LAMPP Update: Keep raising cash as we head towards red.
The intermediate-term LAMPP is now perilously close to turning red, and any Treasury issuance over and above the amount estimated by the TBAC could trigger the signal.
The Fed will hold its usual mid-month MBS settlements this week. That will be a mitigating factor. We'll know the exact amount on Thursday when the Fed posts the details on its forward purchases over the past month. It should be around $25-28 billion.
That would be enough to keep the intermediate LAMPP from turning red if there's no material increase in Treasury offerings. As of 10 a.m. Monday, the Treasury had not announced any increase above the normal level of offerings.
The four-week bill is normally announced at 11 a.m. The TBAC had forecast that that offering would total $30 billion. Let's keep an eye out for any unusual increase in that. Even if there is no unusual increase, the fact that the LAMPP is so close to a red signal is reason enough for extra caution. We don't want to even think of going long here.
The long-term LAMPP is starting to edge lower. It's at least a few weeks from a red signal, but it's headed in that direction. This is good reason to continue our program of regular selling to raise cash.
By now you have heard about the debt ceiling deal that President Trump made with congressional Democrats (hard to believe), which has now been approved by Congress as a whole.
Rupert Murdoch-owned FOX News is calling it a disaster, while Rupert Murdoch-owned MarketWatch is opining that it's a good thing. Never let it be said that old Rupert doesn't know how to play both sides of an issue. Fair and balanced.
Let's also note that this deal is only for three months. We're going to need to revisit this again in December, though it seems likely that, by then, they'll have made a deal for the long term that would obviate the need for another debt ceiling impasse.
But we'll need to monitor closely for any potential changes to market liquidity as the next drop-dead date approaches.
Meanwhile, if you're confused by all this, join the crowd. I'll try to sort through the confusion to tell you what it means for you and your money. We'll look at it through the prism of my LAMPP indicator of market liquidity.
As traders and investors, that's the only thing that really matters to us: the impact this deal will have on our portfolios.
Here's what you need to know…
What the Surprise Deal Means for the Markets
First, I must say that I'm surprised.
I had guessed that a deal wouldn't be done until the 11th hour, just like the last couple of times we faced a debt ceiling crisis. That would have been the end of September, when the government was projected to run out of money. Both in 2015 and 2013, a deal wasn't done until the clock struck 12 and all the congressional carriage drivers had turned into pumpkins.
This time, they did the deed three weeks early. While I didn't expect it, I had allowed for the possibility and had written that an earlier deal would mitigate the impact to some degree.
So what does it mean?
About the Author
Financial Analyst, 50-year charting expert, finance + real estate pro, and market analyst; published and edited the Wall Street Examiner since 2000.