Fact is that deposits are declining dollar for dollar with QT. Nobody is fleeing the banking system, but they are fleeing banks perceived as weak to go to stronger banks. I will have more on that in a Liquidity Trader update to be posted later today. It’s imperative to have a grip on this if you want to understand what to expect in the markets.
To illustrate, here’s a graph of QT, as shown by the Fed’s System Open Market Account (SOMA) which is its securities holdings, vs. the graph of total commercial banking system deposits. They both peaked approximately in May of last year. As you can see, the decline in deposits approximately equals the amount of Fed QT. The Fed is literally destroying deposits with QT. This is something that I have warned about ever since the Fed started even thinking about giving birth to QT.
Interest rates are rising because neither Congress nor the Almighty gods of economism have repealed the law of supply and demand. The US Treasury keeps issuing more paper, and the Fed isn’t buying most of it. The market can’t buy all of it at a stable price because it doesn’t have the cash from the Fed to do so, ergo prices (the inverse of rates) have been falling, and must continue to trend lower for as long as the Treasury keeps putting more paper on the market and the Fed doesn’t buy it or fund it.
NO ONE SHOULD BE SURPRISED THAT THIS IS HAPPENING! IT’S CAUSE AND EFFECT GODDAMMNNITTERSCHPLUNGERDERFERHAUZENZEE YEITZERSCHNITELUBERHAFFENLAUBERLUNGENZESCHTOFFENPLOTZ (German for god damn it). And Jimbo is right. The Fed can’t reverse course without severe consequences.
And long Treasury investors are also feeling the supply pressure. Rising yields are the other side of the coin of falling prices.But hedge funds have a record short hedge on this. And I mean record. It’s gigunda. So that could blow up. Keep an eye on the 3.89 area. Again, more coming up.
Now that I’ve got that off my chest let’s look at the hourly chart of the ES, S&P 500 fuguetures to get a feel for what may or may not happen today. I want to cover all the bases so that no matter what happens, I can claim I was right. 57 years of observing Wall Street pundits taught me that. Talk loud and fast and nobody will care that you are talking your book and shearing the sheeple.
So, a 5 day cycle projection of 4290 has been hit. It’s about 5 days from the center of the last double top, and the hourly indicators are on the verge of triggering sell signals. So I’d say that we’re at least starting to top out this move for now. Probably just for a 2 day breather.
But BEWARE, if they don’t break 4275, then this sucker is trending and 4300-4310 would be the next stepping stone to a gigantic move. At least my chart picks are doing really well for a change 😁, and will continue to do well if this scenario takes hold.
For moron the markets, see:
- The Bulls Are Full of It June 4, 2023
- Incomprehensible, That’s What You Are June 2, 2023
- Swing Trade Chart Picks – Growing Long Side Gains June 2, 2023
- Gold Gets Closer to the Bottom May 30, 2023
- Modestly Hedged Dealers, Record Short Hedge Funds Suggest Disaster Ahead May 25, 2023
- The Most Widely Forecast Economic Disaster In History May 16, 2023
If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam folder.
If you’re serious about the underlying forces of supply and demand that drive the markets, join me!
