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Finally Getting that Liquidity Rally 4/26/22

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I am behind the 8 ball this morning, as I took it easy and did a little grocery shopping on this beautiful sunny Cote d'Azur day.

I'm enjoying my last two days in beautiful Cannes, as I prepare to move to my permanent home which I've purchased in Nice, right on Place du Pin for those of you who know the town. I'm very excited. 

If you have never been to the South of France, come! You will be enchanted. But don't come in summer. Too crowded. Come in the shoulder season of spring and fall, or even the low season in winter. It's fantastic any time of year. And by all means, contact me, and I'll spend a little time showing you my favorite spots. You can use the contact form on Wall Street Examiner or Liquidity Trader to get in touch. 

Now, as for the market today, the setup on the ES 24 hour S&P futures hourly chart still looks pretty bullish for today, despite the pullback here in the premarket. That will remain true as long as the hold above 4265. If they break that, all bets are off. The crash could resume. But I'm favoring it holding at this point. 

The test for the bulls would be to clear 4310. If they can do that it would establish a little bit of an uptrend that should carry to 4350. If they can't, then the trading range that develops is more likely to be just a way station to further stops on the downhill train. 

tvc_43ebb24428a11213528dafb16dd7f189.png

 

Meanwhile, look at the 13 week T-bill. If it makes it to 1.00 by the time of next week's FOMC meeting it might force the Fed to go .75. That would shock the shit out of the market.

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And look at the 10 year. We're finally seeing that Treasury paydown effect rally that I've been expecting, but boy is is puny. If they don't get it under 2.75 this week, we'll see 3+ immediately after the Fed circus. 

tvc_d44cd11a32beb2b44ff429c105cc90e2.png

Tons of Cash, Not In Use, Signals this Huge Change in the Market

 

I'm currently updating the gold report. Oh the humanity. Meanwhile, have a look, if you can bear to not avert your eyes. 

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And for the big picture:

If you're serious about the underlying forces of supply and demand that drive the markets, join me

If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter. 

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1 minute ago, Jorma said:

Either liquidity ain't what it used to be or maybe it's rallies.

The former. Paydowns without QE compared to when it was paydowns on top of QE. Now, they don't have the Powah.   

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19 minutes ago, potatohead said:

saw this. Is the reserve balance drop recently due to income tax payments and Treasury paydowns without QE? Money being extinguished? Does RRP show up in reserve balances?

 

 

"Reserve" balances are meaningless. It's just moving spaghetti around on the plate.  It's an arbitrary definition that's absolutely meaningless in practical terms. It has no effect whatsoever on systemic liquidity. This money just moved from bank deposits into the US Treasury as people paid their taxes. The Treasury will spend it over the next couple weeks and it will go back into the banking system. 

Look at total liabilities.  Virtually no change. There was no change in money in the system last week.  It just moved from the banks to the Treasury. 

image.png

Also, the issue is supply of AND DEMAND for money. Looking only at one side of the equation only gives half the picture.  

 

 

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When the Treasury pays down T-bills it puts money back into bank deposits. When it pays its regular expenses, it puts money back into bank deposits. 

 

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You know, following those fintwit bond guys could result in brain damage. Always consult with your doctor before using. 

😄

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24 minutes ago, DrStool said:

When the Treasury pays down T-bills it puts money back into bank deposits. When it pays its regular expenses, it puts money back into bank deposits. 

 

I originally thought that. then I assumed the reserve balance drop was due to the Fed just allowing Tbills to run off the balance sheet.

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The Fed is not allowing anything to run off the balance sheet yet. They are still rolling everything over. They will probably announce QT next week.  Then the balance sheet will start to shrink as they allow assets to run off. That will reduce the liability side and the entire banking system will start to shrink as money disappears into the black hole of repaying the Fed the money that it had lent to the US Treasury. 

 

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The fact that neither Treasury balances nor RRPs are counted as reserves is completely bogus. They are every bit as much money as the banks' deposits at the Fed. Total Fed liabilities are all money, just with different names.  

The focus on reserves alone is just one small piece of the puzzle. It reveals nothing. 

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1 minute ago, DrStool said:

The fact that neither Treasury balances nor RRPs are counted as reserves is completely bogus. They are every bit as much money as the banks' deposits at the Fed. Total Fed liabilities are all money, just with different names.  

The focus on reserves alone is just one small piece of the puzzle. It reveals nothing. 

We need to have a twitter spaces event with you. The trash that is posted as research is utterly amazing. 

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