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Guest Post: Foreigners Bail On Agencies
Foreigners Bail On Agencies
Submitted by Jim Bianco of Arbor Research
Last night the New York Federal Reserve reported its custody account holdings of agencies (red line, bottom panel) dropped $45.972 billion, or -5.8%, in the week ending Wednesday, September 22. Both measures are a weekly record decline.
At the same time, custody holdings of Treasuries (blue line, top panel) increased by $49.657 billion, or 2.06%. This is a nominal record and the largest percentage increase in two years (since Oct 8, 2008).
We have heard/read no explanation or color about this decline. So we cannot say whether this massive shift out of agencies and into Treasuries means foreigners are “running scared” from agencies or if this is simply some kind of technical adjustment.
Remember 2008!
That said, let us remind everyone that foreigners dropped agency securities in a similar manner in the summer of 2008, just before the crisis. This exodus, we believe, directly led to the placing of Fannie and Freddie into a conservatorship, which kicked off the “beginning of the end.” As we explained last year:
In early 2008/late 2007 Fannie Mae and Freddie Mac started regularly reporting financial statements after a four-year absence due to an accounting scandal. As part of the agreement with their regulator OFHEO (now FHFA), Fannie and Freddie would also release a “fair value” balance sheet. Only May 14, 2008 Freddie Mac issued its Q1 2008 10-Q. It showed that Freddie Mac had a negative equity position on March 31. We discussed this in detail back on July 14, 2008, concluding with:
Let us repeat, Freddie Mac was insolvent by this measure on March 31, 2008. Q1 financial statements detailing this were released on May 14. So, it is not a secret and technically it is not new. What appears to be new is the epiphany the market had in the last several weeks. See a chart of Freddie Mac’s stock, it plummeted from about $27 on May 14 to $7.75 on Friday.
Maybe the emotional move is not the selling of the last two weeks. Maybe it was the optimism about these companies until two weeks ago. If so, regulators and company officials need to explain why the market is wrong to use the fair value balance sheet as a “leading indicator” of their upcoming financial statements. So far, they have not touched this topic.
We believe these statements, combined with no official explanation of what they meant, scared foreign investors out of agency debt in the summer of 2008. In an attempt to pacify foreign debt holders, Hank Paulson put Fannie and Freddie into conservatorship. Unfortunately, this only accelerated the crisis because of Paulson’s disastrous decision to bankrupt the preferred shareholders of Fannie and Freddie. Bankrupting the Fannie/Freddie preferred shareholders threw the financial preferred stock market into chaos, meaning companies like Lehman lost any chance of getting funding. From there it was all downhill.
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And why wouldn't they? What an utter, fucking circus we've become. Case in point below:
http://www.foxnews.com/politics/2010/09/24/stephen-colbert-appears-capit...
As a witness before a Congressional committee, we have a comedian, in character. What an absolute joke. I swear I've fallen thru a worm hole and entered some, strange parallel universe. What has happened to my country?!?!?!?!
He's a comedian? You mean he's not a real journalist?
Congressional committee? You mean those politicians aren't our overlords?
Al Franken is a real Senator!
Seriously, our politicians are making a mockery of our legislative process. Purposefully.
And so what are Americans going to do about it? Well?????
<nothing>
That is what i thought. No protets, no mass strikes... nothing. Fact the facts, Americans are mostly pussies waiting for their next bread (SNAP/food stamps) and circus (American Idol and Lady GaGa/NASCRAP)!
Have you not been paying attention? Have you not noticed the Tea Party rallies in every major city over the last 2 years?
Not that it makes any difference, because Zero Hedge commenters will undoubtedly miscast them as "conservative nutjobs" when they do actually go and protest regarding the issues all of us actually do care about ...
Dorked this up and posted it below, but here's what I said down there.
by Shrimp Headon Fri, 09/24/2010 - 12:16
#602847
Yeah, at least Elmo was genuine, i.e., not in character, er, nevermind.
http://articles.cnn.com/2002-04-23/politics/elmo.hill_1_elmo-instruments-congressional-committee?_s=PM:ALLPOLITICS
No, John Stewart is the journalist ... Colbert is more like a Commentator, like that dead guy Charles Kuralt, only with better hair.
all seriousness aside. My Country? Pro-noun trouble.
This is the funhouse gamespace for the Owners. It is through the looking glass that the ride goes and they are having a blast taking the ride there.
See you in the next dimension, hopefully cured of the pro-noun trouble.
Hey, what's up with this stink bug infestation in D.C.?
http://www.nbcwashington.com/news/local-beat/Stink-Bugs-Taking-Area-By-Swarm-103669344.html
Can anybody find the correlation coefficient?
From Turd's link:
The House Judiciary subcommittee hearing is about migrant farm workers and is touching on the so-called AgJOBS bill, a proposal that would give illegal immigrant farm workers a pathway to legal status.
I am not for amnesty, which is clearly where the gov't is headed.
