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Liquidity is Bullish is All - Tomorrow is a Big Day

ilene's picture




 

I quoted from this article by Lee Adler of the Wall Street Examiner in the "Week Ahead" section of Stock World Weekly, so part may sound somewhat familiar. Lee tracks the money flows in the financial system and focuses on the real reason stocks go up and down. Forget those quaint, high-minded concepts such as fundamentals and value. The real driver of the stock market is the printing of money by the central banks. Lee watches what they do and where the money goes. ~ Ilene

Liquidity is Bullish is All

Courtesy of Lee Adler of the Wall Street Examiner

Tomorrow is a big day, with the FOMC announcement and the Fed revealing what it wants you to think about what it thinks it's going to think it wants you to think. Or something like that. This Fed "transparency" thing has been covered to death in the mainstream media. I think it's another utter waste of time. I want to know what the Fed is doing, not what it wants you to think. That's what I report on every week in my reports to subscribers. It's hard enough to know what the Fed is actually doing, but if you can get a handle on that (and, not to mention, the ECB), then you'll have a leg up on the crowd, which mostly doesn't have a clue.

With that in mind, here's what I wrote on Saturday in the executive summary of the Fed update in the Wall Street Examiner Professional Edition.

_______________________________________________________________

 

Those who don't know me well have sometimes accused me of being a permabear. Those of you who do know me via these reports know that I always strive to be just like Faux News, "fair and balanced." I think this week's report exemplifies that high ideal. It's as bullish as I've ever been, and yes maybe I should be faded when I start "pounding the table" like this. But I'm only pounding on what the indicators are showing. There's certainly no personal bias in this direction. My bias is only to follow the indicators, regardless of what mayhem or foolishness they may be pointing toward.   

I don't like this, but it is what it is. The world financial system is an over manipulated piece of excrement. But sometimes manipulation works; sometimes it has unintended consequences that benefit one party over another; and sometimes the US gets the roses while the rest of the world sinks into the sludge that most of the pundits and government manipulators are worried about. This is one of those times, and herein is its story.

Take this story and do with it as you wish. If you think that it's wrong, I'd love to hear from you as to why. The easiest way to do that is to leave a comment in the comment section of the Wall Street Examiner posting associated with this report.  

Liquidity flows in the US branch of the system have been turning more bullish in recent weeks. Several indicators that had been neutral or bearish have turned bullish, joining deposit flows into the US banking system (apparently from EU) which have been the lead bullish sled dog for a while. In this liquidity based model of the market, there is no way the markets can decline as long as this continues. It forces us to assume that the bias will remain to the upside. Meanwhile, the Fed continues to quietly tap the brakes, without explanation or comment, while the money supply explodes. The Fed is transparent only when attempting to jawbone the market higher. Anything that might run counter to that, it shuts up tight as a clam.

The media has been rife with speculation that the Fed is on the brink of another massive quantitative easing. Given the rapid growth of the money supply, the recently strong stock market performance, and the surging Federal withholding taxes, and improvement in other economic indicators, it's hard to see justification for the Fed to make such a move. The Fed is well aware that additional QE would be likely to set commodities off on another tear that would be self defeating for the economy.

I'd have to guess that the pundits looking for another QE at this week's meetings are wrong, but it doesn't matter. The markets follow the money. My guess is that any initial market disappointment in the face of "no new QE" would quickly be shrugged off. If I'm wrong and the Fed announces or hints at additional QE, I'd watch the commodities and hitch a ride if I liked moon shot roller coasters.  

In the meantime, the liquidity indicators are strengthening. Bank deposit net inflows continue. Fed pumping of cash to Primary Dealers remains in a bullish trend, and will continue to as long as the MBS replacement program remains in effect, which will be until mid summer unless the Fed makes a course change before that. Those flows will slow drastically if Treasury rates rise, but due to the delayed settlements of the Fed's MBS purchases, the impact of that reduction won't be felt until April or May at the earliest. Meanwhile Treasury supply looks likely to be lighter than expected (See Treasury update - http://wallstreetexaminer.com/money/treasury011912.pdf

Foreign central bank purchases of Treasuries and Agencies turned bullish last week. Their trend has improved from a bearish to a neutral influence. The trend of reserve and other deposit levels at the Fed have been stable, and are thus a neutral market influence. Banks bought Treasuries last week and the trend of that indicator has turned unequivocally bullish. Bank non Treasury trading accounts were little changed last week, but that trend is also bullish. 

The composite liquidity indicator upticked last week, slightly breaking the November peak in the process. The indicator now has a slight uptrend since last summer. The performance of stocks and bonds has been consistent with that. Recent behavior of the components and typical cyclical patterns suggest that some degree of strengthening is likely to continue in the weeks ahead. That should be bullish for stocks, especially if Treasury market inflows begin to wane, as last week's signals suggest they may.

