Reverse Digital Confabulator 5/1/2020

[fxfox]

1 hour ago, SiP said:

Treasury’s $4 Trillion Funding Task Signals Record Auction Slate

The majority of dealers also expect the government to signal larger sales are ahead for notes of all other maturities, as well as floating-rate and inflation-linked securities

The Fed has trimmed its Treasuries buying to $8 billion a day, from a peak of around $75 billion as calm has returned to the market.

https://www.bloomberg.com/news/articles/2020-05-03/treasury-s-4-trillion-funding-task-signals-record-auction-slate?sref=eo0IIyEe

That‘s basically that what Doc told us too.

If the FED does nothing the market will crash, that‘s pretty sure. So my gut feeling says, that by end of the comming week they will pull another rabbit out of the hat. They will do this around the NFP numbers which will be the worst economic number the world has ever seen, so the FED will do something special.

[DrStool]

On 5/2/2020 at 1:40 PM, Jorma said:

When a T Bill matures it disappears off the market. It disappears off the SOMA too. The money the Treasury pays to the Fed then disappears as well, except the .001% gain which it gives to the Treasury, after expenses of course..  Or what am I missing.

Well to the extent they don't roll over that's true. But the only time in history when the Fed didn't roll over was during the "normalization." Other than that, the Fed has always rolled over its holding. The Fed has no intention of allowing these bills to mature. They will be rolled over just like they always are. The Fed would need to change policy for that not to happen. 

The idea that bills will mature and will need to be resold in the market is not correct. 

[DrStool]

Federal Budget Deficit Hit A Trillion A Month

 1 - LIQUIDITY TRADER MAY 3, 2020

The Federal deficit hit $1 trillion in April. That’s a cool 1,500% increase year to year. That’s for one month.

This is based on the April 30 Daily Treasury Statement month to date totals. It is an estimate based on my simple subtraction of outlays from revenues. It is not official, and the official number may differ when the Monthly Treasury Statement is released on May 13.

Still, a trillion, is a trillion. And the final, official number should be in this ballpark. This is an increase of $941 billion from the April 2019 deficit. Keep in mind that back in the “good old days, before the 2017 tax cut and spending increase, April typically saw a surplus. So even before the pandemic, these numbers were bad.

Obviously, this blowout is due to the Pandemic Pandemonium Panic Relief Programs spending. But it’s also partly due to the plunge in revenue, and embedded increases in regular budgetary spending.

Here are the current horrible numbers, along with the immediate outlook, and what it means for stocks and bonds.

Subscribers, click here to download the report.

Get this report and access to past reports.  Read Lee Adler’s Liquidity Trader risk free for 90 days!

[DrStool]

On 5/2/2020 at 4:06 PM, SiP said:

The Treasury is auctioning t-bills again when the first wave of t-bills expires. Again and again. Thats a permanent rollover of debt.

You said it better. It's essentially a permanent rolling loan with a floating rate. 

[DrStool]

On 5/2/2020 at 6:39 PM, Jorma said:

Sure but unless the Fed buys the new paper with the returned principal then SOMA shrinks. I mean the Treasury  does redeem the principal back to the Fed right?  

The Fed used to do only T Bills and that was called POMO?  So they don't redeem the T Bills?

The Fed never redeems its holdings. It just doesn't happen. The normalization experiment was the exception that proved the rule. It can't be done. The market can't absorb it unless other central banks are picking it up. During "normalization," the ECB and BoJ had also stopped printing. After a few months of that and the Fed allowing a few billion of its holdings to mature, the market completely seized up last September.  Once they started down this road of funding defecates, they couldn't go back. 

It can't be done, and they won't try it again.  

The US is Zimbabwuela. 

[Jorma]

29 minutes ago, DrStool said:

The Fed never redeems its holdings.

Bingo. 

There is a word for that. Default.

I see no impediment to the Fed neglecting to  redeem it's corporate debt then.  No Maiden Lane there I guess where assets  were discounted or written off.  Instead, free capital for corporations. Unlimited. Elon can go to Mars.  

I wonder if they will be so kind to muni issuers. Probably not. 

[jp6]

 

[DrStool]

48 minutes ago, Jorma said:

Bingo. 

There is a word for that. Default.

I see no impediment to the Fed neglecting to  redeem it's corporate debt then.  No Maiden Lane there I guess where assets  were discounted or written off.  Instead, free capital for corporations. Unlimited. Elon can go to Mars.  

I wonder if they will be so kind to muni issuers. Probably not. 

No. The word is monetization. They just pretend that it's a loan. 

[fxfox]

31 minutes ago, DrStool said:

No. The word is monetization. They just pretend that it's a loan. 

That‘s how the FED saved Boeing, right?

[fxfox]

Futures tumbling like a dove

[Jimi]

1 hour ago, fxfox said:

Futures tumbling like a dove

Doves tumble?

More like a MIRV.

[SiP]

ES lower band of channel.

NOW, this is important level.