Support the Wall Street Examiner! Choose your level of support to receive a free proprietary report as my thanks. Click the button below to see your options. Become a Patron!

Primary Dealers and Their Biggest Client Off The Hook For Now, What Next?

The composite liquidity indicator edged higher last week, continuing a slow but steady uptrend. In February and March, the indicator had accelerated upward away from its 39 week moving average. That acceleration has slowed, but the indicator continues to advance.

With somewhat less abundant liquidity, the government and Primary Dealers have targeted that liquidity for the Treasury market, trying to keep yields as low as possible on behalf of their primary client, the US Government, while trying to give themselves time to distribute their unusually large long positions, most of which were acquired near or above current prices. That run to 2.40 on the 10 year a month ago was an intolerable situation for them at the time. Now that they’ve put themselves in position to work off some of the inventory at better prices, at some point they will want to stand aside from taking on so much Treasury inventory, and look elsewhere. As a result, both bond and stock prices could face crucial inflection points in the weeks ahead.

I would expect the liquidity indicator to develop a negative divergence before the stock market tops out ahead of the next major cyclical bear market. So I strongly suspect that the recent stock market malaise is just a matter of the market owners shaking the stock market tree to benefit their Treasury positions, and their biggest client’s absolute necessity of keeping its borrowing costs as low as possible. In weeks such as last week when the government must roll over a huge amount of long term paper, not to mention adding new paper to that pile, the focus will always be on funneling available liquidity toward that purpose, thus keeping the government’s borrowing costs low. Last week the market’s managers were quite successful at that, pushing Treasury yields down sharply through the week.

In those alternate weeks where Treasury supply is confined to short term bills, like this week, the dealers usually find reasons to support stocks while they let yields drift up a bit. That didn’t quite happen on Monday because the market suffered a bit under the weight of settling $23 billion in net new Treasury paper sold last week.

Now that that’s out of the way, the dealers can focus on the $50 billion windfall that’s coming on Thursday.

Get the full sized chart with analysis in the Professional Edition Click here to download complete report in pdf format (Professional Edition Subscribers) including 104 pages of charts and clear, cutting edge analysis that you can use to gain an edge in the market. Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund. It’s that simple. 30 day risk free trial for new subscribers. Click here for more information.










3 month subscription to the Wall Street Examiner Professional Edition, Money-Liquidity-Real Estate package, renewing automatically unless canceled.

Price: $89.00

By clicking this button, I agree to the Wall Street Examiner’s Terms of Use.

Stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, along with regular updates of the US housing market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Try it risk free for 30 days. Don’t miss another day. Get the research and analysis you need to understand these critical forces. Be prepared. Stay ahead of the herd. Click this link and begin your risk free trial NOW!

Enter your email address in the form to receive email notification when Professional Edition reports are posted.

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. 

Tags:

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.