Well really is this any worse then any most any actor/politician speaking? At least they are providing a little entrainment as Rome burns. Personally I'm waiting for strippers and prostitutes in council chambers performing sex acts during the votes. It won't surprise me but it will just be another landmark on the e-train to total collapse. This isn't recession, or depression, it's a total collapse.
Dude, buck up. In the annals of human history, we're not even close to full-blown depravity. I'm sure everyone is familiar with Caligula, yet how many are aware of some of his more notable accomplishments?
http://en.wikipedia.org/wiki/Caligula
So, I'm sort of ok with the current level of insanity. However, I might start to become a tad bit worried as the Prez begins contemplating potential nominees to replace all the rats who are fleeing his administration.
The joke is that the comedian said more truth than everyone else combined.
Creating the illusion of fiscal health since 207. USA rocks!
ahh...2007
nope you had it right the first time.
of maybe its just "creating the illusion of fiscal health...since the beginning of time."
Muchos Gracias!
Look at that chart. A 100% growth in 2 years. That's not counting the amount the Fed^H^H^H Primary dealers have bought. And yet, gold is a bubble?
Someone's been snorting too much coke off Bernanke's tits.
The dip buying in California Munis has been outright maniacal.
Yield is only 3.99%, but they are still buying with a vengeance.
CA is TBTF and 3.99 is better than Bernanke's ~2.00
Why wouldn't you buy CA munis? They now have the same implied, US govt backing that FNMAs and FHLMCs have enjoyed for years. There is no longer any default risk.
Robo is losing his luster for not knowing this (or telling it). His choice in women is also getting questionable.
Robo, you were good long ago, but now, well... perhaps you have a future in the fast food industry. Sorry and all, you made your bed.
I guess it's a strategic move by China, anticipating the Fed statement and QE itself, from which Treasuries will benefit more than agencies for obvious reasons.
The daily hatchet job on Gold has started.
Maybe they finally read the front page of all agency prospecti which clearly states that FNM and FRE are *not* guaranteed by the US Federal Gov't.
Seriously, this has to be the biggest bullshit "nudge, nudge, wink, wink" in the history of finance.
From a written word / published perspecive -- Fannie and Freddie are extremely clear about the nature of their paper: It is expressly not backed by Uncle Sam.
I dont know if this makes any sense but the Govt conveys heavily that they have a Moral Obligation to help them because they encouraged the existence.
Yes, that is the common belief -- and it is frequently expressed by our representatives. But it doesn't change the fact that from a legal perspective -- FNM and FRE are very clear on this issue: There is no Federal guarantee.
This is important because at any time FNM and FRE can legally be allowed to collapse, wiping out all holders of agency paper.
The legal recourse will be zero, because FNM and FRE have been crystal clear on this issue.
http://www.marketoracle.co.uk/images/2009/Apr/Fannie_Mae_Certificate.png
I'm with ya Popo !
Too big to "Jingle Mail?"
Talking about foreigners...
http://www.bbc.co.uk/news/uk-politics-11405096
My favourite 'QUANGO' had to be the Hearing Aid Council. Ridiculous.
"NEW YORK (MarketWatch) -- U.S. stocks climbed broadly Friday, putting the market on pace for its fourth-straight weekly gain as investors were encouraged by readings on housing and capital spending by businesses that pointed toward a stabilizing economy."
Wake me when they finish playing Charades.
Great data and information.
Err... I believe the US economy needs to be placed into conservatorship...
Wake up. It already was, that is the problem...
Do you prefer your swans to be black or white?
"The threat level to Great Britain from Irish-related terrorism has been raised from moderate to substantial." - http://www.bbc.co.uk/news/uk-11408758
False flag attacks can be darn useful.
Taste the same don't they?
There's your QE right there, sterilized (by selling Treasuries outright) and buying Agencies under the table.
Look for the Fed to start buying more MBS as well.
If QE is more than + $500b look for unemployment to accelerate as companies hire money and fire workers (perverse wage arbitrage).
Canary in the coalmine. It is only time before other markets take the hint.
Looks like our money will still be good in Cuba as the goverment is allowing home rentals in US dollars. Probaby a good time to sell that mint 1956 Chevy.
Actually the Cubans would haul in a ton of $ from those collectors who still have them if they sold all those '57 Chevys to the Imperialists elders who Bloomberg just noted are impoverishing the youth of america.
Death Panels are just over the horizon, and I don't mean in Cuba.
Look, I don't know the significance of the movements of treasuries vs agency debt. I will comment that I'm not shedding any tears for the preferred shareholders. The sorry state of Fannie and Freddie was well known, about which the shareholders did .... nothing. As far as I'm concerned, they dug their own grave.
Yeah, at least Elmo was genuine, i.e., not in character, er, nevermind.
http://articles.cnn.com/2002-04-23/politics/elmo.hill_1_elmo-instruments-congressional-committee?_s=PM:ALLPOLITICS
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