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A Beautiful Bottom 5/17/22

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They don't come any more perfect than this. 

An hourly close on the ES 24 hour S&P fuguetures would be bad news, bears. The 5 day cycle projection is already 4125. A breakout from this obvious base pattern implies a measured move target of 4280. All in one day? Not likely, but I would not rule out making it to the top of the green channel at 4166 by the end of regular trading in New Yak. 

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But let's say they get stuck here. If, at the end of regular trading the ES is below, say, 4060, I'd say, Pahtay ohvah! 

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3 hours ago, DrStool said:

But let's say they get stuck here. If, at the end of regular trading the ES is below, say, 4060, I'd say, Pahtay ohvah! 

Yes.

Let's say.

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Lee,

Could  the RRP been designed to stop t-bill rates from going negative or keep pressure on yields due to a shortage of available t-bills. Basically having RRP as another form of savings, this removes the normal market pressure of excess funds from t-bill paydowns seeking  fewer and fewer t-bills  (keeping rates artificially lower). Allows a t-bill market that can react or be pushed higher in yield due to the Fed’s directive to address inflation. RRP simply sucks that available money that would have  otherwise made it more difficult for short term t-bill rates to rise. Thus when the Fed raises rates, like you say, they are reacting to the market which has already moved. But it is the structure of RRP that has allowed the short term markets rates to move higher by tightening money flow into the T-bill market.  

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The Treasury has scheduled a mammoth $40 billion in T-bill paydowns for next Tuesday. They had been doing $15 billion on Tuesdays and $21 or $24 billion on Thursdays. This can only go on for a few more weeks as all the tax payments have been collected and processed into the Treasury's cash account, and they've started drawing it down day to day. 

Despite these massive injections of cash into the system, money rates continue to rise. 

tvc_512819f558ade5c414e95f4e41954ca6.png

 

 

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1 hour ago, potatohead said:

Lee,

Could  the RRP been designed to stop t-bill rates from going negative or keep pressure on yields due to a shortage of available t-bills. Basically having RRP as another form of savings, this removes the normal market pressure of excess funds from t-bill paydowns seeking  fewer and fewer t-bills  (keeping rates artificially lower). Allows a t-bill market that can react or be pushed higher in yield due to the Fed’s directive to address inflation. RRP simply sucks that available money that would have  otherwise made it more difficult for short term t-bill rates to rise. Thus when the Fed raises rates, like you say, they are reacting to the market which has already moved. But it is the structure of RRP that has allowed the short term markets rates to move higher by tightening money flow into the T-bill market.  

 

Yep. They had to provide a place for the money from the T-bill paydowns. I believe that the Fed expanded the RRP program to allow MMFs to participate around the time the Treasury started paying down T-bills in Feb 2021.  The alternative would have been for the Treasury to hold on to the cash, but it coudn't because the debt ceiling meant that they had to pay down short term debt while they continued to issue coupons. Had they held the cash it would mean that the Treasury account would be $2.7 trillion now instead of $900 billion.  

The Treasury and Fed worked this out together, way before they were talking about raising rates, but the theory the Fed espoused was that the RRPs would set a floor on rates. 

The Fed printed so much money during the pandemic, that they left themselves no way out. That money now must be extinguished to bring inflation under control. 

I don't think the Fed and Treasury were banking on tax revenues growing at double digits. That compounds the challenge.  

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They're trying to talk the economy down. All you hear is recession, recession, recession, or soft landing etc. Meanwhile, fact is that we are still in an inflation bubble.  

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Real retail sales were down 1% y/y. Sounds bad, till you consider March's -2.7%. Economy re-accelerated in April. Which is exactly what the tax data showed for April. But inflation is biting. 

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