Finally, for whatever reason, stock prices have tracked the Fed's actions, and Treasury prices have more closely tracked the ECB's moves in recent years. That stands to reason as investors in European debt have sent cash pouring into the US, particularly via purchases of Treasuries, whenever the ECB has provided the funding to do so. But it is notable that US stock prices seem to also be getting the benefit of the most recent ECB pumping operations. If another massive ECB long term refinancing operation is indeed forthcoming, as many are speculating, that could blow the roof off the US market in the weeks ahead.
 
 

This is just a small sample of the dozens of illustrative charts and analysis that are in the Fed and Treasury updates every week including charts and analysis of each of the components of the macro-liquidity indicator. You can stay up to date with these liquidity flows along with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market in the Fed Report. Get the research and cutting edge analysis you need to understand these critical forces. Be prepared. Stay ahead of the herd. Click this link to try WSE’s Professional Edition risk free for 30 days!

 

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Wed, 01/25/2012 - 00:56 | 2095442 resurger
resurger's picture

Am honing my Bowie knife, ready for slaughter…

Next week! Have Faith ..

Wed, 01/25/2012 - 00:23 | 2095368 e2thex
e2thex's picture

<Gold and the DOW are strongly correlated.>

Correlated ?

Wed, 01/25/2012 - 00:33 | 2095398 CapitalistRock
CapitalistRock's picture

Absolutely. Look at a 100 year chart. Dollar debasement makes all assets worth more dollars.

Tue, 01/24/2012 - 23:38 | 2095252 the grateful un...
the grateful unemployed's picture

liquidity cannot do anything other than move the market incrementally higher. if the indicators are all bullish why isn't the market at new high? secondly gold isn't dong too well here, and Gold and the DOW are strongly correlated. can the all in one market decouple? in theory its sounds so sweet, but lower oil prices for instance don't correlate with economic growth, or rather the DOW doesn't correlate with REAL economic growth. in teh abscence of more hopium this market will trend lower, and with the wall of worry disappearing, the DOW heads down.

Tue, 01/24/2012 - 23:39 | 2095247 chump666
chump666's picture

market needs a 20% wipeout for QEwhatever.  Anyways they are printing now via swaps with the ECB.  The ECB is doing something sneaky via bond buys.  But the EUR is bid and the USD is sell could mean a massive wall of USDs is about to flood back to the US.  Who knows.  But one thing for sure, this market is dying to roll over.

We are in the doomsday trade.  I mean oil over 95 China a net importor and Iran is a fraction away calling the dumbass EU/US on it's bluff. Bad news cycle due coming into FEB. 

Tue, 01/24/2012 - 22:53 | 2095078 TradingJoe
TradingJoe's picture

NO QE, NO QE TOMORROW! FED LEAVES MARKETS TO THE "PDs"! MARCH IS THE TIME TO "HELP" RE ELECTION!!!

SELL SELL SELL or....BUY BUY BUY?!?!?

:-(|))))))

Tue, 01/24/2012 - 22:06 | 2094827 The Monkey
The Monkey's picture

You have your buy and sell signals crossed.

The time to BUY was back in October when the world looked as if it was going to fall apart and liquidity (which I like to measure in terms of credit spreads) was very poor.

Apple's blow out numbers, the ring-a-ding-ding of the Fed and the SOTU all near the April 2011 US stock market top, extreme bullish sentiment, low volume, low volatility and waning breadth, narrow credit spreads = perfect time to SELL.

Tue, 01/24/2012 - 22:02 | 2094810 booboo
booboo's picture

Ramp job pefectly timed to coincide with Oblahblah's State of the Union so all the talking heads can say, "look, the markets loved it"

 

Tue, 01/24/2012 - 21:45 | 2094778 new game
new game's picture

the bastards

Tue, 01/24/2012 - 21:30 | 2094735 Zero Govt
Zero Govt's picture

"..the Fed revealing what it wants you to think about what it thinks it's going to think it wants you to think."

It's called diplomatic smalm fuk-with-your-head-to-no-good-cause

"The Fed is transparent only when attempting to jawbone the market higher. Anything that might run counter to that, it shuts up tight as a clam."

It's called half the truth 

"Fed pumping of cash to Primary Dealers remains in a bullish trend.."

