The market had a big pile of new paper to settle last Monday, but then had plenty of POMO through the week and $18 billion in Treasury paydowns on Thursday. That should have been enough to send the markets higher. It was not. Treasuries did get a big boost but a little matter of a silver margin increase seemed to upset the apple cart and set off a contagion of selling in other investment segments. We are reminded that in February of 1980 a silver crash was associated with a selling contagion that took gold and crude down, along with a 20% decline in the Dow. They didn’t have the benefit of $25 billion a week in Fed cash being pumped into the market so this time the outcome should be different.
The TBAC report and forecast were released this week. As usual, they are looking for a stronger economy, allowing for a big reduction in T-bill supply in the months ahead. I think their assumptions on the economy are faulty. The report enumerates the economy’s problems, so the TBAC and Treasury are well aware of them, but they just chose to ignore them and concluded that the economy would grow above trend in the months ahead. The data on withholding, government stimulus, and Fed pumping suggest otherwise.
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