Daily Treasury Statement Charts Update: 13/5/11

An update of the Daily Treasury Statement charts for 13/5/11:

 

Daily Treasury Statement - Operating Balance Vs S&P 500

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The total operating balance of the US Treasury fell by $8.5 billion on Wednesday and fell by $13 billion on Thursday (latest). Markets have been under some stress over the past few days. In particular, the dollar, the yen and US government bonds have benefited from this short-term ‘risk-off’ phase. The US Treasury is currently in the process of unwinding its $140 billion MBS portfolio, and so they received around $8.5 billion from the proceeds of MBS sales on Thursday. My hunch is that our bureaucratic overlords decided to undo some of the emergency measures used to ‘solve’ the crisis after the QE2-induced resumption of those good old ‘animal spirits’. The unwinding of the supplementary financing account and the MBS portfolio seem to be just two examples of this clean-up effort. However, the private-sector is experiencing a long-term, generational short-squeeze in dollars (i.e. deleveraging), and so when such interventions cease, the natural tendency is for the deleveraging forces to resume.

 

However, despite what is said above, the lagged daily treasury statement indicators (below) continue to suggest that the next 4 weeks could be positive for equities. For those just stumbling onto greshams-law.com: As always, I warn that this interpretation could be deemed to be alchemistic in nature. The broad thesis is that net government spending is 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 - Operating Balance Vs Dow Inverted LAGGED

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

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Daily Treasury Statement - Operating Balance Vs Russell 2000 Inverted LAGGED

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Daily Treasury Statement - Operating Balance Vs VIX LAGGED

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Posted May 14, 2011