Daily Treasury Statement Charts Update: 23/5/11
An update of the Daily Treasury Statement charts for 23/5/11:
The total operating balance of the US Treasury fell by $20 billion on Thursday and by $4 billion on Friday. Markets have continued their weak spell over the past few days. The major US equity indices remain slightly below their early-May highs, whereas currencies (that is, most currencies in dollar terms), gold, silver and crude oil remain significantly below their respective early-May highs. The longer-term interpretation of the daily treasury statement charts remains the same. The private-sector reached a maximum capacity for leverage in 2007/2008, and ever since it has had a tendency to sell things in order to ‘buy back money’. The US government is capable of stalling the deleveraging trend temporarily by levering up itself, however, when it ceases to do so, the natural private sector tendencies seem to resume. The daily treasury statement charts may be indicating that the pause in net government spending may cause distress in the financial markets.
However, that being said, the short-term picture is somewhat more constructive for the equity indices; the lagged daily treasury statement indicators (below) continue to suggest that the next 3 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.
Recommended: Charting the Federal Reserve's Assets - 1915 to 2012