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So Long As The Bucket Is Full of Holes, Treasury Demand Comes First

So Long As The Bucket Is Full of Holes, Treasury Demand Comes First



Foreigners are dumping their Treasuries! The Fed is monetizing the debt! The federal government has gone insane! Mass fiscal hysteria!

Yet, yields on these things are comfortably within sight of their record lows as prices have never been higher. Supply is very obviously off-the-charts, but so, too, must be demand. Every time we hear about “too many” Treasuries the market yet again proves it nothing more than fallacy, a myth that just won’t die.

The demand comes first. That’s the thing. So long as it does, supply can’t be an issue.

In other words, the federal government’s fiscal insanity is a secondary (if not tertiary) factor in all this. What governs the whole dynamic is that demand for the safest, most liquid instruments. And if you stop and think about it, truly and honestly think about it, then supply makes sense, too.

Why has the federal government gone crazy in the first place? To try to combat the very problem that has supercharged demand for its debt. Rather than being inconsistent or contradictory, supply and demand are, in this way, perfectly complementary.

The only wrinkle, if you let it be one, is the Fed. Jay Powell sees his job as getting you to believe that he’s done an awesome job, therefore inflation must be right around the corner. The bond market, this constant demand for safe, liquid instruments, strenuously disagrees; it has the enviable track record on its side, too.

Part of his spin is his own role in these supply and demand dynamics. The Treasury market was broken back in March, he’ll say, so if it hadn’t been for the “timely” upsize in QE6 then rates would be disastrously skyrocketing right now. The Chairman will trade the current criticism over his “monetizing” the government’s debt in exchange for the implicit inflationary expectations embedded within that criticism.

Add gold to that list.

But are either of those things true? First, did the Fed actually monetize the debt? Second, does monetizing lead to inflation?

These are another set of myths which go unchallenged especially in the media. After all, if Jay Powell says it, or even just refuses to deny it, then it must be true. Even when it isn’t:

American money-market funds — a harbor for the assets of retirees and companies — have bought the brunt of the roughly $2.2 trillion in bills the government has sold to raise cash for economic stimulus amid the pandemic. The Fed has bought almost none…

It’s the bills where most of this borrowing insanity has gotten done. Flipping the script from last year when not-QE purposefully stayed away from bond-buying (because that would signal inflationary policy) in favor of bills exclusively, QE6 has been almost entirely notes and bonds as if the Fed noticed something peculiar about that selloff in March.

While not understanding the significance, it was impossible not to notice at least the specifics:

The FOMC minutes [March 2020 meeting] just described a situation that was so bad, collateral-wise, financial participants (which we know were largely foreign official entities) were forced to sell whatever they could, including UST’s, choosing only those which were OFR. At the same time, everyone had to pile into the OTR stuff, including all the bills, because that’s all that was left as acceptable. A true funnel or bottleneck.

When even OFR UST’s are no longer as acceptable in repo, and the collateral system begins to break down along OTR and OFR lines within the UST side of that market, when the functioning collateral list gets pared down to just OTR UST’s and nothing else (I’m overstating this, but not that much), it should go without saying that this would be an enormously bad situation.

The Fed believes that it should stay out of bills because of the possibility for more of a broken Treasury market (liquidity in it) when the actual data, all the evidence says it was broken repo (collateral) further breaking down the whole global liquidity system (GFC2) since the Fed is so bad at what it supposedly does.

And in the end, the US central bank ends up doing the right thing (staying out of bills) for the wrong reasons.

That’s not inflationary. As the prices at the long end also demonstrate, with or without Powell’s QE, there’s no shortage of demand anywhere on the Treasury curve. The Chairman is picking his spots arbitrarily as if at random (or by default).

Going back to the World War II era, it was much the same (financial) situation as we find ourselves with today. In 1942, federal government deficits exploded leaving Treasury to finance it by issuing massive amounts of short-term debt – which the Fed bought by the bushelful.

Back then, it wasn’t “quantitative” but rather rate pegged. And in the end, it wasn’t much for “easing”, either.

The Federal Reserve purchased the vast majority of all the bills issued during and immediately after the war. Inflationary? Not even slightly. The reason was the same; the background behind these things continued to be deflationary (total war plus lingering depression will do that) and that’s what really mattered.

While the central bank leaned heavily in the bill market, there was no shortage of demand for other forms of Treasury debt. From certificates of indebtedness still at the short end of the curve to notes and bonds (including special Liberty Bond issues), the public snapped up what was back then an even larger expansion of the government’s reach (by proportion).

Like the 1947-48 bond buying episode (the Fed’s inflation panic), we’re supposed to believe that the central bank played the pivotal role in keeping the financial situation orderly, trading off that priority by risking an inflationary breakout. Bullshit. That’s the myth that has been conjured, hardly in keeping with the reality of the situation.

Sure, the Fed monetized the bills during WWII, but so what? The depressionary conditions rampant throughout the markets and economy led the private system to easily monetize everything else, the vast majority. Even the Fed’s inflation panic in bond buying was a tiny drop in the bucket.

