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Yellen is My Hero 12/11/24

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DrStool Dean of Stock Proctology

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Yesterday, she warned about fiscal responsibility after spending the last 4 years having the US Treasury printing money like a drunken sailor with a printing press in the basement.

But I do remember in 2017 as Fed Chair she made the first real attempt to sink the Bismarck, that is to shrink the Fed's balance sheet. For that act, she was fired, and Jerry and the Pacemakers came in to reverse the policy, only to reinstate it in 2022 after the obscene expansion during Covid. 

This brings me to another issue. The other day, our esteemed Professor Jimbo of Down Under University posted the following:  

On 12/8/2024 at 1:08 PM, Jimbo said:

THE CONTINUOUS VARIABLE DEFAULT GAME 

1/ CVD stands for continuos varaible default....the FED by printing has enabled the US Government to continuosly default on its debt. It completely obviates the need for a "hard" formal  default.  

2/ Gold did really well in 2024....27% rise.  

3/ The defecit is a liquidity drainer and it's not going anywhere.

 

As to the parties of the first and second parts, I heartily agree, up to 2022 when the Fed ended QE. Since then, it has not been the enabler. Which brings me to the party of the third part. 

That the defecate drains liquidity is a misconception. As I have covered for the past year or so on the epicfanny I had about the defecate, the Treasury has used T-bills to fund most of it. And T-bills are money! Not when issued, but when used as collateral for repo. Which is how the bulk of them are purchased. As are most coupon issues. I have shown the proof of this month in and month out by the correlation between repo growth and Treasury issuance. There's no question that this process results in money creation. The US Treasury is thus printing money. It's not direct, but it works just the same at 97 cents on the dollar. 

o the defecate doesn't drain liquidity. The Federal DEFECATE ADDS money to the system. IT CREATES LIQUIDITY.  Therefore budget defecates are bullish. 

They accomplish this because T-bills are instantly convertible into ready cash through the majick of repo. It all hinges on the animal spirits of market participants, including banks, investors, and especially dealers. If they're bullish then prices rise, creating even more collateral, which creates more money, which pushes prices higher. Wash rinse repeat. 

It's a perpetual motion machine until it isn't. 

Meanwhile, back at the raunch, we have the daily look at the hourly ES, 24 hour S&P futures. Wedges to the left of us, wedges to the right of us, onward through the valley of death rode the 500. The point of resolution in the opening hour of NY trading appears to be 6042. Odds favor, but do not guarantee the upside. A 5 day cycle upturn is due, and hourly oscillators are in a bottom config. But bottoms sometimes fail. That's when crashes happen. 

In this case, neither crash nor meltup looks likely, as there are spport and resistance lines 10 points or so above and below current levels, and another 10 or so points beyond those. Once past 20 points, then we might see some action. Stock Cycles Point Upward but High Due Soon with S&P Near Projections – Technical Trader Report

17ykm8

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DrStool Dean of Stock Proctology

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Now using AI to rewrite posts for SEO porpoises. Check it out.  Veddddy in ter ment ist ing. 

Fiscal Responsibility and Yellen, Treasury Debt, and Market Liquidity: Unpacking the US Treasury’s Role in Stock Market Trends 12/11/24

This is a syndicated repost published with the permission of Stool Pigeons Wire at Capitalstool.com. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

Yesterday, a strong warning was issued about fiscal responsibility, as concerns about excessive government spending linger. For years, the U.S. Treasury printed money at an alarming rate, triggering fears of unsustainable debt and inflation. However, this is not the first time such concerns have surfaced.

In 2017, former Federal Reserve Chair Janet Yellen attempted to shrink the Fed’s balance sheet, an effort that was quickly reversed by the new administration. But after the massive monetary expansion during the COVID-19 pandemic, the policy was reintroduced in 2022.

This brings us to an intriguing perspective from Professor Jimbo of Down Under University, who raised some key points on December 8, 2024:

  1. The Continuous Variable Default (CVD) Game: According to Jimbo, the Federal Reserve’s actions have enabled the U.S. government to “continuously default” on its debt without the need for a formal default. The printing of money by the Fed has essentially masked the underlying debt problems.
  2. Gold’s 2024 Performance: Jimbo also pointed out that gold had a stellar year in 2024, rising by 27%, signaling that investors are seeking tangible assets amid economic uncertainty.
  3. Deficit as a Liquidity Drainer: Jimbo argues that the U.S. deficit is a liquidity drainer that shows no signs of improving.

However, I would disagree with this notion. Over the past year, I’ve extensively covered how the Treasury has used T-bills to finance much of the deficit. These T-bills, while not immediately money, act as collateral in the repo market, enabling money creation. This means the Treasury is effectively printing money, adding liquidity to the system, contrary to the common misconception that deficits drain liquidity. Note also that it means that the Treasury, not the Fed, is dictating monetary policy.

In fact, budget deficits are bullish for the economy because they create liquidity. When T-bills are used in the repo market, they become instantly convertible into cash, fueling further investment and driving up asset prices. This creates a cycle where more money is injected into the economy, boosting the stock market and other financial markets.

However, this “perpetual motion machine” is not without risks. Market participants, from banks to investors and dealers, rely on the animal spirits to keep this cycle going. If confidence wanes, the cycle could break, leading to potential market instability. This is why watching technical indicators, such as the daily ES and S&P futures, is critical in understanding potential market moves.

Currently, we are seeing some support and resistance levels that could dictate the future direction of the market. Stock cycles suggest an upward trend, but high levels are approaching, which may indicate a correction or a potential crash if the markets fail to maintain momentum.

Stock Cycles Point Upward but High Due Soon with S&P Near Projections – Technical Trader Report

17ykm8

For more insights into the markets and economic trends, check out these recent reports:

In conclusion, while the role of the Fed and Treasury in money creation is complex, it remains clear that their actions have a profound impact on liquidity and market cycles. Stay informed and keep watching the signs for what could come next in 2024.

Original post edited by ChatGPT for SEO purposes.

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