Guest Post: Candy From Strangers, Or Who Is Buyng All Those Treasuries?

Tyler Durden's picture

Submitted by Marc McHugh from Across the Street

Candy from Strangers

When TrimTabs Charles Biderman questioned the source of the money that propelled
stocks 65% from the March 2009 lows, he got beaten with the idiot stick
so badly that he actually turned bullish in April 2010.  Lost in the
ensuing choke-out was the fact that no one ever actually answered his
question, unless scoffing and muttering “dark pools and stuff,” under
your breath counts (and he’s the one who should be wearing the
tin-foil hat?
).  Here we go again. 

The first thing you should notice when looking at The Treasury’s
2010 Q1 Bulleti
n is that it’s  incomplete, as I’m sure most of
Secretary Tim Geithner’s homework assignments were.  Of the 12 columns
on Table OFS-2 (Estimated Ownership of U.S. Treasury Securities), Turbo
managed to fill in only 5 (FYI: it takes Treasury more than two
months to prepare the bulletin

From the data actually present, we can determine that Treasury issued
461.7 Billion in new debt Q1.  That’s not surprising,
we’ve been running at the $500 per person per month clip for almost two
years now.  What is surprising is that the Fed  &  Intragovernment
holdings went down $17B.  Foreigners,
God bless ‘em, scooped up an additional $192.5 B, while 
US saving bond  holdings were basically flat (-$1.1 B).

Um, we’re out of data now, but not debt.  287.4 Billion 
(62%) of  Q1′s public debt is not accounted for on the report.
Fortunately when discussing who could digest that much debt in three
months, we can quickly eliminate 6 of the 7 “not available” data points
(depository institutions, pension funds, mutual funds, insurance
companies, and State & local governments).  The only logical
conclusion is at least a quarter trillion  in debt was
purchased by “Other Investors” in Q1.

Aren’t you glad we cleared that up?

What’s that?  “Who the hell are Other Investors,” you say? 
Good question.  It does seem rather nebulous, especially considering
that they are now clearly our best customer(s).   Not very bright
though.  They stepped in and bought like crazy as interest rates went
to record lows.  Still I think we should send a basket of fruit and a
nice thank you note, because without them we would surely have had a
failed auction (read Keynesian apocalypse).

The Treasury defines Other Investors as: 

Individuals, Government-sponsored
enterprises, brokers and dealers, bank personal trusts and estates,
corporate and non-corporate businesses, and other investors.

Thanks Turbo, for narrowing  it down to just about everyone under the

Let’s go ask Ben!

Geithner’s a slacker, this is known, but Fed Chair Ben Bernanke’s SAT
score (1590!) suggests analality (?) (mine was considerably
lower).   Besides, Treasury’s footnotes on tables OFS-2 tell us
that  the source for 6 of the 7 empty columns is the Federal Reserve Board of Governors, Flow of Funds Table
(and which was actually released before the Treasury
Bulletin – don’t get me started…).

The Fed’s flow of funds data is an exercise in convolution, but it
wasn’t too difficult to extract the data missing from the Treasury
bulletin.  Here’s the breakdown:

  •  Depository Institutions   +$59.6 B
  • Private Pension Funds   +$30.9 B
  • State & Local Government Pension Funds  +$7.1 B
  • Insurance Companies  $2.1 B
  • Mutual Funds  -$18.9 B
  • State & Local Governments  -8.5 B

Depository institutions and Private pensions purchased record amounts
of  Treasuries in Q1.  Which means that “Other Investors” accounted
for $215 B of the Treasuries issued in Q1.  Yes, I
realize that this is somewhat lower than my original estimate, but in my
defense that was a logical
conclusion.  Who knew banks and private pensions are expecting another
stock market collapse?  Nobody at CNBC anyway.  They’re too busy
laughing at Main Street for not seeing the awesomeness of the recovery.

Before putting away the Fed’s flow of funds, it is worth noting that
brokers and dealers (who are included as other investors) do
not share the pessimism of banks and private pensions.   They dumped $19
during the quarter.  This brings us to the turd in the
punchbowl.  The Household sector, who the Fed says
purchased a whopping $68 B.  Now before you start
thinking your neighbors are taking their unemployment checks and
sneaking off to Treasury auctions, listen to what Sprott Asset
Management’s Eric Sprott and David Franklin said of the household sector
in their December 2009 report entitled, Is it all just a Ponzi Scheme?:

To quote directly from the Flow of Funds Guide, “For
example, the amounts of Treasury securities held by all other sectors,
obtained from asset data reported by the companies or institutions
themselves, are subtracted from total Treasury securities outstanding,
obtained from the Monthly Treasury Statement of Receipts and Outlays of
the United States Government and the balance is assigned to the
household sector.” (Emphasis ours) So to answer the question – who is
the Household Sector? They are a PHANTOM. They
don’t exist. They merely serve to balance the ledger in the Federal
Reserve’s Flow of Funds report.

