US Treasury Cash Hovers Around Low Levels & The Alchemistic Correlation Breaks Down…

Since our last update on 31/8/11, the US Treasury’s cash balance has fallen and hovered around historically low levels. Moreover, the alchemistic lagged correlation between the US Treasury’s cash balance and the stock market (inverted) seems to have broken down over the past week. Here I present an update of the usual daily treasury statement charts.

 

Daily Treasury Statement - US Treasury Cash Balance VS S&P 500

US Treasury Cash (with subcomponents) against the S&P 500 - Click to enlarge. Source: US Treasury

 

The total operating balance of the US Treasury fell from around $44 billion on 31/8/11 (previous update) to $16.7 billion as of 8/9/11 (latest). Markets have continued to be shaky over the past week, but we’re yet to see if the fiscal and monetary authorities are getting scared (so far, they have ‘stuck to the plan’ of unwinding their previous debauched antics). The coming week will be interesting because the US Treasury tends to make a big sale towards the end of the second week of each month (as part of their program to unwind their portfolio of Mortgage-backed securities). However, as mentioned in their recent update (which was junk by the way), they make sales ‘subject to market conditions‘. We would translate this to ‘subject to if we’re petrified of the potential consequences or not‘:

 

On March 21, 2011, Treasury announced that it would begin the orderly wind down of its MBS portfolio. Treasury plans to sell up to $10 billion MBS (principal) per month, subject to market conditions. The sale is part of Treasury’s continued efforts to wind down emergency financial crisis response programs that were put in place in 2008 and 2009. [Our emphasis.]

 

We’re more interested in what they’re doing rather than what they’re saying. Indeed, we prefer to look at subtle changes in public sector balance sheets rather than their silly staged announcements.

 

On the lagged charts we find that the pseudo-correlation between US Treasury cash and ‘risk assets’ has finally broken down. As mentioned in previous updates:

 

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.

 

Daily Treasury Statement - Total Operating Balance Vs Dow Inverted & Lagged

US Treasury Cash Vs Dow Jones Industrial Average Lagged & Inverted - Click to enlarge. Source: US Treasury

 

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

US Treasury Cash Vs S&P 500 Lagged & Inverted - Click to enlarge. Source: US Treasury

 

Daily Treasury Statement - Total Operating Balance Vs Russell 2000 Inverted & Lagged

US Treasury Cash Vs Russell 2000 Lagged & Inverted - Click to enlarge. Source: US Treasury

 

Daily Treasury Statement - Total Operating Balance Vs VIX Lagged

US Treasury Cash Vs VIX Lagged - Click to enlarge. Source: US Treasury

See here for our collection of rare historical economic data.

Posted Sep 11, 2011