Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also provide analysis and charts for David Stockman's Contra Corner which I developed for Mr. Stockman. I’ve had a wide variety of finance related jobs in the past 44 years, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today.

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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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).

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The One Tax Trump Didn’t Destroy – And What It Means for Your Money

Today I want to take a bit of a deep dive into the latest tax collection data and what it tells us about the coming market accident.

Tax collections surged in April on a massive gain in individual non-withheld income taxes. On the other hand, social security taxes, which weren’t impacted by tax law changes, showed no gain on an inflation adjusted basis.

The theme remains that those at the top of the wealth and income pyramid are skewing the economic data to the plus side while the bulk of workers and consumers are falling behind. It’s a tale of two economies, with the structure of the US economy being hollowed out over time.

But that doesn’t matter to the Fed. It only looks at top line growth. The tax data suggests that economic data will remain strong, encouraging the Fed to continue with its bloodletting program of draining money from the banking system.

The massive tax windfall enabled the Treasury to temporarily pay down $133 billion in debt in mid April, but it began net borrowing again at the end of the month. I covered that issue in the Treasury updates and in this report last month. We know that that was almost certainly one-shot deal. It is unlikely to be repeated. We can only guess as to the cause, but it may be related to capital gains taxes flowing from the heavy selling of stocks in the first quarter.

That’s a double-edged sword. Another big market selloff could lead to another surge in estimated taxes for the mid July due date. But both the stock and bond markets will be lower. The bond market in particular is doing very badly with the 10s now trading at 3.09 and surging. This is a clear technical breakout in yields. There can no longer be any doubt that bonds are in a bear market. And it’s going to get worse. Stocks will follow. 

With another surge in capital gains taxes the Treasury may pay down some debt in the latter half of July, which would give the markets a little boost. But the trend of lower highs and lower lows will be clearly established by the second half of the year. And as the Fed increases its withdrawals from the system, a market accident awaits.

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