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TBAC Report Shows Why We Are Doomed

So the debt ceiling thing is “solved” but that may have been the least of the market’s problems. If my numbers are correct, the Treasury will need to raise money in the coming week that it hasn’t told the market about yet. My swaguesstimate last week was that they would need $96 billion of which they picked up $20 billion with a “surprise” cash management bill that settled Friday. You can read (or review) this about that, among other things, here. The latest available data suggests that my estimate was too high, but that they will still need another CMB this week.

Meanwhile, S&P finally did the dirty and dropped the D-bomb bowl splasher at 9:30 on a summer weekend Friday night. There are some people wondering about the timing. I’m not. It seems to me that the Primary Dealers, who are among S&Ps largest clients, finally called in a favor. They have been getting destroyed on the Treasury short positions which they have held for more than a year. The bond rally has been forcing them to exacerbate their own predicament by buying in their own short positions, as well as dumping stocks and pulling their bids on everything they make markets in. They are unable to maintain orderly markets. Chaos reigns. We’ve seen this act before, in the fall of 2008. The Fed had to rescue the dealers from bankruptcy at that time. A little Treasury downgrade from S&P under the circumstances seems not coincidental.

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