Withholding Taxes and Job Losses

Adapted from comment on Russ Winter's Winterwatch. I've added charts.


Russ,

I’m a little skeptical about your “orphaned money theory.” Yes, there is a lot of money that has “moved” into money markets, Treasuries, etc. However, I don’t see how you can count reserves at Fed, for example, as orphaned money. This is just a recapitalization scheme for the banks to earn money on Treasuries while the Fed holds down their borrowing rates.

Money markets? I believe that a lot of this is money that will never go into stocks because it’s institutional money that has restrictions on it.

As far as Treasuries goes, most of that move is repositioning from the agencies that the Fed is buying. Some of this, I believe is also reallocation to AAA from downgraded securities by insurance co’s, pension funds, etc.


Any orphaned money that the plutocratic class has left over is dwarfed by hedge fund losses. For example, margin debt has come way down in the past couple of months, but hasn’t changed as a % of market cap. Also, any hedge fund that has restricted redemptions is a fund that has something illiquid to sell. This caps any rally, in my mind.


One last thing. I looked at BLS chart of job losses. In the last cycle, they peaked in Q4′01.

Then I looked at the Withholding Taxes Chart.





It looks like there’s a one quarter lag on the withholdings. Q2′01 was the first negative job growth quarter, but the withholdings still grow at 3%+. Peak withholding losses lag peak job losses by 1Q, and recovery with positive job growth in Q3′03 shows negative withholding growth.

Bottom line: withholding taxes info lags job loss data.

Your wise thoughts/comments would be appreciated.