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Foreign Central Bank Treasury Holdings At The Fed Decline In January For The First Time In Years
The last thing that the fixed income market needs now, with ever greater uncertainty out of European bond land, is weakness where it hurts the most: the US balance sheet. Yet last Thursday's H.4.1 report indicated something which could be more troubling than even Greece's credit crisis morphing into a liquidity one, namely, that foreign central banks' UST holdings at the Fed declined for the first time in over two years.
What could be precipitating this? Quite a few factors have emerged recently:
1) A seemingly endless supply of Treasuries (especially the 2,5, and 7
Y) for which the indirect take down continues to be over 50%. This alone is
confusing in light of the custody decline.
2) Concerns over developed country sovereign risk: last week S&P downgraded it Japan outlook and issued a scathing report on UK sovereign and financial risk.
3) Kansas Fed's Hoenig dissent on tightening monetary policy. This is the proverbial first shot across the Fed's bow. Hoenig's "believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted."
4) Economic conditions have taken a decidedly bearish tone. JPM's EASI index of economic surprises (lower means greater amount of negative surprises) just took a dramatic turn lower.
5) Flattening and outright inversion in a variety of financial corp spreads in the 5s10s bracket.
6) AAA CMBS spreads widened by 30 bps. If sovereign risk is in question, why should insolvent REITs be any better?
Regardless of which specific set of news may have precipitated the January Treasury effect, this is truly a scary observation, which however does not jive with the indirect take down continuing to be as strong as ever: if indeed the custody data is correct, then all the indirect bid data has to be taken with not just a dash of salt, but as Rosenberg says, an entire salt shaker.
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Now wait a minute. Didn't you have another post over a month ago that said the reason the Chinese had bought less treasuries is because we are not buying as much Chinese crap? Isn't that the same thing going on here? I'm confused.
Whats up with the NIKKEI tonight?
What do you mean?
It's down 40 as of 11:00 AM in Japan...
After seeing your comment, I thought it was going to be -200 or something...
...or am I missing something?
lol and it ended positive.
Seriously, this blog is great for actual news, but please don't take trading advice from here. :)
Stop! Stop! the postings must stop, I can't even read them all, how many just on a Sunday???...how can you find/write them all???....tell me there is a large staff at ZH...stop, for love of God, stop!!!
Of course there is a large staff at ZH, there are 4 avatars.
Currently I'm trying to work on a school project... Between Zerohedge postings (trying not to miss anything from this past week) and the Grammys I'havent accomplish much. Luckily my GF "commands" me to get out of ZH site. Sometimes she gets pissed for all the time I spent in this site. She also gets scared when I tell her all the conspiracy theories/facts out there. She doesn't want to know. :-)
I love it!
So what might the exchange rate be for the Big Reset? The classic, Argentina-Poland-sooo-XX-century-style of 1:1000, or a Texas-really-really-big, like 1:10E6? Just asking....
are the holdings declining because of valuation fluctuations or because of net sellings?
As many treasuries as they have been selling you would think this would be inevitable. With the dollar rising will it be more expensive for them to purchase treasuries?
It's "HASTA LA VISTA, USA"---"The United States Misreads Brazil's World Policy"
When the United States first realized circa 1970 that its hegemonic dominance was being threatened by the growing economic (and hence geopolitical) strength of western Europe and Japan, it changed its posture, seeking to prevent western Europe and Japan from taking too independent a position in world affairs.
The United States said in effect, although not in words: Up to now, we have been treating you as satellites, required to follow our lead without question on the world scene. But you are stronger now. So we invite you to be partners, junior partners, who will share in the collective decision-making, provided only you don't stray too far on your own. This new U.S. policy was institutionalized in multiple ways - notably the creation of the G-7, the establishment of the Trilateral Commission, and the invention of the World Economic Forum of Davos as a meeting-ground of the "friendly" world elite.
The main U.S. objective was to slow down the decline of its geopolitical power. The new policy worked for perhaps twenty years. It was finally undone by two successive events. The first was the disintegration of the Soviet Union in 1989-1991, which removed the major argument the United States had used with its "partners" that they should not be too "independent" on the world scene. And the second was the self-defeating unilateral macho militarism of the Bush regime. Instead of restoring U.S. hegemony, it resulted in the devastating failure of the United States in 2003 to get U.N. Security Council endorsement of its invasion of Iraq. Bush's neocon policies had backfired entirely, turning a slow decline in U.S. geopolitical power into a precipitate decline. Today, almost everyone recognizes that the United States no longer has the clout it once had.