It is The Feds public mandate to be a super pooper scooper for bwankers. I'm not sure how this grotesque 'mandate stretching' allows Blowjob Ben to not only pick up every turd Blankfein and Dimon craps on the public sidewalk and allow these broke gambling bums to keep gambling 4 years past their collapse and stretch the mandate to include every bum-broke bwanker in Europe too....

you'll have to bring that up with their bankers rent-boy, the US President, who would love to clarify the Law for you after Wall Street has prepared his autocue response

And if you want to know what Blowjob Ben will do next, just look at the cash flow shortages in DC or WS ...Ben has no intellect, Benny Boy does precisely what he's told by his (very bankrupt money-hungry) Pimps 

Tue, 01/24/2012 - 21:23 | 2094731 g speed
g speed's picture

 

take this FED-- print a little gold -- lol

http://www.debka.com/article/21673/

Tue, 01/24/2012 - 19:16 | 2094454 847328_3527
847328_3527's picture

45 million foor stampers....16% unemployment...crime rising...

Yeah, green shoots all around.

Wed, 01/25/2012 - 15:37 | 2095256 4horse
4horse's picture

Finally, for whatever reason, stock prices have tracked the Fed's actions . . .

M3--------------------> like VD =

 

contagion?

 

 

Finally, for whatever reason, stock prices have tracked the Fed's actions, and . . .what else. what else could it be If another massive ECB long term refinancing operation is indeed forthcoming, as many are speculating, that could blow the roof off the US market in the weeks ahead.

 

massive dose! applause. ovation. no. not just clap clap clap
                                                                       of thunder down under the beltway, Erosnth VD3
as bankers practice their love of women, children and all mankind into a ffuture so Fucked as to spread beyond
dead
       chancres. crabs. syphilis. gonorrhea. logorrhea. herpes. chlamydia. necrophilia. coprophilia. STI. STDs. HIV, but aid to just everybody that needs famine,war,death&pestilence unto however many billions
?

Tue, 01/24/2012 - 19:34 | 2094499 HungrySeagull
HungrySeagull's picture

Welcome to the brave new world. The land of the free and the daid. *Dead)

From a metals perspective, it's exruciating waiting for tomorrow. It's good that China is closed for trading holiday.

But, it's no pain because I have the coin one side and cash on the other. So it matters not to me anymore which way to go. Just follow the tape up or down.

Now keeping the people happy so that you dont have hungry zombies clearing out the walmart or torching those who are rich... that is pretty important.

In the past when Ben talked, markets tank in real time. I think Ben has finally learned to shut up and stay quiet. Only now everyone within the meeting has a chance to speak.

Will we have 10 bens talking?

Yeesh...

Tue, 01/24/2012 - 21:41 | 2094774 new game
new game's picture

cash and PM bitchez

keep it simple bitchez

all good with patience...

Tue, 01/24/2012 - 19:08 | 2094418 xela2200
xela2200's picture

Bush senior in a documentary about his presidency mentioned that if the FED had eased interest rates 6 months sooner, He would have won his second election. It takes time for the QE cocaine to take effect. If the FED plans to help Obama, it needs to start soon. This is the first meeting of the FED with the new dovish members. It will be interesting to see how their first meeting goes. There is a lot going on behind doors that we are not privy to, so it might also depend on it. If you want to know what is going to happen tomorrow, toss a coin. The chances are just as good either way.

Tue, 01/24/2012 - 19:11 | 2094432 Xanadu_doo
Xanadu_doo's picture

"The chances are just as good either way."

 

I think you meant: The chances are just as BAD either way.

 

Cheers.

Tue, 01/24/2012 - 18:52 | 2094371 non_anon
non_anon's picture

everyday is a big day

Tue, 01/24/2012 - 18:41 | 2094335 Georgesblog
Georgesblog's picture

The markets have been following borrowed debt, for 40 years. Riding out the bust to get to the boom just ends up in a deeper hole. Hundreds of Trillions in "money" that never existed, just brings home a gigantic lie. The markets have no sense of direction, because down is the new up.

http://thedailyclimb.wordpress.com/2012/01/24/the-daily-climb-new-beginning/

Tue, 01/24/2012 - 18:29 | 2094291 Default to Reality
Default to Reality's picture

Where was the Fed when the fall of 2008 happened?  The author gives too much credit to an entity that only does one thing, print money.

DtR

Tue, 01/24/2012 - 22:38 | 2094999 TheMerryPrankster
TheMerryPrankster's picture

Actually the fed does two things,

it prints money and

it steals money.

Tue, 01/24/2012 - 18:24 | 2094270 Corn1945
Corn1945's picture

Liquidity flows in the US branch of the system have been turning more bullish in recent weeks. Several indicators that had been neutral or bearish have turned bullish, joining deposit flows into the US banking system (apparently from EU) which have been the lead bullish sled dog for a while.

 

So, the market was rising in the face of your "indicators" despite the fact they signalled the opposite.

Why are your indicators correct now when they were wrong for months?

Maybe your indicators are worthless?

Tue, 01/24/2012 - 19:08 | 2094428 Manthong
Manthong's picture

Nobody, not even the f'n Fed can BS away this indicator:

http://i40.tinypic.com/52caae.jpg

Tue, 01/24/2012 - 19:53 | 2094554 blunderdog
blunderdog's picture

What's that really indicate, though?  Stock prices are independent of bulk shipping.