I guess that means your neighbor isn’t our superhero, and besides, if
he was he’d have a cooler car.  So who are these strangers with candy
hell-bent on making sure this sugar high doesn’t end?   I don’t
There I said it.  Maybe Charles Biderman gets rattled
when everyone calls him a moron, but I’m used to it.  S0 fire away, but
answer the question.

By the end of 2010, Other Investors will own more than 10%
of the US public debt (1.5 Trillion or so).  They bought more than 45%
of the new debt in Q1.  At what point does this kind of opacity become
unacceptable?  Why can’t the Treasury fill out its own bulletin with
information already available?  Why do we have to wait five months for
information that is so vague, you can’t even call it information with a
straight face?

And last but not least, where do we send the fruit basket?

Other Reading:

Is it all just a Ponzi Scheme? (Sprott &

Smoking Guns of US Treasury Monetization (Jim Willie)

Treasury table OFS-2 (updated by author).

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Misean's picture

"They are a PHANTOM. They don’t exist."

Perhaps they're computers plugged into some rented office space in the Cayman Islands.

DarkMath's picture

It's actually one big Household (no S). Don't tell ANYONE, but I've got a friend at the Treasury and he tells me they actually have a picture of "The Household" that is buying all that debt (it's a very very rich family, I won't bore you with the details). Once you see their house you'll understand how they can afford %10 of our Treasury Debt:


MsCreant's picture

No, that family is bankrupt too. They just have a printer. Shhhhhhh! Don't tell. Or the other countries will find out and want some too. Oh, wait...

DarkAgeAhead's picture

Yep, all of those annoying futurists have been predicting the technological singularity for some time now.  Who could have figured though, when the computers developed AI, they'd start buying government debt rather than converting humans into usuable energy sources ala the Matrix!?

NotApplicable's picture

Ooh, ohh, I know the answer to this question, as it is always the same answer to the question "Who's the sucker?"

We are!

Isn't collectivism wonderful?

Rainman's picture

Whitney referred to bank revenues as " phantom " . Now this dude uses the same term to describe the non-existent household sector buying Treasuries.

Things are getting spookier.

Rusty_Shackleford's picture

"I see dead people,... buying Treasuries."

MsCreant's picture

With my children's inheritance.

Mad Max's picture

"I see Dead Presidents buying Treasuries"


"All the time."

zhandax's picture

Appreciate the sarcasm; Fed prints like there is no tomorrow and sticks the bill up the ass of every household in the US.  What more obvious place to account than the 'household' sector?

MsCreant's picture

Indeed. But there is only so much room to stick things before folks finally start to feel it. Something has to give. Has auditing the Fed come down to a colonoscopy? Bet we would learn more truth than what is being proposed.

zhandax's picture

A true accounting "colonoscopy" of the fed would confuse me to no end...I dropped out of Pre-Med to enroll in the College of Business?

Goldenballs's picture

Lets just say when this crap is brought and sold its amongst friends in high places some of which will be left holding the baby or will it carry on that long that it is repackaged and sold to a new generation who,ve not been burned.The more figures you see the more unreal it becomes, desperation ain,t the word .................................................... Carry on up the fed .........

Waterfallsparkles's picture

Market Ticker did a piece on this.  He talked about buying Bonds that did not exist and then shorted them.  More supply than demand to short them into the ground?

Who knows. 

Boilermaker's picture

You DO NOT want to know what is in the sausage.  Just eat it.

drbill's picture

Nothing to see here. Move along....

FEDbuster's picture

"Pay no attention to that man behind the curtain!"

andyupnorth's picture

I love how when the old man says he's actually the wizard, Dorothy replies, "I don't believe you!"

It's hard to believe the truth when you've been lied to all your life.

seventree's picture

Other Investors: Individuals, Government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and Other Investors.

Let's try some variable substitution. That always helped me in algebra.

