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Foreign Fund Flows Analysis Per Most Recent TIC Data
We present a detailed analysis of international capital flows as disclosed by yesterday's most recent TIC data. Among the key observations we note that while foreign buying of Long Term Treasuries came at a healthy $61.4 billion in total net long-term treasuries, this was coupled by record selling of corporate debt, to the tune of ($24.6) billion. January also saw a net sale of over $5 billion in agency securities, offset by $4.3 billion in stock purchases.
Note the record sales of corporate bonds in January.
Over the last twelve months foreigners have bought $589 billion in LT USTs, have bought $154 billion stocks, and have sold $58 billion in Corporate Bonds, and $2 billion in Agencies.
Focusing on the big 3, and especially China, we can see that China sold a total of $5.9 billion in USTs, which consisted of a sale of $12.1 billion in Bills offset by a purchases of $6.3 billion in Long Term USTs (Notes and Bonds).
Looking at China's cumulative holdings split by ST and LT USTs, it is obvious that China has been rolling out of its Bill holdings, which peaked at $210 billion in May 2009, and are now down to just $58 billion, even as it has been increasing its LT holdings. The pre-crisis Bill holdings for China averaged in the mid 20's range, meaning that China will likely roll another $40 billion from its existing $58 billion position. China's LT UST holdings were at a record $831 billion in January.
Below is the change in Japan's ST and LT holdings.
Ostensibly the most interesting foreign holder of Treasuries over the past 6 months has been the UK.The nation's purchasing of LT USTs surged in November as can be seen on the chart below and has continued at a torrid pace. This parallels precisely the emergence of the Direct Bidder as a crticial component of every treasury auction, leading to the conclusion that Direct bidders are likely based in the UK. Whose bidding they are doing is unknown. It is certainly not that of the UK itself, which until recently has been busy buying its own bonds.
With US interest rates at record lows as we pointed out recently, foreign investor demand has not subsided, indicating that all these purchases are merely a function of massive excess liquidity throughout the world, which however can only be captured by major financial institutions; retail will forever be locked out at borrowing in the short-term credit markets at anything comparable to the 0.25% that banks can do today. Therefore, this data, just like all the stock market data makes it clear that once tightening begins (if ever - we still believe just the transition from a loose to a tight monetary policy will be a major systemic shock), the trade off will be between the increased payoff from higher rates, and the ability to borrow cheap to finance this yet another carry trade. Should central banks stop the spigot, look for some major inversions in the above patterns.
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Given that POTY ("Person of the Year") is in charge, I am sure that he can single-handedly make up for the fact that everybody with a brain has lost confidence in Treserve's con game.
I second that emotion.
The question remains:
IS the Federal Reserve and US Treasury trading government paper for the MBS crappola that China was stuck with two years ago when this entire mess blew up?
If so, why is this not an on the books transaction where full transparency would reflect such action? (As if we didn't know the answer to this one)
I can see now this is going to have a very sad ending unless the Fed comes out and offers a direct guarantee to monetize and purchase all maturities 1 year or longer once the mortgage rates crack 5.50% on a regular basis.
there are one or two tricks here. One is that the UK buying of treasuries comes from non-UK "investors". The UK has no money, and hasn't had for some time. The second is that (if you can bear slumming for a second) this article points further to what is actually going on.
http://www.businessinsider.com/chart-of-the-day-securities-vs-commercial-and-industrial-loans-2010-3
The real issue is ...why are banks allowed to gain a free lunch of a yield curve based carry trade that has to be paid for by the tax payer via the Fed? We have already bailed out the banks with the odd 3 trillion and we know that this trick (+1.5% yield curve carry trade) has not worked over twenty years in Japan.
You can swallow the line that we need to "rebuild the banks balance sheets, so they can give us free toasters to sign up and then rip us off for thousands of dollars in fees" and take things back to the 50's and 60's..but really, where is the fire in the belly going to come from to actually do something that actually changes the corrupt status quo?
White collar criminals are still employed, whether its in the borrower or lender field at the Treasury, the Agency, the Municipal, the banks, the brokers etc etc. The system we have is akin to that of Nazi Germany. Its just we are fighting an economic brainwashing rather than a racist expansionist one.
Obama does not have the backing to do anything. Witness the 1,336 bill to reform the system. One word would have done it "stop" or maybe a few more like "just do it". Why aren't there intelligent people out there who can return the rule book to something that doesn't require 6,000 lawyers at $1,500 an hour to draft it and make it legible for the common man to understand it?
We know the market is rigged, we know who is rigging it, we know why they are rigging it, so why isn't the FBI proecuting it? Why isn't there a backlash against Obama for giving up his "change" manifesto?
Hummph.
-"Why isn't there a backlash against Obama for giving up his "change" manifesto?"
The answer, I believe, lies in the word "Depression". On all sides. For now many people are too depressed to call him on it, because the implications are that he's just a shill for the big money boyz and he was just fibbing about "change". And scared. There's a notion that any more questioning or criticism of our leadership will be harmful to the economy. This speaks to the deep state of anxiety that most Americans are in. And the audacity of hope has morphed into the mendacity of hope.
-"Why isn't there a backlash against Obama for giving up his "change" manifesto?"
The answer, I believe, lies in the word "Depression". On all sides. For now many people are too depressed to call him on it, because the implications are that he's just a shill for the big money boyz and he was just fibbing about "change". And scared. There's a notion that any more questioning or criticism of our leadership will be harmful to the economy. This speaks to the deep state of anxiety that most Americans are in. And the audacity of hope has morphed into the mendacity of hope.
1336 page woops
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