One would have thought the United States might have learned some lessons from the errors of the Bush regime. But it seems it is trying to repeat the same scenario with Brazil today. It will not take twenty years for this attempt to unravel.
The major geopolitical move that Obama has undertaken was to turn the G-8 meeting into a G-20 meeting. The crucial group that was added to the meeting were the so-called BRIC countries, otherwise called the "emerging" countries. BRIC stands for Brazil, Russia (already included in the G-8), India, and China.
What the United States is offering Brazil is "partnership." This comes out very clearly in the recent report of a Task Force of the Council on Foreign Relations (CFR) entitled U.S.-Latin America Relations: A New Direction for a New Reality. The CFR is the voice of the centrist Establishment, and this report probably reflects White House thinking.
There are two crucial sentences in this report concerning Brazil. The first reads: "The Task Force believes that deepening strategic relationships with Brazil and Mexico, and reformulating diplomatic efforts with Venezuela and Cuba, will not only establish more fruitful interaction with these countries but will also positively transform U.S.-Latin American relations."
And the second sentence deals specifically with Brazil: "The Task Force recommends that the United States build on its existing collaboration with Brazil on ethanol to develop a more consistent, coordinated, and broader partnership that incorporates a wide range of bilateral, regional, and global issues."
The report was issued in 2009. In December, the CFR organized with the Fundação Getulio Vargas (FGV) a seminar on "rising Brazil." By coincidence, the seminar occurred just at the moment of both the Honduran political crisis and the visit of Iran's President Ahmadinejad to Brazil. The U.S. participants in the seminar did not speak the same language as the Brazilians. The Americans believed that Brazil should act as a regional power, that is, as a sub-imperial power. The U.S. participants couldn't understand Brazil's disapproval of Colombia's military and economic links with the United States. They thought also that Brazil should assume some responsibility for maintaining "world order," which meant joining in the U.S. pressure on Iran's nuclear policies, whereas the Brazilians felt that the U.S. position on Iran was "hypocritical." Finally, whereas the U.S. participants saw Chavez's Venezuela as being "far from democratic," the Brazilians echoed President Lula's characterization that Venezuela suffered from an "excess of democracy."
In January 2010, Susan Purcell, a conservative U.S. analyst, published in the Miami Herald a critique of U.S. policy on Brazil, calling it "wishful thinking." She may well be right. In her view, "Washington may need to rethink its assumptions regarding the extent to which Brazil can be relied on to deal with political and security problems in Latin America in ways that are also compatible with U.S. interests."
In January also, Valter Pomar, Secretary for International Relations of Lula's party, the PT, said that the U.S. intention in creating the G-20 was "to try to absorb and control alternative poles of power, ...to maintain a multipolarity under control." He insisted that, in the strain between supporting world capitalist interests as a sub-imperial power and supporting "democratic-popular interests," Brazil would end up on the latter side.
Given the increased strength of western Europe and Japan in the early 1970s, the United States offered them promotion to the status of junior partner. France and Germany opted to proceed further to an independent world role in 2003. And Japan, in its national election in 2009 and its mayoral election in Okinawa in 2010, seems to be opting for it now. Brazil, given its increased strength, was offered junior partnership only in 2009. It seems to be insisting on an independent world role almost immediately .
Commentary No. 274, Feb. 1, 2010
immanuel.wallerstein@yale.edu
Don't forget your mystery bidder thesis, which if it's true, would mean that central bank holdings would still have grown.
Don't conveniently forget a thesis you proposed. Another thought to keep in mind is the accuracy of government statistics within a 2 to 3 year window of the actual event.
Oh also another thought on the mystery bidder...
Private banks not in the FDIC circle.
Wake me up when the Dow drops 500. These War charts and analysis is nothing but a boring movie.. I taking a fucking nap. Nothing to see here. Lloyd still gets his bonus, Japan still functions, Ireland still exists...