Other Investors: Individuals, Government-sponsored enterprises,

brokers and dealers, bank personal trusts and estates,

corporate and non-corporate businesses, and [

Individuals, Government-sponsored enterprises,

brokers and dealers, bank personal trusts and estates,

corporate and non-corporate businesses, and [

Individuals, Government-sponsored enterprises,

brokers and dealers, bank personal trusts and estates,

corporate and non-corporate businesses, and [...]...

Well, maybe not.

SWCroaker's picture

Okay.  THAT got a belly laugh.  :)

Shameful's picture

Could it be The Phantom?!?!?

We all know who is buying it.  Zimbabwe Ben is working the presses.  Man things sure are easy when you have an unelected unaudited organization manning the printing press!  Remember a lot of the foreign purchases came from places like the UK.  So the bankrupt UK gov is buying our debt at record levels...sure why not I can believe that.  Currency swaps are awesome.

Gwynplaine's picture
Gwynplaine (not verified) Shameful Aug 4, 2010 9:59 AM

Or maybe The Shadow.  As Orson Wells said, "Who knows what evil lurks in the hearts of men?  The Shadow knows!"

Thalamus's picture

When the Detroit crew runs things you expect the books to balance?  I look forward to 5 years from now, after Marshall law is imposed of course, that this crooked administration be on trial for crimes against our country and be made examples of for future generations. 

lewy14's picture

It's Martial Law. Martial.

(Pet peev).

Mad Max's picture

No, he was right.  "Marshall Law" as in "The John Marshall School of Law."  I think some of chi-town's best politicos have toured it.  One might say we're already living it.

Arkadaba's picture

It is peeve. Peeve

(Pet peeve)

InconvenientCounterParty's picture

Bizarro world: Wingnut conspiracies proliferate like tribbles. Reality turns out to be worse than most of the theories.

Oh regional Indian's picture

Bizarro world indeed Incon. Up is down just as surely as war is peace.

Reality is blinding for most, which is why it's kept under wraps.


Problem Is's picture

Green shoot is brown turd and reform is no reform...

Snidley Whipsnae's picture

Willie also did a piece on this and noted that Great Britan's US Treasury holdings doubled in a 5 month period...while the new GB Gov is cutting gov spending in an austerity move by 40%. Does that make sense to anyone?

"This story is a gem. The Chinese dump USTreasurys and England accumulates them. Or more accurately, the USFed hides its vast monetization efforts in the United Kingdom account ledger item. No way to the reasonable man can Britain purchase $170 billion in USTreasurys in five months from legitimate sources of savings"

DavidPierre's picture

Jim Willie lays out some very interesting insights into the rigging of the bond market ...QE.... fraud...etc.

Meet 'The Man' who called all the BS years ago.



"$1.5 Trillion disappeared from the top floors of the WTC on 9/11.  Nobody followed this up."


His sarcasm is priceless re: JKF and 9/11 in part 2 of the interview.

Jim Willie's life has been repeatedly threatened and he now lives in Costa Rica.

Hephasteus's picture

Ya he was saying reacting in some really hilarious ways during that interview. I was about to bust a gut.

laosuwan's picture

i like shadowstats because they put up some numbers to back up what they are saying. with willie its always, " i have a friend who has a friend who told him..." Now, he may be right but you can be right by guessing. the thing with people like willie (and max) is that they tend to view everything that happens in the world through their biases and their suspicions, so they begin to see conspiracy in everything.

MsCreant's picture

Just admit it. You are part of the conspiracy.

Breathe deep. That thing constricting around you is not as bad as you think. You are waking up, that's all. It takes time to start breathing, moving, thinking and eating on your own. We are here for you.

RockyRacoon's picture being disconnected from the Matrix?

MsCreant's picture

Yes, I was being silly and serious at the same time.

DavidPierre's picture

If you want all the numbers and all the details just break into your piggybank and subscribe to "The Golden Jackass"...Willie's newsletter. 

Maybe there is "conspiracy in everything".

  • Conspiracy (civil), an agreement between persons to deceive, mislead, or defraud others of their legal rights, or to gain an unfair advantage
  • Conspiracy (crime), an agreement between persons to break the law in the future, in some cases having committed an act to further that agreement
  • laosuwan's picture

    Or more accurately, the USFed hides its vast monetization efforts in the United Kingdom account ledger item.


    The only question is how long can it go on? If the government is the only buyer for the government's debt, the game will surely end at some point. But when...?

    hamurobby's picture

    Aaaand if not, how about who is buying equities? its just an anomaly, dont bother with it, just keep on rolling, its a recovery! or a recover up of a broken system. At least in the past we had some semblance of dignity in managing the almighty dohlar.

