Gold Crash Margin Calls Destroyed Some Excess Liquidity, But Remainder Bides Its Time
Courtesy of Lee Adler of the Wall Street Examiner
Highlights from this week's Treasury Update
The 10 year yield got little benefit from the massive tidal wave of liquidity pumped into the market last week, partly because some that liquidity was destroyed by the gold crash. Stocks got no benefit from all the liquidity, and instead were attacked, which was the opposite of the continued meltup that I expected. The margin calls associated with the gold and silver crash and the CME’s ensuing margin increase destroyed some of the excess liquidity and caused forced selling to spill into the stock market. These conditions should now abate.
The markets will still see the most bullish liquidity conditions of the year until the end of the month.
Stocks got no benefit from all the liquidity, and instead were attacked, which was the opposite of the continued melt-up that I expected.
The margin calls associated with the gold and silver crash and the CME’s ensuing margin increase destroyed some excess liquidity and caused forced selling to spill into the stock market. These conditions should now abate.
Even Treasuries didn’t do that well considering all the cash that was around. That tells me that most of the liquidity is still sitting in bank or money market accounts, waiting to be deployed. I see it as a bullish time-bomb, but I don’t know where, or when, it will detonate.
Withholding tax collections have been very strong, more than can be accounted for by the increase in tax rates alone. This suggests that some sectors of the economy are much stronger than mainstream reporting indicates.
Strong tax collections are resulting in a windfall for the government. Treasury supply is being reduced as expected, showing up this month in the Treasury debt pay-downs. Future reductions of Treasury supply would be a bullish factor for both Treasuries and stocks, but market sentiment, which represents the demand side could override that.
Current budget data indicates that the sequester has had little impact in reducing outlays. The widespread expectation of pundits is that the economy will experience seasonal weakness in the spring. There’s no evidence of that in the withholding data.
Get regular updates the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Click this link to try WSE's Professional Edition risk free for 30 days!
Copyright © 2012 The Wall Street Examiner. All Rights Reserved. The above may be reposted with attribution and a prominent link to the Wall Street Examiner.
