Daily Treasury Statement Charts Update: 2/6/11

An update of the daily treasury statement charts for 2/6/11:

 

Daily Treasury Statement - Operating Balance Vs S&P 500

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The total operating balance of the US Treasury rose by $57 billion on Tuesday and fell by $38 billion on Wednesday (latest). The US Equity indices have come under severe pressure over the past few days, with the Dow taking 300 point hit in a day. This came with relative strength in gold and fairly muted action in the dollar (against its main trading pairs). The usual ‘equities down – dollar up’ mechanism hasn’t been holding up over the past few days.

 

The long-term interpretation of the daily treasury statement charts 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.

 

That being said, the shorter-term (and more alchemistic) interpretation of the daily treasury statement charts (below) is positive for the next week or so. 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 Jun 3, 2011