We have long advocated that problems in the equity markets are foreshadowed by warnings in the Credit Markets. This leading indicator for equity markets is once again signaling problems in: i) the high yield versus investment grade spread and ii) the level of total bank reserves held at the Federal Reserves.

Unexpected problems associated with the exploding size of overnight (o/n) Reverse Repo operations in the short term funding market along with US Treasury General Account due to the expiration on July 31st of the Debt Ceiling moratorium is now forcing STEALTH QUANTITATIVE TIGHTENING.