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When Will The Fed Resume QE?

This is an excerpt from the Liquidity Trader Pro Treasury Supply and Demand Report. Subscriber download links to complete report below.  

Primary Dealers were sellers last week in both the coupons and the futures as they continued to hold larger long positions in Treasury coupons than they have for several years. Conversely, their long position in the futures continues its downtrend of the past year, reaching a new low. They remain moderately long the futures, but they appear to be persistently selling futures into strength while they maintain a modest net long position in the coupons.

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August is usually a month where Treasury supply pressures both stocks and bonds but this year Treasury supply was light. Lighter than usual supply should continue through September. This would normally be a bullish factor for both stocks and bonds. However, other sources of supply, or demand depressants, have pressured prices, particularly money destruction in commodities, emerging markets, and especially China.

As long as Treasury supply remains relatively light, tracking the various classes of buyers, particularly dealers, US commercial banks, and foreign central banks will give us key insights into the outlook for both stocks and bonds. Supply may be a benign influence, but if buyers are pressured elsewhere, they’ll pull their bids and prices will decline. The longer that dynamic continued, the more likely it would become that the US economy would weaken, the US deficit would widen, and Treasury borrowing would increase, putting more pressure on securities prices.

The issue at that point would be when would the Fed resume QE.

Shrinking Treasury Supply

Shrinking Treasury Supply

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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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