If you're interested in secret societies and world domination, you're reading the right article.
"No one puts Baby in the corner," but someone tells the Treasury what to do.
To be precise, it's a small, powerful group comprised of some of the most powerful players among primary dealers and international banking. It is tasked with recommending to the Treasury how much new paper it will need to issue in the months ahead to cover its deficit and maintain a cash cushion. You don't hear much about this group – but they're the "power behind the throne."
Right now, they've just issued guidance for a nefarious $463 billion release – early next year – that could cut the stock market off at the knees.
Here's who they are – what they're planning – and how you can protect yourself.
I'll get straight to the good stuff. The Treasury usually sticks closely to the recommended issuance of the TBAC (Treasury Borrowing Advisory Committee). The TBAC has recommended that the Treasury rebuild a contingency fund of $500 billion. November's issuance was a step in that direction. But there's more coming.
The TBAC just issued guidance for Q1 2018. It estimates net new supply of an astounding $512 billion for the quarter. That includes just $49 billion in January. That means that $463 billion in net new supply will be issued in February and March, including $205 billion in February and $258 billion in March.
Urgent: An $80 billion cover-up? Feds use obscure loophole to threaten retirees… Read more…
I don't see how the markets could absorb this much paper without buckling. I would expect there to be some liquidation in both bonds and stocks. Consider that the Fed will be simultaneously be pulling $20 billion per month out of the banking system and that the ECB will cut its QE purchases in half, and I see dead people on Wall Street.
The forecast for December is for $164 billion in net new supply. I would still expect that much supply to pressure the market.
If it doesn't, I would guess that the payback that comes, probably in January, will be painful. I was wrong about that for November, and maybe will be wrong again in December, but this is a case of robbing January and February to pay November.
Here's Why the Treasury Flood Is Set to "Extinguish Money" Early Next Year
The long-term trend of Treasury auction supply is now showing the earmarks of trend reversal. Supply for mid-December has been scheduled and it is higher than a year ago. Chartists will recognize that the 12-month moving average has broken out of a reverse head-and-shoulders pattern. That's a classic reversal sign. The 12-month MA has made a higher high after a higher low after a long period of basing.
Meanwhile, demand as represented by the total amount bid per auction remains in a downtrend. The total bid tendered in November was virtually unchanged from November 2016 despite the increase in supply.
But yields didn't rise. Again, I blame an unusual increase in speculative leverage. This chart depicts the type of short-term loans that dealers and speculators use to finance securities purchases…
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.