Wed, 01/25/2012 - 00:27 | 2095380 Manthong
Manthong's picture

Traditionally, it is a measure of demand and reflects the general economic trend.

It might mean though, that everything is just fine and the bulk shippers have built too big a fleet over the last handful of years.

Tue, 01/24/2012 - 18:23 | 2094267 homersimpson
homersimpson's picture

There will be NO QE3 tomorrow. Maybe later this year.. but definitely not tomorrow.

Why folks are so optimistic on QE3 with the artificially overvalued stock market is mind boggling.

QE3 will show up when the market is down a few thousand points, which at this rate should happen in 2019 given the amount of low volume meltups the past few months.

Wed, 01/25/2012 - 02:50 | 2095584 Pike Bishop
Pike Bishop's picture

Yeah. No QE3 tomorrow.

After 3 years, doesn't everybody know what time it is?

It's time to bring out the Retail investors....... and fuck 'em in the ass. Yea!

The ICI numbers and gross liquidity flow show that retail Mutual Fund investors (my Brothers and Sisters) have turned and paused, from their recent mass evacuation from stocks, which began last April.

The money which wasn't directly deposited in their mattresses, went into bonds. It only takes one month for 3 or 4 extra of neurons to accidentally fire, and see that no return with no risk isn't going to be productive. The yearning for lottery tickets begins to take hold.

Up to and including this time, I'm just watering my stock picks from the market's most recent lumbar punch. Decent companies get seperated from the Impled Correlation flock, and get an extra good punished by sadistic HFTs or for no apparent reason. "Decent" is plenty good enough. If I get lucky, I get some mobile/connected play or a good earner.

The projectile-vomiting-were-all-gonna-die sentiment, when I buy these things, is culled and softened, whitewashed, and subordinated to nothingness of concern by every financial global entity in the western world.

You folks don't get to have my feeling of sublime invulnerability, because you are logical and can do math. It is on what you have survived. By nature you know that 99.2% of meme no-brainers plays are actually after your genitals. Add to that, the layer upon layer meddling which has raped and inverted most normal asset correlations, and obfuscated price determination.

You see Politicians and Central Banks doing increasingly horrific manipulation, disaster-to-be credit market mis-directions, fumbling bullshitting...all staged on monumental piles of imaginary money.

I see Politicians and Central banks working feverishly to hide financial terrorist and serial market-murderer Uncle Ned, in the back bedroom. They will do this until they can contend by silence, that he really doesn't exist.

So it's these times when my Brothers and Sisters start moving back into their Lottery Tickets, and you all can't fuckin' believe that the charade has worked once again.

The risk is still out there, nothing has changed, most is actually worse, but you have to admit the Reaper can't be seen.

Now, I have to get vigilant. The past 2 yrs, I just had to know the end of the QE of the year to put in stops and watch for 52 wk highs. My Brethren are usually given a good 3-5 months to pump money into the Lemming market, before the sandpaper dildos are delivered.

This year will be different because of the Election and the Fed is running silent.

It is possible they will sacrifice any period from Mar-Aug, but come Sep, every single member of  TPTB, Gov't, Fed, Banks are gonna be jacking love sauce into the Market.

Because the members of the US Politburo and their owners will be trapped in their perception of the American electorate.

They will have to admit, if the S&P closes at 1000 on that Monday, they won't be sure if the stupid electorate was smart enough to "get" what they saw as very convincing bullshit about who was at fault for the Economy (read Market).

Then they'll have to fear everybody getting voted out.

They are not going to let that happen.

The Fed will stage QE3 perfectly tomorrow, to keep you guys in a conflicted freeze. Some stumble-fuck situation may unfold. But the Fed is going to do everything possible to keep the QE powder in reserve for the Fall.

Mark my words, Ben has been a perfect Father to me and helped me out of every jam.

Live accordingly.

 

Tue, 01/24/2012 - 20:09 | 2094587 razorthin
razorthin's picture

This wickedly over-extended market is setting up for a painful correction in Q1.  But not enough for more OVERT QE.  Just the same old slealth variety.

Tue, 01/24/2012 - 18:14 | 2094238 SheepDog-One
SheepDog-One's picture

QE for what? Markets are rolling in bullish green pastures, all is well, Apple record profits. Yet theres some underlying emergency need to slap more trillions of debt on the taxpayer? 

Tue, 01/24/2012 - 18:45 | 2094344 chicagoedward
chicagoedward's picture

I wouldn’t put it past helicopter Ben. Why? Stubbornly high unemployment and a housing market in a deflationary spiral – throw in a presidential election and you have the motivation to jack this thing up on steroids.

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