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October International Capital Flows
In October, foreigners purchased $43.4 billion of domestic securities, a decline of $12 billion from the month before. This was offset by $22.7 billion of foreign purchases by US residents, for a net
capital inflow of $20.7 billion. The bulk of foreign purchases was
conducted by private investors ($28.8 billion) with the balance of $14.6
billion by foreign official institutions. Segregated by product,
foreigners purchased $38.8 billion in Treasurys ($15 billion official, 23.9 billion private), sold $5.6 billion in MBS/Agencies ($4.1 billion sold by privates and $1.5 billion sold by banks), sold $0.5
billion in corporate bonds, and purchased $10.6 billion in stocks, mostly by private entities. The most notable result was that the big three traditional purchasers (China, Japan, UK) were, for the first time in 2009, net sellers of Bonds and Bills, with a $74 billion decline MoM, to a net sale of $29.5 billion in October.
As expected, an LTM analysis of TIC indicates
why the Fed is still critical in maintaining a visible bid under the
MBS market. In the latest twelve months, foreigners purchased $33
billion in Treasuries, sold $4 billion in corporate bonds, even as Americans have bought a more than offsetting $92 billion in foreign bonds indicating the thirst for fixed income will not be satisfied no matter how deranged Cramer's lunatic ramblings become,
purchased a whopping $123 billion in stocks and sold $81 billion in
Agencies. As Calculated Risk points out take out the Fed, and you will still have buyers at the right price. Of course if the right price is 20% lower than the current price, maybe having no buyers at all would be preferable.
The top holders of US Treasuries were the traditional three: China ($798.9
billion, flat sequentially as China's interest in UST holdings evaporates), Japan ($746.5 billion,
a 5 billion decrease) and the UK ($230.7 billion, an $18.6 billion
decrease).
Total purchases by the Big 3 (China, Japan, UK) plunged by $74 billion
month over month, resulting in the first combined monthly sale of $29.5
billion in 2009. China bought $7 billion in Long-Term Bonds, and sold an
identical amount of Short-Term Bills, for a net flat position in
October. Japan did nothing in Short-Term positions and sold $5.1
billion in Bonds, while the UK and Channel Islands (a proxy for Hedge
Fund Activity) sold $32.2 billion in Bills, which was expected since
the 3 month Bill was 0.06% on October 31, while buying $7.7 billion in
Bonds.
The following table summarizes the Top 10 buyers and sellers of US Assets in September:
A granular view of buyers by various asset classes is presented by the table below.
Hedge funds (transactions based in the UK+Channel Islands and the Caribbean) sold $27 billion in Bills, while buying $6 billion bonds, bought $5 billion equities, $3 billion in corporate bonds, and $1 billion in Agency and MBS.
The big picture is that international inflows continue slowing down and the traditional big 3 purchasers in fact were net pukers of US holdings, with $30 billion in monthly sales by the traditional big purchasers. Agencies/MBS just can't catch a break: Japan sold $7.6 billion, China $1.6 billion and Carribean countries selling $1.3 billion. The only notable agency buyers were the UK ($2 bn), South Korea ($2 bn) and Hong Kong ($1 bn). In three months, when MBS/Agency QE ends the bottom will fall out of the mortgage market.
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another fantastic piece, Tyler. one of the very best pieces of multivariate fundamental analysis that i've had the pleasure of reading here on ZH.
thank you very much for it, TD.
what a difference 13 months makes, huh.
" stochastics default club " ? anyone?
bueller ? bueller ??
The right price for MBS is about 96 on a 4.5 FNMA, too bad Zimbabwe Ben is paying 100+ today.
Why do I think this bodes ill for our economy? Extend and pretend.....then a smoking crater.
As an aside, seeing the train that is about to hit you coming lessens the impact not at all.I hope some of the readers here can get clear of the tracks, because it's coming with a full head of steam.
No way will Ben just let the MBS market go into free-fall. Good luck Ben, you now ARE the MBS market. Pull the bid and the financial system will lock up again. USD will probably resume the down-trend around Feb when he announces a new QE program for some esoteric and opaque reason.
