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What Rabbits May Come May Come Must Give Us Pause

Recent panic capital flows into the US have increased liquidity, distorting the Treasury market, which has pulled funds out of equities, sending stock prices lower in the process. If the flow of deposits into the US slows, that could cause a condition where liquidity is insufficient to support the Treasury market, and both markets could weaken simultaneously, as opposed to the current condition where one rises at the other’s expense.

There have been indications in the past two weeks that those inflows have begun to slow, and we saw the results of that expressed as a return to falling stock prices last week. Any further decline in these liquidity measures should result in even greater declines for stocks and should begin to reverse the rally in the Treasury market. The question may be what the Fed will do to prevent that from happening. Doing the Twist is not the answer. We’ll have to see if Ben has another rabbit up his sleeve.

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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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