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Whither yon Stool? 3/30/21

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After reading it again, I think I understood some of it. He's also more focused on the value of the currency than I am. I don't use it in my analysis. It's either an effect or tangential. 

I sure pay in everyday life though. I'm glad to see the USD strengthening again. In January it had dropped 13% since I arrived in Europe. That's a lot of inflation in 1 year. I'd love to see the EUR back around $1.08-$1.10. 

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The size of the Fed's balance sheet needs to be viewed in relation to supply of and demand for financial assets. That's the issue for us. The price of financial assets. The US Treasury creates so

I love Metastock. I've used it for 39 years! I started with it when I was a salesman/anal cyst with Herzfeld and Stern back in 1982.  

I had a market letter with them that I called Marketrac . Back then it was tres chi chi to drop the k after the c.  I have no idea why.  Maybe I did it because I didn't want it to look like Market Rac

I get the sense, he is very knowledgeable about the system.  However, he has been pro banks and the Federal Reserve. He has done a good job of understanding their game and how they operate. However, your analysis seems more time tested and consistent than many others I have read. Maybe not him, but oo many of these twitter stars have been broken clocks. 

 

My sense is that the Federal Reserve or the big banks are trying to reign in speculation. They may know the game is long in the tooth. They are using tools that give the appearance that the game is being fed liquidity but as you have uncovered, the banks are walking out the back door quietly until last week.  Example, the T bill pay downs. That crushed very short term rates while allowing some to simply deleverage rather than throwing back in the market.   He is saying the Fed could use RRP to bring short term rates back up and show they are still in complete control . However, this drains liquidity. The existing leverage and margin debt still remains. That's where your analysis really shines. At the end of the day they are still in the same shell game.

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3 minutes ago, DrStool said:

I've heard of it. Never tried it. 

I think I bought my copy 20 years ago. Never felt the need to upgrade to the real time version but I’m sure it’s better than what I have.  
 

I use Wave59 for most of my stuff. Pretty happy with it. 

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Just now, potatohead said:

I get the sense, he is very knowledgeable about the system.  However, he has been pro banks and the Federal Reserve. He has done a good job of understanding their game and how they operate. However, your analysis seems more time tested and consistent than many others I have read. Maybe not him, but oo many of these twitter stars have been broken clocks. 

 

My sense is that the Federal Reserve or the big banks are trying to reign in speculation. They may know the game is long in the tooth. They are using tools that give the appearance that the game is being fed liquidity but as you have uncovered, the banks are walking out the back door quietly until last week.  Example, the T bill pay downs. That crushed very short term rates while allowing some to simply deleverage rather than throwing back in the market.   He is saying the Fed could use RRP to bring short term rates back up and show they are still in complete control . However, this drains liquidity. The existing leverage and margin debt still remains. That's where your analysis really shines. At the end of the day they are still in the same shell game.

Well, RRPs don't drain liquidity, and can't move rates. They're just overnight deposits with a different name.  

There's no voluntary deleverage in my opinion. Big banks never voluntarily reign in speculation. And the Fed is telling everybody that there's nothing to see here, move along. 

This is a forced march because of massive losses on leveraged positions. Nobody is doing this voluntarily. My surmises is that most of the dealers, virtually all owned by very big multinational banks, are walking dead men.

The Treasury market is in deep shit. And that's why the Treasury got a head start on shrinking its cash pile by doing paydowns rather than wait and just spend it for stimmy. 

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I love Metastock. I've used it for 39 years! I started with it when I was a salesman/anal cyst with Herzfeld and Stern back in 1982.  

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I had a market letter with them that I called Marketrac . Back then it was tres chi chi to drop the k after the c.  I have no idea why.  Maybe I did it because I didn't want it to look like Market Rack.  Like a cheap discount store or something. 

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JUST MUSING...

so many opinions on so much stuff.."market crash" "market to the moon" "Gold crash" "gold to the moon" "Dollar crash" " Dollar to the moon" on and on ....so many opinions, so many charts, so much YADA YADA YADA...... the one thing that we can be sure of is what the FED has decreed "NO HIGHER RATES"...that is the only thing ....having said that i suspect a distinct possibility is  we go into equilibrium mode ...Some stocks up some down...Dollar up and down...gold up and down...but quality high paying divy stocks go into a quiet bull until the each one of them hits 2.5% or so....then they start trading ranges depending on how they perform and how much they increase or decrease their divy...

and for the next 15, 20 years...we have normal  bear and bull markets ... that ebb and flow just like the 60' 70's  ...

just musing about what nobody is predicting

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12 minutes ago, DrStool said:

Well, RRPs don't drain liquidity, and can't move rates. They're just overnight deposits with a different name.  

There's no voluntary deleverage in my opinion. Big banks never voluntarily reign in speculation. And the Fed is telling everybody that there's nothing to see here, move along. 

This is a forced march because of massive losses on leveraged positions. Nobody is doing this voluntarily. My surmises is that most of the dealers, virtually all owned by very big multinational banks, are walking dead men.

The Treasury market is in deep shit. And that's why the Treasury got a head start on shrinking its cash pile by doing paydowns rather than wait and just spend it for stimmy. 

This is why I enjoy your work. I read others but something does not add up at the end of the day. When I play out their entire thesis, we are still over leveraged and the debt needs to be serviced or extinguished. Yet the Fed's  balance sheet keeps expanding. Logically, that leads me back to your work.

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The size of the Fed's balance sheet needs to be viewed in relation to supply of and demand for financial assets. That's the issue for us. The price of financial assets.

The US Treasury creates so much supply of securities, that the market could NEVER absorb it on its own. The Fed must provide the demand. This started with the first TARP, which ironically the market was able to absorb on its own because there was so much panic that the world massively panicked INTO Treasuries. At that time, Primary Dealers were net short Treasuries. 

Fast forward a dozen years and everybody is filled to the gills with long Treasuries, and leveraged to the nth degree to carry them. Therefore the Fed must print enough money to buy enough or fund enough of the Treasury supply to keep prices high and yields low.  Ever since QE1, the magic number has been 85-90%. 

The relentless drop in prices tells us that at that rate today, the Fed isn't creating sufficient demand to absorb enough supply to keep prices stable. Dealers and institutions are so stuffed with inventory and overleveraged that they can't take another dime of new supply. The market has been choking on this shit since last August. The Fed reduced emergency QE in July. Direct cause and effect. 

In other words, the Fed is too tight at the given level of supply.  And supply will double soon.  We're about to see the MMT crowd face their come to Jaysus moment. 

Then what will the Fed do, and when will it do it? Those are the two great questions. We answer them based on the Fed's historical behavior. The Fed is people. People behave in similar ways in similar situations. 

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