    Boilermaker's picture


    traderjoe's picture

    7 cells not filled in? No wonder he couldn't work TurboTax.

    Buck Johnson's picture

    I never thought about that Waterfall, it does make a little sense.  Is it possible to Short Sell bonds?  I would think it would be possible, but I don't know if someone could give me an answer that would be super. 

    AUD's picture

    I think the buyers might be the chumps who got stuck with all the worthless MBS, CDO's, ABCP's and other assorted TP's.

    Thank god the Fed stepped in and bought the job lot.

    Amazingly, you can still buy gold with your USD's (& other currencies).

    Some interesting movements in the gold basis recently though.

    mark mchugh's picture

    Congratulations on being the first nimrod to completely miss the point!

    And I was having such a good time reading the other comments too....

    Yes, Treasury's data has always lagged.  So what?  The data is available, so why not plop it into the spreadsheet? 

    You're excusing a 3 month lag in available data because "all the other guys did it"?

    Sorry you didn't appreciate my jabs at Geithner, but almost HALF the debt in Q1 was purchased by "mystery" buyers.  THAT was the point.  THAT's something maybe we should be concerned about for a whole bunch of reasons.

    The only question I have (and I'm being totally serious) is did you really not understand what the article was about, or were you looking to change the subject?

    Inquiring minds wanna know?

    Nolsgrad's picture

    no, I read it. All of of it. And I pondered for a bit. still, the proof is not in this pooding.

    but, and a big one, I think we'll monetize at some point.


    never read your comments, sorry.

    fiftybagger's picture

    Jimmy Rogers, 1988


    What I suspect will happen—and I am just speculating, I don't have to make this decision yet—is that somewhere along the line a recession will develop. Initially, the politicians will say, "We've got to bite the bullet and suffer through this. This is good for us; it will help clean out our system." People are going to buy that for a while. Then it is going to start to hurt. Then it is really going to start to hurt. At that point, the politicians are going to give up, and they are going to start to inflate their way out of it. But the only way to inflate your way out at that point is to really print money! In that scenario, we start off with a recession and end up with very high inflation. Right, but we could have wild inflation first and then deflation. Another very real possibility is that we will eventually have exchange controls. Fortunately, I don't have to make my investment decisions for two or three years forward right now.

    What kind of exchange controls?

    By exchange controls I mean limitations on capital flows. If you want to go to Europe, you can't take more than $1,000. You can't ship money out of the country without the government's approval.

    What happens to the relative values of currencies in a situation like that?

    The dollar disappears. What would bring on exchange controls is the dollar getting weaker and weaker. The politicians would then try to bring in Draconian exchange controls, which would just make the situation worse.

    When you say disappear, are you talking about the dollar becoming like the Argentine peso?

    Why not? Why couldn't it happen? Remember the Civil War expression, "I don't give a damn about a greenback dollar."

    You talk about the collapse of the dollar as if it's an inevitability.

    In 1983, we were the largest creditor nation in the world. In 1985, we became a debtor nation for the first time since 1914. By the end of 1987, our foreign debts were greater than all of the foreign debts of every nation south of the Rio Grande put together: Brazil, Mexico, Peru, Argentina, and all the rest.

    Can I paraphrase the chain of events you imply as follows: Nothing meaningful will be done to change the budget deficit situation. The continued budget deficit will guarantee that the trade deficit situation stays bad or even gets worse. That, in turn, guarantees that sooner or later, the dollar will come under extreme pressure.

    Absolutely. That's why I'm not long the dollar.

    How does the bond market fit into this scenario?

    At some point, foreigners are going to stop putting money into this country because of the weakening dollar. That means the American public will have to finance the debt. We have only a 3 to 4 percent savings rate. To get the American public to finance that debt, interest rates would have to be very high. If the Federal Reserve tries to avoid high rates by printing more money, then the dollar just disappears and the Fed loses control completely. That is the case where you get hyperinflation and 25 to 30 percent interest rates. Either way, we are going to have high rates. You might start out with lower rates first if the politicians decide to bite the bullet by having a recession. But then, they will eventually give up and start printing money. But, sooner or later, the bond market collapses. Absolutely. Sooner or later, we repeat the English experience of not having a long-term bond market. But I don't know when sooner or later is. It could be three years; it could be ten.

    How far did British bonds fall in the situation you are referring to?

    About 70 percent