The US Treasury’s Cash Balance Rises to Normal Levels…
In recent updates, we noted that the US Treasury’s cash balance had been hovering around historically low levels. Indeed, on August 17th the cash balance reached just $10.9 billion — the lowest level since September 2008. Over the past week, the total operating balance of the US Treasury has reverted back to normal levels.
The total operating balance of the US Treasury stood at around $44.5 billion on August 31, 2011. This was an increase of around $31 billion from a week earlier. The reduction in the Fed’s holdings of mortgage-backed securities was accompanied by a small sale by the US Treasury (of around $1 billion last Thursday). As can be seen on the chart below, the US Treasury tends to make a big sale towards the end of the second week of each month:
Our hunch is that US monetary and fiscal authorities are currently sticking to the plan of cleaning up public-sector balance sheets. Of course, they’ve got to be sweating a little now that the stock market has taken a 15% haircut! The more subtle changes in public sector balance sheets should help us figure out if they’re going to throw in the towel. For now, we can only conclude that these dynamics remain bearish for ‘risk assets’.
As mentioned previously:
On the shorter-term timeframe, we notice a peculiar lagged correlation between the US equity indices and the total operating balance of the US Treasury. The lagged property means that this indicator has the capacity to be predictive. We generally don’t pay much attention to such kinds of analysis, but we indulge in this particular one because it is way out of the mainstream… 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.
Currently, the charts below suggest that the so-called ‘risk assets’ could be relatively ok over the next two to three weeks. After that, we may see a resumption of the uncomfortable trend that started in late-July / early-August.
Recommended: Charting the Federal Reserve's Assets - 1915 to 2012