Liquidity Trader

Reports on the Fed and Treasury, Primary Dealers, real time Federal tax collections, foreign central banks, US banking system, European banking system, and other factors that affect market liquidity. Resulting market strategy recommendations. 8 reports each month. Click here to subscribe. Now published at Lee Adler’s Liquidity Trader.

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Bloomberg US Treasury (BUST) Channel Sends Bullish Signal

In the mid month QE update, I concluded the intro summary with this warning:

1/16/21 At this point, it seems like we are on the edge of the precipice. The risks are enormous. At the very least, I don’t see the likelihood of significant upside for either stocks or bonds.

Likewise, this could very easily go south in a big way. The Fed would need to act. Would it be too late? Would the market even respond?

You Can See How Dark Matter and Dark Energy Drive Stocks Higher

Stock market analysis requires many disciplines. Unlike, physics, for example, it’s not rocket science. Hell, it’s not even science. But while physicists and astrophysicists understand more and more about how the universe works, there is much more that they don’t understand. For every theory that they confirm, more questions arise.

They say that approximately 80% of the mass of the universe is “dark matter.” They don’t know what it is. And there’s “dark energy,” that they don’t understand either. They see their effect, but they can’t see the cause, and don’t know what either of them is. So they observe and measure the effects, and make predictions and develop theories based on that.

Here’s Why Front Loaded Stimulus Will Be Catastrophic for the Market

Both bonds and stocks have weakened over the past 2 weeks. It’s a sign that the Fed isn’t supplying enough QE. We’ve known for a long time that it wasn’t enough to support twin bull moves in both asset classes. Have we reached the tipping point where it’s insufficient for either to move higher while…

Look Out Bears, We May Be Headed for Excess QE

The Fed continues to fund roughly 85% of new Treasury issuance. It affirmed at last week’s FOMC meeting that it won’t cut QE for the foreseeable future, and it will add, if needed. That means that if the Treasury needs to borrow more, the Fed will add more QE.

But it’s now apparent that the Treasury won’t borrow more for the foreseeable future. The new stimulus bill that we now know is about to pass will cost $900 billion. But the Treasury has $1.6 trillion in cash on hand.

This has huge implications for the stock and bond markets.

Fed Balance Sheet Shows Bears To Float Like Butterflies, Sting Like Bees

The Fed’s policy remains stable at about $170 billion per month in QE, give or take a few billion depending on the level of MBS replacements. The balance sheet is growing on trend.  The stock market is tracking with it, as usual.

This will lead to a huge problem when the economy begins to react to enlarged stimulus.

This report discusses how to position trading strategy to take advantage.

The Stimulus “Magic Bullet” Is Bearish

Withholding tax collections were relatively stable through November. But the 5 day average ticked a hair below November’s low here in early December. New lows would suggest that December’s jobs data will be awful, which will add to the likelihood of more stimulus, both fiscal and monetary. Whether that’s bullish or not depends on the Fed. The wrong fiscal/monetary balance could ignite a conflagration.

The Big Dealer Leverage Brainfart

Sometimes the mouth goes faster than the brain.

I chat with Lindsay Williams on his Strictly Business Podcast, once every couple of months. When I spoke with him on Thanksgiving Day I said something that I immediately realized was wrong. I said that there’s no way to know how leveraged the Primary Dealers are in their bond portfolios.

Of course, that’s wrong.