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The Final Backstop- None- Professional Edition

The Fed released its H41 balance sheet report, money supply, commercial paper, and primary dealer data on Thursday and the MBAA released its mortgage applications data. The Fed shrunk its balance sheet for the 5th week in a row in spite of big increases in TAF and CPR. Meanwhile, FCBs continued to binge on Treasuries while dumping GSE paper. The Fed’s program to buy MBS and Agency paper isn’t working as spreads between GSE debt and Treasuries continued to widen. Treasury yields soared as they face a massive surge in Treasury supply.

At the same time the dollar rallied as the demand for dollars to pay off debt continued strong. This liquidation trend is causing money supply data to surge as cash pours in to institutional money market funds and non-transaction deposits in bank, much of it backed by government guarantees of one form or another. The illusion that these numbers represent money can continue as long as the holders do not demand cash. The assets to fund any large scale runs on the banks or money market funds do not exist. The Federal Government better hope that its ability to sell debt to fund the bailouts and backstops isn’t curtailed, because if that happens, there will be no backstop.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? 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. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

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