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Liquidity Noose Tightens On The Bond Market- Here’s Why Stocks Are Next

Treasury auction demand has risen along with supply recently but bond prices keep falling and yields keep rising. Why? Because buyers must liquidate bonds in the secondary market to raise the cash to buy new issues. That’s just one sign of the tightening liquidity noose that is strangling the markets. There are more. Here’s what they are, and why you…

Stocks at a Crossroads

The market is again at a crossroads. A strong start to this week could trigger buy signals on the 10-12 month cycle. But bears could stay in control if certain things happen. This report covers the triggers for both scenarios.

Posts from Other Publishers

Please, I’m Begging You, Forget The Economy

I got an interesting comment the other day on one of my columns on Money Morning, and it really points up a recurring misunderstanding that I see about the economy and the markets. So with apologies to Jon, I’m going to use him as a quick object lesson this weekend. (Thanks for commenting, by the way!)

Jon: The author, in my opinion, is off base. Consider that interest rates were manipulated by the Federal Reserve and their counterparts around the world, for what reason? The answer was to stimulate the world economies because at that time we had excess manufacturing capacity worldwide.

To a lesser extent we still have excess capacity but less so than 10 years ago. The Fed has not lost control but it will be tricky to balance the inflationary forces against lessened overcapacity to normalize rates and shrink its balance sheet.

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The post Please, I’m Begging You, Forget The Economy appeared first on Lee Adler’s Sure Money.

Here’s Who Isn’t Buying T-Bills (And Why That Should Scare You)

T bill issuance continued its upward climb in April despite the Treasury doing a massive mid-month paydown using all that cash it got from mid-April tax receipts.

Dealer takedown of the bills at auction was flat, as the Fed increased its cash withdrawals from the banking system under its bloodletting, aka “normalization” program.

Cash is the dealers’ lifeblood. Sure, they can leverage up, but cash is the basis for that. Under QE, there was always more cash. Under the Fed bloodletting, dealers will have less and less cash to play with.

Meanwhile demand for T-bills from investment funds continued to soar. Since the funds weren’t heavy in cash, this demand must come from them liquidating other investments. Therefore, the declining availability of cash, and the associated rise in interest rates will continue to suck the lifeblood from stocks and bonds as more funds opt to hold T-bills in lieu of bonds and equities. 

The Fed has published a schedule of increased draining operations through October of 2018. Then it will maintain a crushing pace of withdrawals until it achieves a “normalized” tight reserve position on its balance sheet. That should take until mid-2020.

Over the next 2 years, dealers will be starved of cash and other buyers won’t be able to pick up the slack because they too will have less cash on balance. Bill rates will continue to rise, as they have been, and stocks should come under increasing pressure. The Fed will be forced to rubber stamp rising money rates by announcing increases in the Fake Funds target rate. That’s a shell game. The real action will be in the secondary market ratees of various maturities of T-bills, where the rise has been relentless, and should continue to be.

Today, I want you to look closely at this chart and notice who isn’t buying!

That flat purple line and the slow moving blue line are very bad news for the Treasury market (and, via ripple effect, for the stock market, and for you).

The post Here’s Who Isn’t Buying T-Bills (And Why That Should Scare You) appeared first on Lee Adler’s Sure Money.

Welcome Back To The Wasteland

I believe if you were to ask most people their definition of the worst economic case, they would respond with some description of a crash. An exceedingly large contraction that spares practically no one, destroying much in its path. Like what followed 1929, that would seem to qualify. It’s why we spend so much time…