Three Short Recommendations, As The Treasury Sucks Up Money

As the market stages a spirited rally off a test of the lows and the 200 day moving average, it’s important to keep one thing in mind. Liquidity factors are not going in the right direction and won’t be for a long time. Consequently, I see every rally as a gift, an opportunity to sell before the real ugliness gets under way later this year.

The most important driver of liquidity, after the Fed, is the US Treasury, and it is not a positive. It is sucking hundreds of billions of dollars out of the worldwide liquidity pool that fuels financial asset purchases.

Four factors have exacerbated that problem. They all require the Treasury to borrow more money, issuing more and more debt for investors to absorb without the help of the Fed replenishing the cash pool as it did every month under QE.  In effect, the Treasury is crowding out the stock market.  

Here’s what’s happening to all that money – and what you can do to profit as it disappears


Bonds Up, Stocks Down – The Sinister Truth Behind March’s “Portfolio Rotation”

A cheesy Western standoff often begins with some variation of, “This town ain’t big enough for the both of us.”

That’s where we are now with stocks and bonds. And we’re approaching the point where the town ain’t big enough for either of them.

The Treasury continues to pound the market with massive amounts of new supply. But Treasuries held their own this month. In fact, they rallied a bit.

Instead, stocks got their turn in the barrel. This illustrates the point I have been making that there’s no longer enough liquidity in the system to support bull moves in both stocks and bonds. If one rallies, the other must be the source of funds for that rally. So in March, stocks were the liquidity sink that supported the rally in bonds.

And don’t be fooled by Thursday’s rallies in both stocks and bonds: neither baseball, life or financial markets move in a straight line. They are full of surprises. But there’s always a broader arc that contains these surprise days. Our job is to identify the direction of that arc. And in this case the forces of that broad arc are pointing down.  

Here’s what the “stocks vs. bonds” standoff is telling us about the incipient bear market – and my recommendations for what to do


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