DrStool Posted February 26, 2021 Report Share Posted February 26, 2021 Primary Dealers were holding record levels of inventory with record levels of leverage since late Q3 2019. It was all hunky dory as long as bond prices were rising, or at least stable. The mirror of that is yields falling, or stable. Ever since then I regularly warned about this in my Liquidity Trader reports. I said that it's a two way street, and that when the inevitable decline in Treasury prices started, it would devolve into big margin calls to the dealers. I have tracked these trends of dealer inventories and repo financing for years. The dealers had purchased the Treasuries almost entirely using repurchase agreements (repo) where the lenders would put up almost all the cash in return for the dealers pledging the bills, notes and bonds they bought with it as collateral for the loans. I predicted, and this is not rocket science, obviously, that as prices fell, the lenders would demand more collateral. Duh. Those collateral calls would lead to forced liquidation in all asset classes, particularly stocks. While these are patently obvious facts to any idiot paying attention to them, and this is where I come in, it seems that virtually no one was paying any attention to it whatsoever, outside of this one idiot. I posited first that a breakout in the 10 year above 0.80 would signal trouble ahead. When that didn't happen immediately, I doubled down and said, ok, well maybe the Maginot Line is 1%, but certainly the problem was there. I said that it's just a matter of time, and not too much more time. I've studied Primary Dealer bond inventory data and hedging data for many years. I knew they were exposed, but could not pinpoint an exact price level where the shit would hit the fan. But I knew it was inevitable, and told subscribers that month after month. I tend to be compulsive when I get an idea that flows out of my research. Very annoying, I know. But I have to tell it like I see it. We are now there. Contagion has begun. I would not be lulled into a sense of false hope by this double bottom in the S&P fucutures. Resistance is currently (5 AM NY Time) at 3845 and 3855-60. That comes down to 3850 when New York opens at 9:30. If they don't clear that, the lows will break sooner rather than later. If they do manage to clear it, then a quick run back to 3890-3900 would be in order, with a pitched battle likely at that level. Yesterday, the 10 year hit a price projection for this move of 1.60. Odds are that the selling should have maxed out yesterday, FOR THE TIME BEING. Those are based on the historical probabilities that go with this type of projection. It's not a guarantee that it won't get worse. Over the long run, it probably will. In the short run, as I've chronicled over the last week, the US Treasury has intervened in the market. If they continue with this level of intervention it should ameliorate the situation within the next few weeks. But there are more problems coming over the next several months. I'll flesh out that scenario in a Liquidity Trader update which I should get posted later today or tomorrow. Take a risk free trial now and don't miss a beat. You can also access all past reports. To post your observations, 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. Meanwhile, here's some free stuff I've written about this unfolding catastrophe. US Treasury Injects Another $30 Billion Into Market Treasury Announces It Will Inject ANOTHER $25 Billion For $125 Billion Weekly Total Treasury Announces It Will Inject ANOTHER $41 Billion Next Week Bulletin! Treasury Paying Down $55 BILLION RIGHT NOW to AVERT CATASTROPHE! Treasury Joins Fed to Try to Prevent Imminent System Collapse Primary Dealers are Already Dead Primary Dealers are Dead – Part 2 – Springtime Coming for Hibernating Bears FREE REPORT – Proof of How QE Works – Fed to Primary Dealers, to Markets, To Money Link to comment Share on other sites More sharing options...
Primary Dealers are Dead – Part 2 – Springtime Coming for Hibernating Bears FREE REPORT – Proof of How QE Works – Fed to Primary Dealers, to Markets, To Money
DrStool Posted February 26, 2021 Author Report Share Posted February 26, 2021 Buckle up boys and girls. The 5 day cycle projection is now 3750ish. Link to comment Share on other sites More sharing options...
DrStool Posted February 26, 2021 Author Report Share Posted February 26, 2021 Nice looking bottom pattern on the 30 minute bars. Fake? Link to comment Share on other sites More sharing options...
DrStool Posted February 26, 2021 Author Report Share Posted February 26, 2021 The Treasury poured $96 billion into the market over the last 2 days and has another $55 billion coming next week. This is all on top of what the Fed settles in QE each week. But Treasury also is issuing $174 billion in new coupon paper. So I'd imagine there will be a lot of bouncing around. https://liquiditytrader.com/index.php/2021/02/18/treasury-joins-fed-in-spewing-money-into-a-black-hole/ Link to comment Share on other sites More sharing options...
DrStool Posted February 26, 2021 Author Report Share Posted February 26, 2021 1 hour ago, DrStool said: Nice looking bottom pattern on the 30 minute bars. Fake? Oh yeah. Link to comment Share on other sites More sharing options...
DrStool Posted February 26, 2021 Author Report Share Posted February 26, 2021 I can't recall the last time I have seen this many failed swing trade buy signals as the ones over the last two weeks. They're all failing. Every one. This could mean something. Link to comment Share on other sites More sharing options...
DrStool Posted February 26, 2021 Author Report Share Posted February 26, 2021 What, I don't know. But definitely something. Link to comment Share on other sites More sharing options...
DrStool Posted February 26, 2021 Author Report Share Posted February 26, 2021 I'll let you know after we see what it is. This is how CNBC and the Wall Street Journal do it. Link to comment Share on other sites More sharing options...
DrStool Posted February 26, 2021 Author Report Share Posted February 26, 2021 And the Fed, of course. Link to comment Share on other sites More sharing options...
DrStool Posted February 26, 2021 Author Report Share Posted February 26, 2021 The Fed drives the financial system by looking in the rear view mirror. Link to comment Share on other sites More sharing options...
Jorma Posted February 26, 2021 Report Share Posted February 26, 2021 At this rate I'm going to have to turn my laptop upside down so the 'all patterns resolve bullishly' rules stands Link to comment Share on other sites More sharing options...
DrStool Posted February 26, 2021 Author Report Share Posted February 26, 2021 Turns out, it was just a consolidation. Link to comment Share on other sites More sharing options...
DrStool Posted February 26, 2021 Author Report Share Posted February 26, 2021 3 hours ago, DrStool said: Buckle up boys and girls. The 5 day cycle projection is now 3750ish. Still true. Link to comment Share on other sites More sharing options...
T_Slim Posted February 26, 2021 Report Share Posted February 26, 2021 With all this whiplash, I'm gonna need a neck brace for sure. Link to comment Share on other sites More sharing options...
potatohead Posted February 26, 2021 Report Share Posted February 26, 2021 21 minutes ago, DrStool said: Turns out, it was just a consolidation. Jesus, I am going to have to put these on to follow that chart.... Link to comment Share on other sites More sharing options...
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