The Fed has $3 trillion out there in the market....none of this matters until we get to the bottom of where the money is...thats 300 billion shares of $10 stock...or the entire Dow 30...
The mortgage problem is one thing, a silly and a dumb thing, but isn't this stuff about the Big 3 starting to take a powder about as big as FREAKING NEWS GETS? Just asking. Don't they understand their role in underwriting our profligacy - it's almost fraud. They knew we relied on them, and now they're saying, you phucked up, you trusted us.
What r U guys so worried about?! Bevmo Ben is man of the year and will undoubtedly have the answers to all of your questions.
re: "The bulk of foreign purchases was conducted by private investors"
SEE:
Is Foreign Demand as Solid as It Looks?
The sudden increase in demand by foreign buyers for Treasurys, hailed as proof that the world's central banks are still willing to help absorb the avalanche of supply, mightn't be all that it seems.
When the government sells bonds, traders typically look at a group of buyers called indirect bidders, which includes foreign central banks, to divine overseas demand for U.S. debt. That demand has been rising recently, giving comfort to investors that foreign buyers will continue to finance the U.S.'s budget deficit.
But in a little-noticed switch on June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners.
The new definitions are deep in the arcane world of Treasury auctions. The change involves buyers who place orders through primary dealers. Those had been counted as direct buyers, but as of June 1 they were classified as indirect buyers, making that group larger than before. Because investors view that group as being dominated by foreign buyers, they assumed foreign demand was higher.
Treasury officials didn't respond to requests for comment. (MORE)
http://online.wsj.com/article/SB124588934703850877.html
I question the decrease in Japan and UK holdings... are they investing somewhere else or are they cashing to cover internal expenses (QE comes to mind)?
Prepare for the end of nation-states, which are now to be liquidated in a wave of sovereign defaults.You just thought you owned America.The orientals will be picking our bones like so many vultures, according to the bible, "the rich ruleth over the poor, and the borrower is servant to the lender." Our so-called leaders will be all too willing to sell us out even further, to insure their parasite / host status over decent Americans. And these traitors will crouch down and lick the boots of America's new overlords.
The number of countries which are currently in jeopardy, due to their own bankruptcy is extensive. On Nov. 30 alone, the following nations were mentioned: Ireland, Greece, Hungary, the Baltic States, Ukraine, Pakistan, Romania, Bulgaria, Spain—and the United Kingdom and the United States. The least unto the greatest.
You might want to read what you can on Peter Bernholz, an economic academic,( book: Monetary Regimes And Inflation) who has spent all of his adult life researching the collapses of the 28 largest fiat money systems.The one salient point of his work might be distilled into this; all these fiat currencies had in common this tipping point into oblivion, WHEN THE DEFICIT EXCEEDS 40% OF EXPENDITURES .
example fed. budget 2009 3.1 trillion X .40 = 1.24 trillion we have already exceeded the tipping point. ratio of gdp is not relevant to this equation. broken down, 1,420 billion deficit requires begging, borrowing, stealing, or printing 3.94 billion every day of the year or 118.3 billion every month. that amounts to some serious khaki.
sfgate.com/cgi-bin/article.cgi?.../national/w123100D68.DTL - 86k - Cached
The U.S. of A BORROWING is now at this level, and the congress and senate are still digging in the hole, 2 trillion more just last week and more in the pipeline. When the other nations can't or will not buy any more of our debt, the curtain comes down on this pathetic America. The fat lady is tuning up in the wings, ready to sing.
God have mercy on u.s.
The 10 is collapsing NOW!
I am unable to understand where you are getting a net sale of $29.5 billion by japan china and uk for october. i am looking at the data right off of the treasury's website... if you add up the net sale of LT securities, or alternatively just bonds, you do not get that number. furthermore, you state they are net sellers of bills and bonds; that is not even a category, the only categories are treasury bonds, agency bonds, corp bonds, and corp stocks. WHERE ARE YOU GETTING YOUR NUMBERS?