Guest Post: Candy From Strangers, Or Who Is Buyng All Those Treasuries?
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 Bulletin 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:
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
L.209 (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 #ff0000;"> -$18.9 B
- State & Local Governments #ff0000;">-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
B 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
know. 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
And last but not least, where do we send the fruit basket?
Is it all just a Ponzi Scheme? (Sprott &