Treasury Running on Empty
by Steve Northwood, Tuesday February 15 2005
wallstreetexaminer.com
Yesterday the Federal Treasury started the day with a zero balance in its checking account after paying off the expiring three day $5 billion Cash Management Bill. Don’t get too alarmed by that- Mondays are usually big tax collection days. The concern arises because the Treasury had started the month with over $60 billion in cash on hand. Even after taking into account the $32 billion in IRS refunds issued so far this tax season, the deficit seems to be accelerating.
On Tuesday, the Treasury refills its coffers with $40 billion in net new borrowing, and will add another $12 billion in shorter term Bills on Thursday. About $20 billion of that will be issued as tax refunds on Friday. This pattern of borrow-and-issue continues through the next seven weeks.
Over the last two Fridays, the tax refunds directly boosted the markets because they were being issued from balance sheet cash. From here on out, the money will be borrowed on Thursday and paid on Friday. That won’t give the markets a boost unless the Federal Reserve monetizes the new debt.
Tuesday is the last chance the Fed will have to monetize the current round of Treasury borrowing. So far in this month, the Fed has added only about $10 billion dollars in short term liquidity through an assortment of repurchase agreements (ranging from overnight to 14 days). If the Fed follows through on its currently stated tightening policy, even that liquidity may be withdrawn over the next week.
From here on out, new helicopter money doesn’t exist and would truly have to be created from thin air. And it looks like the Fed has stopped doing that.
I Will Gladly Pay You Back On Tuesday
by Lee Adler, Tuesday February 15 2005
The market got stuck at key resistance. Sure, it could briefly pop, but if it did it would be on borrowed time and a borrowed dime. Word has it that Tuesday is payback day. Will Easy Al's Payday Loan store be open for all comers? (This article was originally posted Monday evening in the Wall Street Examiner - Professional Edition, a premium, subscription based service. Publication of the subscription content on the public side of the WSE will end soon. Subscribe here.)
The market has astounded us before. It will astound us again. Monday was astounding in how boring it was. The SPX got stuck at 1206 again, and the Dow barely moved at all, all day. It was a daytrader's worst dream come true. But will Tuesday be any better? I surely don't know, but it's going to be interesting, one way or the other. Tuesday is the day that payment comes due for the $40 billion in new Treasury notes auctioned last week. Can the market make the payment without choking?
Snow came to Wall Street, as $5 billion in 3 day Treasury cash management bills expired. So there's $5 billion to go toward the $40 billion payment. FCB's are taking about 40% of the total issuance. That still leaves $21 billion of new money for everybody else to absorb, assuming all the other players roll over their existing paper. Al brought only a few billion in overnight repos on Monday. That's no help. They expire Tuesday. That's a drain if it's not rolled over. How much will the Gang of 22 (Fed primary dealers) ask for, and how much will they get? We'll find out in the morning, but it's hard to imagine the kind of size that would power a breakout.
There will be more demands on the system on Thursday. WSE Treasury analysts Steve Northwood and Charles Mackay pointed out previously that the Treasury looked about $10 billion short of cash this week. Sure enough, today the Treasury announced that the 4 week bill auction to be held Tuesday would suck another $11 billion out of the financial markets and into the general funds of the US Treasury. Good for economic activity (deficit spending), but bad for the financial markets.
Cycles say the players are still disposed to try and push the market higher for maybe a few days, at most a few weeks. But they are going to have a tough go of it with so much supply coming at them, and, so far, little help from the straining and wheezing liquidity fuel pumps. Cycle targets are clustered from 1212 to 1218. The 13 week cycle target is now tentatively 1225. I don't know where the fuel would come from to push it that high, but would not bet against it until the technical indicators give clearer signals that the up phases are over. |
