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Foreigners Purchase Disproportionate Amount Of Stocks Over Treasuries, Corporates; Sell Agencies
Continuing the analysis of yesterday's TIC data, a key observation is that in July, even as foreigners continued purchasing Treasuries, having bought over $31 billion in Bonds (Long-Term) during the month, split evenly between official institutions and other entities, their distate for Agencies was unchanged, selling $4.6 billion, while a curious rotation was evident out of Corporate bonds, with a total $11 billion sold, at the expense of stocks, which saw a $28.6 billion increase over the month, primarily driven by non-official foreign institutions. On an LTM basis, the purchasing of stocks hit a one year high at $91 billion, a number that was matched only by the $107 billion recorded in September 2008 (subsequent to which there was a quick withdrawal from all US equity participation).
Combining these data, with the previously discussed rotation by domestic investors out of foreign securities to the tune of $29 billion, and one gets nearly $60 billion in capital flows hitting the domestic equity market without any actual money leaving the sidelines, but merely an apetite for speculation driving offers ever higher, and piggybacking on the Fed's ever increasing goosing of equities courtesy of QE.
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Anyone else notice the four week T rate? Apparently, more than a few are repositioning ahead of the backstop expiration. Why stick your neck out for a few lousy bps.
Seriously folks, someone with more knowledge than I please take a look at the SPY call side Sept option volume today...strikes 100 through 105 have absolutely tremendous volumes today. The 105 strike is 984K with just 123K open interest.
I realize it's quad witching tomorrow and there will be some strange movements ahead of such an expiration. But those volumes are truly incredible, and they totally dwarf the open interest at all those strikes. Does anyone in the know have an explanation here?
Looks like that after the FED got cot monetizing the debt trough third parties here in America and some foreign banks they decided to go foreign retail just to make it a little harder for people to blow their cover
I just posted a response to both posts:
http://alhambrainvestments.com/blog/?p=7434
http://alhambrainvestments.com/blog/?p=7432
You don't have to post this, but you're reading this wrong and I don't think you want bad info on the blog. I actually visit here every day and enjoy a lot of what you write, but you got this one wrong. Admit and move along.
Rather than read my blog posts, you could also read the press release:
WASHINGTON – The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for July 2009. The next release, which will report on data for August 2009, is scheduled for October 16, 2009.
Net foreign purchases of long-term securities were $15.3 billion.
Net foreign purchases of long-term U.S. securities were $44.0 billion. Of this, net purchases by private foreign investors were $32.1 billion, and net purchases by foreign official institutions were $12.0 billion.
U.S. residents purchased a net $28.8 billion of long-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been negative $7.4 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $4.5 billion. Foreign holdings of Treasury bills increased $14.4 billion.
Banks' own net dollar-denominated liabilities to foreign residents decreased $85.7 billion.
Monthly net TIC flows were negative $97.5 billion. Of this, net foreign private flows were negative $131.3 billion, and net foreign official flows were $33.8 billion.
Are any of those foriegner buyers the recipients of the $500 billion sent overseas by Ben "I don't remember" Bernanke?
The number of $4.6b in Agency debt reduction may have an explanation. On July 20 FRE completed a buy back of its sub debt. The principal came to $3.9b. But they paid a big premium to buy the paper in. With accrued interest it comes very close to the $4.6 number. The deal closed on 7/21 so it is part of the numbers under discussion.
This was a vomit deal. They paid the holders based on a financing rate for the Agencies sub debt of Treasuries +125bp. Unguaranteed subordinated debt of the Agencies would be priced as junk. A yield of 10% would be closer to reality.
Foreign CB's must have held just about all of this swill. They made a boat load on this one. This got done because someone in China held a gun to Bernanke's head and said, "Buy this crap back or else".
The taxpayers got screwed as usual. The details on the buyback can be found below or at:
http://freddiemac.com/news/archives/debt/2009/20090720_subdebt-tender-of...
CUSIP/ISIN Title of Security Reference Security Principal Amount Tendered Reference Yield Fixed Spread (bps) Tender Offer Yield Purchase Price per $1,000 Principal Amount Accrued Interest per $1,000 Principal Amount 3134A4EW0 /
US3134A4EW03 5.875% Freddie SUBS Due March 21, 2011 1.125% U.S. Treasury Due June 30, 2011 $732,928,000 0.999% 100 1.999% 1,063.19 19.58 3134A4ZY3 /
US3134A4ZY30 5.75% Freddie SUBS Due June 27, 2016 3.25% U.S. Treasury Due June 30, 2016 $1,214,167,000 3.232% 125 4.482% 1,074.82 3.83 3134A4ZZ0 /
US3134A4ZZ05 5.00% Freddie SUBS Due December 14, 2018 3.125% U.S. Treasury Due May 15, 2019 $1,927,755,000 3.671% 125 4.921% 1,005.84 5.14 Total $3,874,850,000
Well, well, well...I would LOVE to know who these "other entities" are. And "non-official foreign institutions", well yeah no shit, I would definitely use that convenient little moniker if I were the Fed and buying stocks on the sly. Good work Benny boy. Keep it up.
"The taxpayers got screwed as usual."
well, can't blame the foreigners if you guys a) prefer to not do anything to being raped by your own office bearers and b) have really had a nice run over the last 20 years c) have finally realised that defaulting or devauing your USD is also not an option. So eat it taxpayers, and pray for your sons and grandsons who would be enslved by your vampire squids with no right to say no, just like the non-pigs in animal farm.
Regarding TIC flows, there is a super easy way to remember what the signs mean: negative is OUTFLOW and positive is INFLOW. That applies to both US residents and foreign entities. So yesterday's post about US residents selling foreign assets was a little misleading. The -28.8 bln denotes a NET OUTFLOW of security investment in July 09 (by US residents).
The blog has been very good. Keep up the good work. And please continue the debate on the Fed's asinine policies. Somehow Bernanke thinks he can avoid the fate that has befallen every other central bank that has tried to print money in a crisis and the administration that is borrowing record amounts when they should be worried about lenders' revolt.