Here’s The Evidence That The US Treasury is Bailing Out Stricken Primary Dealers

The bear market in Treasuries that started in August devolved into an outright crash last week. Meanwhile, evidence shows that cash in Primary Dealer accounts has exploded to the highest level in history, with the biggest weekly increase in history. There’s also circumstantial evidence that that cash came directly from US Treasury, away from the publicly visible means that we already saw last week.

We are not surprised there’s a crisis. You and I have been watching the situation deteriorate for months. My first guess was that the trouble would start when the 10 year yield crossed 0.8%, That was premature. It was just a preliminary. Then I guessed it would be 1%. Sure enough, within a few weeks after crossing that level, things deteriorated rapidly into last week’s climax.

While the Fed sat on its hands, saying, “Nothing to see here, all is well,” the US Treasury sent in the cavalry. As I covered in the bulletins I sent you over the past week, the Treasury has announced $160 billion in T-bill paydowns. These put cash directly into the accounts of those who hold the expiring bills. This includes dealers, banks, and big investment firms of all types.

Two of those paydowns, totaling $96 billion settled on February 23 and 25. The Treasury, no doubt working with the Fed, absolutely wants the crash in bond prices to reverse. They know damn well that the stability of the system is at stake here. I believe that we have passed the point of no return. They must get Treasury prices back up, or else.

The Treasury will almost certainly continue these cash injections. They still have plenty of money left to do it. It is still sitting on $1.38 trillion in cash.

But oddly, dealer cash accounts rose by more, and Treasury cash fell by more, than what we can account for with these paydowns, and the other things we know about. Here’s the evidence, the implications of it, and a strategy to potentially profit from the coming crisis.

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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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