Liquidity Trader – US Government Revenues

Analysis of real time Federal revenues as they signal economic activity and likely changes in Treasury supply. Resulting market strategy recommendations. 8 reports each month. Click here to subscribe. Now published at Lee Adler’s Liquidity Trader.

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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.

You Have No Idea How Bad This Really Is

Federal Withholding Tax Collections Chart

In normal times, the Federal Government has a revenue windfall in April, and runs a large surplus for the month. Revenues are typically at least 140% of outlays. Even more in good years.

Revenues covered just 24% of outlays in April. We borrowed 76 cents of every dollar the Federal Government spent last month.

We knew this was coming. The questions now are how long it can last, when it will start to recover, and whether it might get worse.