The purpose of this article is to examine the USA sectoral flows for September 2020 and assess the likely impact on markets as we advance.
Source: FRED, CBO and author’s calculations based thereon
The table above shows the financial balance of financial flows from the USA national accounts since April this year when the Federal Government response to the COVID crisis started.
The flow to the private domestic sector (where the asset markets are) was over fifty percent lower than last month but still positive at over $79B.
Asset markets can be expected to keep climbing as the injection of more money is factored into their prices.
The chart below from the CBO shows the deficit spending path.
The chart above shows the big difference in deficit spending year over year. The CBO summarising the result for September as follows:
The table below shows that the overall Federal expenditures were large in September with a 19% increase from last month and a return to levels seen in May and June of this year. Higher overall spending lifts asset prices, and markets can rise even in the face of a pandemic and its associated unemployment and lower consumption and production levels.
The politicians may be arguing about more stimulus at the moment; however, the last stimulus package’s spending is still happening at crisis levels.
The table above, taken from the Daily Treasury statement, shows that the Federal government has a bank balance of over $1.6T available to spend. There is no shortage of cash on hand, and it is still going out at a strong level.
Very few tax dollars funded this bank balance. The bank balance came mostly from bond sales. Federal taxes to fund the government are obsolete.
The chart above is taken from this article from ANG traders of the Away from the Herd market service.
ANG Traders has very cleverly produced a chart that removes the treasury churn’s noise from the Daily Treasury Statements. This is the redemption and then the sale of bonds on a grand scale that tends to mask the actual real spending into or out of the economy. Once the churn has been removed, the chart shows only the real spending and whether the Federal government is adding money to the economy or taking it out.
The good news is that at present, the bias is towards a net add to financial assets.
Looking forward, the chart below shows the expected likely path of asset markets into the end of the calendar year.
The chart comes from Mr. Robert P. Balan of Predictive Analytic Models and this recent article
1. Stock markets continue upwards even more, so equities could be bought after the seasonal dip in October if we get one.
2. Bond yields rise, and bond prices fall, and so bonds could be shorted.
3. Gold falls and so could be shorted.
As predicted in my last article of this type last month, the above trades are playing out right now.
On the world macro scale, the situation is similar with a confluence of money from Central banks across the world coming together to lift and support markets into the end of the year, as the chart below shows.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.