Daily Treasury Statement Charts Update: 27/5/11

An update of the daily treasury statement charts for 27/5/11 (apologies for the delay!):

 

Daily Treasury Statement - Operating Balance Vs S&P 500

Click to enlarge.

 

The total operating balance of the US Treasury fell by $8 billion on Wednesday and by around $20 billion on Thursday (latest). The US Treasury is currently in the process of unwinding its portfolio of Mortgage-backed securities. As part of this process, the US Treasury received $1.3 billion on Wednesday from the proceeds of MBS sales.

 

The long-term interpretation of the daily treasury statement chart remains bearish. The private-sector reached a maximum capacity for leverage in 2007/2008. The accumulated debt can be seen as a historically large ‘short on money’. For many emotional and intellectual reasons, the resultant  ’short squeeze in money’ is deemed to be unpalatable by the majority (which counts in this age of democracy). As a result, we have a government sector that is intent on levering up to alleviate this ‘short squeeze in money’. The daily treasury statement chart above demonstrates that when the government spends its cash balance, the private sector’s ‘woes’ can be temporarily alleviated. When the momentum of government spending declines, the long-term private sector deleveraging trend has the platform to re-assert itself. As can be seen on the chart above, the US Treasury has slowed down its net spending recently. This could lead to a period of distress in the financial markets.

 

That being said, the shorter-term (and more alchemistic) interpretation of the daily treasury statement charts (below) is positive for the next two weeks. 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.

 

DTS - Operating Balance Vs Dow Inverted LAGGED

Click to enlarge.

DTS - Operating Balance Vs S&P 500 Inverted LAGGED

Click to enlarge.

DTS - Operating Balance Vs Russell 2000 Inverted LAGGED

Click to enlarge.

DTS - Operating Balance Vs VIX LAGGED

Click to enlarge.

See here for our collection of rare historical economic data.

Posted May 29, 2011