Daily Treasury Statement Update: Mysterious Stock Market Indicator?

Here are the updated charts from the daily treasury statement: the total operating balance chart and the deposit insurance fund chart. In addition, I’ll write about the mysterious lagged correlations between stock prices and the total operating balance line.

Daily Operating Balance Vs S&P 500 InvertedDeposit Insurance Fund Withdrawals Vs S&P 500


The supplementary financing account is continuing down to the $5 billion level. Thus the total operating balance of the US Treasury continues to generally decline. The deposit insurance fund withdrawals remain tame at the moment, although the frequent small withdrawals continues to suggest problematic bank failures.


In my previous update, I wrote about why I think the structure of the supplementary financing account could be a vehicle for future money printing exercises. Here, I’d like to look at the peculiar lagged correlation between the total operating balance of the US Treasury and the stock market.


[Warning: the following could be regarded as a form of alchemy!]


Looking at the above chart of the total operating balance of the US Treasury, I’m tempted to see a lagged correlation between the blue line (total operating balance) and the red line (S&P 500 inverted). The temptation was so much that I quickly knocked out a couple of charts showing the Dow and VIX against the total operating balance lagged by 40 trading days (as in, the total operating balance leads). Here’s what I found:


Dow Inverted Vs Total Operating Balance (LAGGED)VIX Vs Total Operating Balance (LAGGED)


Perhaps it’s my eyes, or a straight-up rationalization of mine; but I see correlations here. It would seem that the stock market rises after heavy expenditures by the government, and it falls after heavy accumulations (of cash) by the government. If one believed in this notion with enough strength, one could enter short positions (or long VIX) around 40 days after the operating balance has dropped to near 0! It looks like we’re not so far away from that scenario!


EDIT: I will be posting these charts on a daily basis. For the more updated version click here.
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Posted Mar 3, 2011