Financial News
How the Treasury refresh may not be catastrophic
The Trend Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEimybngV36EJe_gEUEFOo1S7MfsVgibBJ567YzmzkhI67Y9CTtjWE1FK_UBEGuIowMuI7skxe9LyVxAX0rBXMiEKj0h1vbXUDI-zYVFTlrRAAa05hczDdrEAAbIhmgbMZ-uevLDzdLtwdKVpXO6AQuL_V-s2gGMsjNuPi-pKh2PtD0oZb3sKZLlMotysQ/w400-h289/Trend%20Model%20perf.jpg)
My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don't buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the email alerts is updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7Q70zehYE7w3FGCe6tw60VBawk5kZ0qc7CQtzPNZG_j7yHBYlLRqGKVQjlbDR_3EaWWEwrZe5r5-RDTmhSiSzpdBuN6td84mD5Zc531U0VsYlfVAccKaQp4o5TsM4uqqv7e2hgiy37qkhKN0bFoGl-JZdeEBoRqPhITxuHIxG4XSknC_fRq7TT7W7ZA/w400-h291/Inner%20Trader.png)
The latest signals of each model are as follows:
- Ultimate market timing model: Sell equities (Last changed from “buy” on 26-Mar-2023)*
- Trend Model signal: Neutral (Last changed from “bullish” on 17-Mar-2023)*
- Trading model: Bearish (Last changed from “neutral” on 02-Jun-2023)*
Update schedule: I generally update model readings on my site on weekends. I am also on Twitter at @humblestudent and on Mastodon at @humblestudent@toot.community. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.
Subscribers can access the latest signal in real time here. A liquidity catastrophe?
Even before the resolution of the debt ceiling impasse, analysts had been warning about the consequences of a post-deal hangover.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgP6yTKnflVpBofWU0qtH_JGYXeeq1pXYWoWaQtvkWOZna0arU6L3PyUGC40capWfoxe7YgoVwz0xWF_6vk3m4FPlXCI8aglZSLd_fHhqN-QEnvu6CavKPCtk28AwH2-AiVstBrg9RmNjZMYxbyEpCbrRdmHYkHkmFWL8Ptez8ltcwqkI7-7HbSUMYyAA/w400-h225/TGA%20cash.webp)
It was said that the U.S. Treasury market would see a flood of new issuance which would draw liquidity from the financial system. Such a loss of liquidity would create significant headwinds for the prices of risk assets. Since the conclusion of the debt ceiling deal, the warnings have become a cacophony. Estimates vary, but consensus market expectations call for the issuance of about $1 trillion in Treasury paper over the next three months.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFzjgNcf-4Z5HGtmxLmEI7EBG9FW4g-zCsXknvxxo0Axe6AIHJ8MY9SDSa5syIUWkDhgDggn8dp7p8W9WdLKcRtfBCf4vpRUcjn1TpcnL0LpcpMoRoKIG4eL0DcwFnQcGVT0fWb-2qANg94SsnbAm_RSxBAsUnMmWpZLN1HWzjYWKEGzg0F4vpZQduPg/w400-h291/TB%20issuance.jpg)
I have warned before about the liquidity impact of new Treasury issuance and I am certainly cognizant of the risks. However, there is a narrow path for a benign resolution of the reset of the U.S. Treasury’s cash balances without significantly affecting the price of risk assets.
The full post can be found here.
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