Yields said so.

Like today, the Federal Reserve’s role was limited to projecting stability – even when it wasn’t really needed. But because you can’t observe the private market’s unstoppable demand, you’re left only with the Fed’s balance sheet and the impression that it is impressive when it really isn’t.

Back then, the Fed bought all the bills and almost nothing else. Today, the Fed buys some bonds and hardly any bills. In both cases, the American people were and are led to believe this was and is inflationary (especially in 1947). Balance sheet expansion like this could be, but only under the right circumstances.

The low yields are your clue. The Fed is a bystander, not a powerful, central agent to dictate terms. That especially goes for what happened in March 2020, the mess in repo/T-bills a perfect example of how today’s officials have no idea what they are doing. They just do things and let the financial media write them up as wise and meaningful, as if monetary policy is the only thing that matters.

It’s not that there is huge, persistent, unquenchable demand for the safest, most liquid assets around, it’s why there is such demand in the first place (shadow money destruction you don’t see). When you realize the central bank isn’t central and doesn’t do much as far as actual liquidity, such demand makes perfect sense. Therefore, so, too, does supply.

When the bucket is full of holes (deflationary background) adding a little bit of bank reserves won’t ever fill it up, let alone overflow (inflation) the thing. But you can understand why monetary authorities would try to make it seem like what they are pouring in to the leaky pail (the monetary system) is the only thing that you should factor. They really believe that if you believe in them belief is all it takes to cork the holes.

History conclusively demonstrates you need more than a puppet show to plug real holes. And that’s just another way of writing the interest rate fallacy.

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Watch Yield Curve For When Stocks Begin To Price Recession Risk

Watch Yield Curve For When Stocks Begin To Price Recession Risk

Authored by Simon White, Bloomberg macro strategist,

US large-cap indices…



Watch Yield Curve For When Stocks Begin To Price Recession Risk

Authored by Simon White, Bloomberg macro strategist,

US large-cap indices are currently diverging from recessionary leading economic data. However, a decisive steepening in the yield curve leaves growth stocks and therefore the overall index facing lower prices.

Leading economic data has been signalling a recession for several months. Typically stocks closely follow the ratio between leading and coincident economic data.

As the chart below shows, equities have recently emphatically diverged from the ratio, indicating they are supremely indifferent to very high US recession risk.

What gives? Much of the recent outperformance of the S&P has been driven by a tiny number of tech stocks. The top five S&P stocks’ mean return this year is over 60% versus 0% for the average return of the remaining 498 stocks.

The belief that generative AI is imminently about to radically change the economy and that Nvidia especially is positioned to benefit from this has been behind much of this narrow leadership.

Regardless on your views whether this is overdone or not, it has re-established growth’s dominance over value. Energy had been spearheading the value trade up until around March, but since then tech –- the vessel for many of the largest growth stocks –- has been leading the S&P higher.

The yield curve’s behaviour will be key to watch for a reversion of this trend, and therefore a heightened risk of S&P 500 underperformance. Growth stocks tend to outperform value stocks when the curve flattens. This is because growth companies often have a relative advantage over typically smaller value firms by being able to borrow for longer terms. And vice-versa when the curve steepens, growth firms lose this relative advantage and tend to underperform.

The chart below shows the relationship, which was disrupted through the pandemic. Nonetheless, if it re-establishes itself then the curve beginning to durably re-steepen would be a sign growth stocks will start to underperform again, taking the index lower in the process.

Equivalently, a re-acceleration in US inflation (whose timing depends on China’s halting recovery) is more likely to put steepening pressure on the curve as the Fed has to balance economic growth more with inflation risks. Given the growth segment’s outperformance is an indication of the market’s intensely relaxed attitude to inflation, its resurgence would be a high risk for sending growth stocks lower.

Tyler Durden Wed, 05/31/2023 - 13:20

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US Job Openings Unexpectedly Soar Above Highest Estimate Even As Number Of Quits Tumble

US Job Openings Unexpectedly Soar Above Highest Estimate Even As Number Of Quits Tumble

For those following the recent sharp drop in job openings,…



US Job Openings Unexpectedly Soar Above Highest Estimate Even As Number Of Quits Tumble

For those following the recent sharp drop in job openings, or perhaps merely fascinated by the narrative that AI will cause a margin-busting corporate revolution as millions of mid-level employees are replaced by a cheap "bullshitting" AI algorithm, then today's latest bizarro JOLTS report will come as a shock. That's because after three months of sharp declines, the BLS reported that in April the number of job openings soared by 358K from an upward revised 9.7 million to 10.1 million, the biggest increase since Dec 2022...

.... and printing not only above the median consensus which expected the trend to continue with 9.4 million job openings this month, but came higher than the highest Wall Street estimate! As shown in the chart below, the delta to median consensus print was a whopping 703K.

According to the BLS, the biggest increase in job openings was in retail trade (+209,000); health care and social assistance (+185,000); and transportation, warehousing, and utilities (+154,000)

The sudden, bizarre reversal in the job openings trend, meant that after falling to the lowest level since Sept 2021, in April the number of job openings was 4.446 million more than the number of unemployed workers, the highest since January.

