Liquidity Trader Complete

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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Beware of the Rub That Will Irritate Markets

We know that total liquidity is still growing. The Fed is still printing and pumping money into the system at an historic rate. That rate is well above the norms of the original QE back in 2009-10, but well below the peak panic levels of March and April. The Fed has been dialing it back from the extreme pumping it reached at the market bottom in March.

Ay, but theres’s a rub, and it’s not barbecue. It’s an irritant. And the markets won’t like it.

Long Live the Dead Cat Bounce – It’s Dead

The Monthly Treasury Statement for May confirms that the economy rebounded during the month, but more recent data through last week suggests that the rebound has already expired. Signs of renewed weakness come when the numbers are still far from a full recovery. The economy is beginning to weaken again, starting from weakness.

That’s relevant because it means that the Federal government will need to continue to issue massive amounts of debt. It may not be quite as much as in March and April, but it will still be at least double past peak levels.

We also know that the Fed has sharply cut the amount of that debt that it is directly absorbing or financing.

Here’s what this means for your investing strategy.

Show Me the Money! See the Market.

US Commercial Bank data had been sending warning signals that all was not well for at least a year before the stock market crashed. I chronicled that in these reports.

The warning signals came to fruition in February and March.

But then the Fed stepped into the breach and went crazy. What the Fed did, and is still doing, went beyond “unprecedented.” It was nuts.