Daily Treasury Statement Charts Update: 15/4/11 – The US Treasury is Unwinding its MBS Portfolio

Here, I discuss the latest round of fishy business at the US Treasury; they have begun to unwind their portfolio of Mortgage-Backed Securities. Also, I post the usual daily treasury statement charts below.


The ‘Orderly Wind Down’ of the US Treasury’s $142 Billion Mortgage-Backed Securities Portfolio:


Just a few short weeks after the US Treasury finished unwinding its supplementary financing account program, it has started to sell $142 billion in MBSs at a rate of $10 billion a month. These started showing up on the daily treasury statements as a new deposit item; ‘GSE MBS Purchase Program Income’ – yet another term to add to our never-ending list of ridiculous finance terms. But hey, let’s embrace it, it makes us sound smart, right?


On the 13th April, around $7.3 billion entered the coffers of the US Treasury – presumably these were the proceeds from the first of their MBS sales. Over the coming months, I will monitor these deposits and perhaps post some charts (once several data-points have been collected).


Yet Another Factor that is Squeezing the ‘Private Sector’?


In my Fed Balance Sheet updates, I have reiterated my contention that the implications of QE2 may ultimately get large institutions into trouble again (which – in my book – is a good thing). This recent decision to unwind the MBS portfolio (not that I object, I assure you!) may further pressure certain ‘socially systemic’ institutions into insolvency.


This really demonstrates the frivolous nature of attempts to centrally plan the economy. It is a game of illusion, rejection of reality and of incompetent decision-making. I would guess that – after this enormous rally in ‘risk assets’ since August 2010 – the central planning authorities consider it ‘safe’ to undo the debauched policies that they previously implemented. However, as Marc Faber says, this is a “credit-addicted economy” – so, as the public sector ceases to buy stuff with borrowed dollars, the private sector may end up in a similar ‘dollar short squeeze‘ to 2008. My personal opinion is that long-term, contrarian investors might find nice opportunities on the short-side soon.


The Usual Charts:


Daily Treasury Statement - Total Operating Balance Vs S&P 500

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The total operating balance of the US Treasury was flat on Wednesday and up around $5 billion on Thursday (latest). The lagged daily treasury statement charts (see below) continue to suggest that an up-trend might persist for three to four weeks. As always, I warn that this interpretation could be deemed to be alchemistic in nature. Even if past correlations continue for some time, we should note that this run might be a ‘final move’ (especially with the above considered). For those just stumbling onto this site: The broad thesis is that net withdrawals are bullish for asset prices (on a lagged basis) and net accumulations of cash are bearish for asset prices (on a lagged basis). For a more detailed interpretation of these charts see here.


Daily Treasury Statement - Total Operating Balance Vs Dow Inverted (LAGGED)

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Daily Treasury Statement - Total Operating Balance Vs S&P 500 Inverted (LAGGED)

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Daily Treasury Statement - Total Operating Balance Vs Russell 2000 Inverted (LAGGED)

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Daily Treasury Statement - Total Operating Balance Vs VIX (LAGGED)

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See here for our collection of rare historical economic data.

Posted Apr 16, 2011