Said otherwise, after dropping to just 1.64 job openings for every unemployed worker, the lowest since Nov 2021, in April there were 1.79 openings for every worker, a sharp spike back to levels that the Fed does not want to see.

To be sure, none of the above data are credible for reasons we have discussed before but the simplest one is because the response rate of the JOLTS survey is stuck at a record low 31%. Which means that only those who actually have job openings to report do so, while two-thirds of employers are either non-responsive or their mail is quietly lost in the mail.

Another reason why today's data is meaningless is that even as employers allegedly put up many more job wanted signs, the number of workers actually quitting their jobs - a proxy for those who believe they can get a better-paying job elsewhere, and thus strength of the overall job market - tumbled by 129K to 3.8 million, the lowest number since May 2021.

Even the Fed's WSJ mouthpiece Nick Timiraos ignored the stellar headline print, and instead focused on the plunge in quits, writing that the "rate of workers who are voluntarily leaving their jobs (including leisure and hospitality) is returning closer to pre-pandemic levels, a possible sign of less tight labor markets. Quits tend to rise when workers think they can receive better pay by changing jobs."

And the biggest paradox: as pointed out by Peter Tchir of Academy Securities, the seasonally adjusted JOLTS quits rate was 2.4 (we reached a "peak" of 2.4 in July 2019), while the Hires rate (also seasonally adjusted) was 3.9% just like it was 3.9 in July 2019. So allegedly there are 3,000,000 more jobs available now than then.

So what to make of this bizarro, conflicting report?

Well, after three months of drops in job openings, at a time when it is especially critical for Biden to still maintain the illusion that at least the labor market remains strong when everything else in the senile president's economy is crashing and burning, it appears that the BLS got a tap on the shoulder once again, especially when considering that the one category that will be most impacted by ChatGPT and which according to Indeed is seeing a collapse in job postings was also the one category that had the highest number of job openings.

Tyler Durden Wed, 05/31/2023 - 10:35

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COVID-19 lockdowns linked to less accurate recollection of event timing

Participants in a survey study made a relatively high number of errors when asked to recollect the timing of major events that took place in 2021, providing…



Participants in a survey study made a relatively high number of errors when asked to recollect the timing of major events that took place in 2021, providing new insights into how COVID-19 lockdowns impacted perception of time. Daria Pawlak and Arash Sahraie of the University of Aberdeen, UK, present these findings in the open-access journal PLOS ONE on May 31, 2023.

Credit: Arianna Sahraie Photography, CC-BY 4.0 (

Participants in a survey study made a relatively high number of errors when asked to recollect the timing of major events that took place in 2021, providing new insights into how COVID-19 lockdowns impacted perception of time. Daria Pawlak and Arash Sahraie of the University of Aberdeen, UK, present these findings in the open-access journal PLOS ONE on May 31, 2023.

Remembering when past events occurred becomes more difficult as more time passes. In addition, people’s activities and emotions can influence their perception of the passage of time. The social isolation resulting from COVID-19 lockdowns significantly impacted people’s activities and emotions, and prior research has shown that the pandemic triggered distortions in people’s perception of time.

Inspired by that earlier research and clinical reports that patients have become less able to report accurate timelines of their medical conditions, Pawlak and Sahraie set out to deepen understanding of the pandemic’s impact on time perception.

In May 2022, the researchers conducted an online survey in which they asked 277 participants to give the year in which several notable recent events occurred, such as when Brexit was finalized or when Meghan Markle joined the British royal family. Participants also completed standard evaluations for factors related to mental health, including levels of boredom, depression, and resilience.

As expected, participants’ recollection of events that occurred further in the past was less accurate. However, their perception of the timing of events that occurred in 2021—one year prior to the survey—was just an inaccurate as for events that occurred three to four years earlier. In other words, many participants had difficulty recalling the timing of events coinciding with COVID-19 lockdowns.

Additionally, participants who made more errors in event timing were also more likely to show greater levels of depression, anxiety, and physical mental demands during the pandemic, but had less resilience. Boredom was not significantly associated with timeline accuracy.

These findings are similar to those previously reported for prison inmates. The authors suggest that accurate recollection of event timing requires “anchoring” life events, such as birthday celebrations and vacations, which were lacking during COVID-19 lockdowns.

The authors add: “Our paper reports on altered timescapes during the pandemic. In a landscape, if features are not clearly discernible, it is harder to place objects/yourself in relation to other features. Restrictions imposed during the pandemic have impoverished our timescape, affecting the perception of event timelines. We can recall that events happened, we just don’t remember when.


In your coverage please use this URL to provide access to the freely available article in PLOS ONE:

Citation: Pawlak DA, Sahraie A (2023) Lost time: Perception of events timeline affected by the COVID pandemic. PLoS ONE 18(5): e0278250.

Author Countries: UK

Funding: The authors received no specific funding for this work.

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