I get this real time Federal tax collection data every day from the US Treasury’s Daily Treasury Statement. It gives us up-to-the-minute information on withholding taxes, estimated individual and corporate income taxes, excise taxes, and others.

These tax collections tell us EXACTLY what the US economy is doing at any given point in time. There’s no need to wait for the media to report what the manipulated government economic data did last month or the month before.

We have everything we need to know in real time.

Federal Withholding Tax collections were solid in August. They gained nearly 5% versus a year ago, before inflation. That’s a good number, but if you think that’s good news for stocks, I’m here to disabuse you of that notion.

I’ll give you the details on this real time data on the economy, and show you why this good news is really bad news for the stock market and your portfolio.

Here’s what you need to know and exactly what to do next, depending on your portfolio…

Real Time Data Gives Us an Edge

Having access to the real time Fed collection data is important; it gives us a leg up in knowing what the Fed will do next. As Janet has told us over and over and over, the Fed’s decision-making is “data” dependent. However, Fedheads only consider official economic data, which they receive only a day or so before its official release. That’s hardly helpful when it applies to a period that occurred a month ago or more.

But we know what’s happening now, baby! Since the Fed has already told us what its policy intentions are, we know whether the forthcoming data will keep the Fed on the current track or divert it to something else.

The data we have today tells us that the Fed will stay on course. We’re not talking about interest rates here. As I have told you before, we’re talking about shrinking the balance sheet – that is, actually siphoning money out of the pools of cash that support rising stock prices.

If wages are growing at 2%, the withholding tax data from August implies real growth of 3%. Surprise, surprise, that’s the latest estimate of past Q2 GDP growth that was released last week… And, yes, that’s for the SECOND quarter, more than two months ago.

We already know that the economy remains on the same track, and that the growth trend is stable. The growth rate trend has actually been rising for more than a year.

There are regular fluctuations in collections in economic activity (as reflected in tax collections) from day to day, week to week, and month to month. Economists and the media like to seasonally manipulate and smooth the data to look like the economy moves in a smooth trend. But that’s not the real world. The economy breathes in and breathes out in the short run just like you and I do. It speeds up for a few weeks, then slows down, and then picks up again. The chart below is reality, folks. This is how the real world really works. Contrary to what the economic establishment would like to pretend, the US economy does not move in a smooth curve.

However, when we examine that real world chart, we can still clearly see the trend. It’s up. The US economy is still growing – despite what all the economic Cassandras are telling you – along the same track it has followed for the last 16 months. There’s nothing new going on.

Without regard to Fed policy machinations, driven by ever advancing technology and demographics, the US economy just keeps on growing at a modest pace-a little more this month, a little less next month.

The problem is that that is no longer bullish. The Fed has told us that enough is enough! This is an absolutely normal phenomenon in the cycle. The Fed starts to worry about inflation, in this case asset bubble inflation, and it pulls the punchbowl.

The fact that there is no sign of recession is bearish itself. It will encourage the Fed to stay on course in its determination to begin shrinking its balance sheet.

Here’s Why the Market Will Top Out

Markets top out when the economic news is good because that’s when the central bank “pulls the punchbowl.”

And make no mistake: This central bank is determined to pull the punchbowl. It desperately wants to prick these asset bubbles. Central bankers are full of themselves. They always think that they can manage a soft landing.

We’ll see about that. They’re usually wrong.

Soon, Congress and the President will make a deal to raise the debt ceiling. The government will need to raise hundreds of billions of dollars to repay the internal funds it raided since March while the debt ceiling has been in place. It will need to rebuild cash to normal levels. The Treasury Borrowing Advisory Committee (or TBAC), a committee of Wall Street big shots that tells the Treasury how much debt it will need to sell, has recommended once again that the Treasury build up its cash to total $500 billion as a contingency fund for any emergencies.

Such a cash buildup would cause a screaming downside reversal in the rallies in stocks and bonds. It would pull that cash from the pool of money that constantly lifts prices stocks.

It’s all about supply and demand. The cash that drives demand will be rapidly withdrawn from the system to be put on the books of the US Treasury. The supply of securities will massively increase at the same time. Thus, securities prices will crash. In this example, the supply of Treasury debt would massively increase. It will suck up all the cash that would have been used to buy stocks.

Not only would bond prices fall, but stock prices would drop too.

What’s Right for Your Portfolio

The tenuous position of the LAMPP, still on yellow but just a hair above red, allows us to stay long for now, but ready to pull the trigger to get out. Any increase in Treasury supply, or the beginning of the Fed “normalization” program will put the LAMPP on a red signal.

For the past five weeks, I have been recommending a systematic move to increase your cash position. I can’t tell you what the appropriate amount of cash would be; that depends on your circumstances. My instinct as a 66-year-old would be to have at least 60%, if not 70% of my assets in cash by the end of September. However, that might not be right for you.

Whatever your circumstances, the risks of and the rationale for a sharp break in securities prices are building, and the next red signal from the LAMPP is likely to mark the start of a bear market.

So I’ll continue to recommend that investors undertake a program of regular periodic liquidations to raise a substantial amount of cash in any rally now. If you haven’t started yet, I’d say start now and work toward that goal with sales every couple of weeks until you get there.

I would use bank accounts and CDs up to the FDIC limit. Government money market funds would be another option. Finally, you could open an account with Treasury Direct and buy T-bills directly from Uncle Sam. The Treasury would hold those bills in custody for you.

The timing and direction of any future moves will depend on the actions of the Fed and the Treasury. Those actions will show up in the LAMPP which will give us clear signals on whether to be in or out, long or short. You can follow those signals every week, right here.