Preliminary View At Declining Total Capital Inflows And An Adverse Dollar Impact
We will provide a more in depth analysis of Treasury TIC data later, after today's monthly update, although a preliminary view provided by Jay Bryson at Wells Fargo has a conclusion that is not surprising at all: "there are not enough inflows to support the dollar." Yes, that pesky trade deficit continues wreaking havoc with the currency-stock market imbalance, and the sad conclusion is that as America becomes increasingly isolated from a trade standpoint, and the dollar keeps its downward trajectory, the stock market will rise. How that can be indicative of a stable economic turnaround is open for debate.
From Wells Fargo:
- Net foreign purchases of long-term securities printed at $28.6 billion in August, in line with market expectations.
- Foreign investors continued to purchase Treasury securities and equities in August. In contrast, purchases of agency securities and corporate bonds, which include structured products, remain weak.
Yet total capital inflows are still not enough to support the dollar. Europe is now locked in a vicious cycle whereby its export economy will continue suffocating, resulting in a weaker dollar, a stronger euro, a failed asset inflation scheme (sorry, Bernanke can't be everywhere at the same time), even less exports, an even higher euro, and yet another isolated bubble, however with totally different dynamics than the U.S. version. Eventually, every country will be forced to consume just what it can produce, with viable European exporters going the way of the dodo, courtesy of Bernanke spreading the Moral Hazard Doctrine, eradicating the U.S. middle class, killing the dollar, and inflating the latest stock market bubble merely to bail out his Wall Street entourage.
More from Wells:
- Lured by higher yields abroad, American purchases of foreign securities remained positive in August.
- Including short-term securities and bank lending, only $10.2 billion worth of capital entered the country during August, which is not enough to support the current account deficit. Until net capital inflows pick up, downward pressure on the dollar will likely continue.