revenues are typically at least 140% of outlays. Even more in good years.
Revenues covered just 24% of outlays in April. We borrowed 76 cents of every dollar the Federal Government spent last month.
We knew this was coming. The questions now are how long it can last, when it will start to recover, and whether it might get worse.
The monthly Treasury Statement data illustrates the depth of the budgetary crisis that have engulfed the financial markets. It showed that the Federal Government had to finance a deficit of $742 billion for the month. But that apparently doesn’t include a little cash flow matter of $230 billion the government paid out in tax refunds in April. That’s a gargantuan number that we saw in the Daily Treasury Statement data that I reported last week. Therefore on a cash basis, the deficit was more than a trillion. That had to be financed through debt offerings.
The Daily Treasury Statement data through May 12 shows that the situation is not only not getting better. It hasn’t stopped getting worse. The worst readings on withholding tax collections just happened Friday and Monday. Here’s how it looks now, and guidance on how we’ll know when it’s beginning to recover.
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Gold is consolidating. Here’s what to look for to signal that it’s something worse.
Stocks are selling off this morning but the trend still favors the bulls. Here are the parameters to watch that would confirm, or signal a change.
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Macro liquidity has slowed slightly in recent weeks as the Fed has taken its foot off the accelerator. But it continues to grow at an historic pace. What does that mean for the short term and the long term.
Oh, wait.
There is no long term.
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The Fed has cut back its POMO purchases to an average of $8 billion per day of Treasuries and $6 billion of MBS this week. That’s down from $10 billion and $8 billion last week, and hundreds of billions in the peak of the panic in April.
The effects of that are beginning to show up in stock prices. Be prepared because here’s what happens next.
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Gold is consolidating. The uptrend will be safe as long as a key support level holds. This report looks at where to start worrying, and where the upside targets are if all goes well.
I am rescinding the comments I made last week about the long term trend. The Fed’s commitment to maintaining a bullish trend in stocks is now in doubt, and the long term indicators on the market index charts are ambiguous.
The outlook is rife with uncertainty. We don’t know when or if the Fed will re-deploy its tactical carpet bombing of deeply embedded, indigenous bearish forces.
It’s like the Viet Nam war. The Fed has overwhelming firepower, but it may not be committed to using it because of the astronomical long term cost fighting an entrenched enemy. We need to watch to the technical indicators closely to try to determine what each side is doing and will do, and which might have the upper hand.
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The Federal deficit hit $1 trillion in April. That’s a cool 1,500% increase year to year. That’s for one month.
This is based on the April 30 Daily Treasury Statement month to date totals. It is an estimate based on my simple subtraction of outlays from revenues. It is not official, and the official number may differ when the Monthly Treasury Statement is released on May 13.
Still, a trillion, is a trillion. And the final, official number should be in this ballpark. This is an increase of $941 billion from the April 2019 deficit. Keep in mind that back in the “good old days, before the 2017 tax cut and spending increase, April typically saw a surplus. So even before the pandemic, these numbers were bad.
Obviously, this blowout is due to the Pandemic Pandemonium Panic Relief Programs spending. But it’s also partly due to the plunge in revenue, and embedded increases in regular budgetary spending.
Here are the current horrible numbers, along with the immediate outlook, and what it means for stocks and bonds.
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The Fed just posted how much help it will give the market next week and son of a gun! It’s cutting again. The implications of this are yooge! Apparently Jaysus saves not! At least not the stock market. Doesn’t he care? Is this ritual sacrifice?
Here’s what you need to do now to protect yourself from Jaysus Powell’s Revenge.
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Lee Adler
