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Bill Gross Asks The $64 Trillion Question: Is China Dumping Treasurys?

Tyler Durden's picture




 

For months, we’ve been at pains to explain to anyone and everyone listening that China is dumping US paper at a record pace. 

As we detailed on Tuesday evening, the new FX regime (i.e. the system in place since the dramatic August 11 yuan devaluation) is costing China dearly in terms of FX reserves. 

The reason: the new, more "market-based" regime is ironically requiring more intervention than the previous system and this has led directly to the liquidation of more than $100 billion in USTs in the past two weeks alone (by SocGen’s math), which means that incredibly, Beijing has sold more US paper in the past two weeks than it had previously sold all year!

And as SocGen, and now Zero Hedge readers, are acutely aware, this will only continue, as a stable currency requires either "complete FX flexibility or zero FX flexibility" and because China is stuck somewhere in between, the UST firesale is set to continue unabated. 

Now, the world has awoken, and indeed Bill Gross is out asking the $64 trillion question:

 

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Wed, 08/26/2015 - 15:05 | 6474210 HonkyShogun
HonkyShogun's picture

Not to worry, Yellen can soak them up like a sponge.

Wed, 08/26/2015 - 15:07 | 6474220 Cangaroo.TNT
Cangaroo.TNT's picture

Just like her tampons back in the day.... 

Wed, 08/26/2015 - 15:20 | 6474266 Ham-bone
Ham-bone's picture

China's demographics are horrific with a declining 0-64yr old population through at least 2050!!! (according to OECD) and all net population growth for the next 15yrs is in the 65+yr/old segment living far longer than previous generations (but with no income or sources to pay for this but their adult children...how most Asian cultures do it since there's no social safety net). China is predicted to officially become Japan 2.0 in 2030 when their population is set to peak and start declining!!!

Couple that with the perhaps the greatest credit bubble in history (+1400% in 14 years) primarily plowed into a (now crashing) housing bubble. Chinese credit is set to contract significantly as the housing market is in free fall...obviously, the impact on consumption of all this is really huge. Please remember Chinese hold most of their "retirement" assets in real estate...so you can imagine the economic pain as the housing market collapses.

Welcome to check all the details at the links below.

World population and demographics...

http://bit.ly/1Uboboy

China demographics and credit...

http://bit.ly/1h9mmMS       

But interestingly, the Chinese government and PBOC appears to have given up on trying to prop up its stock market (despite domestic jawboning bout short sellers) and is massively selling off US treasuries and has been a net seller since July '11 (the debt ceiling debacle) on record trade surplus with US?!?  God forbid, the Chinese seem to be allowing a “market” to decide prices?  This, combined with massive gold holding hikes by the PBOC, truly has set up the Yuan for a major revaluation…but up, not down.  Very bold moves by China…maybe somebody is thinking this thing through!?!

It will be the Fed’s turn to decide if it will change the covert market support into overt market support as we hit 1867 again…and if they do signal rate hikes pushed out and perhaps even broach QE5,6,7 “if market forces warrant”, the dollars value could nosedive (and PM’s the flipside of that coin).  If they don’t, look out below for markets but the dollar could be salvaged to live another day?!?

Seems so much up for grabs here and now.  Still, due to negative demographics, debt, and derivatives, unlikely the Fed will allow the acute pain and depression that would ensue if “market forces” were allowed to set prices (not to mention the accountability of the Fed, .gov, and wall st. for getting us soooo deep in a Ponzi that has run out of new customers).  Seems very prescient moments dead ahead…of course I could be all wrong

Wed, 08/26/2015 - 15:22 | 6474329 richsob
richsob's picture

My wife's parents in China might never die.  The mother is in her late 70's and her father is in his late 80's.  Both get up at 4 AM to exercise, then they take a nap, then they eat vegetables and fruit.  After that they walk, visit neighbors and eat a meal at 6 PM of veggies, fruit and some fish then hit the sack for another night's sleep.  I'm in damn good shape and they can walk me into the ground.  Her father's hair is still jet black and her mother insists she doesn't color her hair either.  Millions of elderly Chinese live like this. 

Wed, 08/26/2015 - 15:37 | 6474426 NoDebt
NoDebt's picture

What do you think the minimum number of calories a day they would need to survive?  And I'm talking the BARE minimum here.  Round figure.

Wed, 08/26/2015 - 15:38 | 6474436 max2205
max2205's picture

Yes 

Wed, 08/26/2015 - 15:43 | 6474458 richsob
richsob's picture

I'd wager they eat about 1000 calories/day.  Maybe 1200 if they splurge on a sweet potato while they are out walking in the park.  I'd be meaner than hell if I only got to eat that much.

Wed, 08/26/2015 - 17:16 | 6474808 Son of Loki
Son of Loki's picture

I agree...and they dance in the streets at night all togther and sometimes during the day. It's pretty cool. They do seem to live along time despite all their hardships and pollution. I climbed one of their not-too-steep mountains and went slowly as some of these old Chinese breezed past me!  Genetic? Diet? Attitude? Combo?

 

They weren't even wearing a fit bit wrapped around their arm to tell them when to move their ass!

 

It's paradoxical!!

Wed, 08/26/2015 - 17:39 | 6475030 Omen IV
Omen IV's picture

I am a old white guy - NYC - born and raised and my diet is the same - fruits and vegetables Very little meat - plus swimming every day

I think the demographic explosion over 65 is way underestimated

When I watch the younger crowd I am amazed what they eat

Wed, 08/26/2015 - 15:48 | 6474488 orez65
orez65's picture

"... minimum number of calories a day they would need to survive?"

Very active: 18 calories per pound of body weight

Average active: 15 calories per pound of body weight

Relaxed: 12 calories per pound of body weight

Wed, 08/26/2015 - 19:20 | 6475399 jcaz
jcaz's picture

Umm, no- I'd be gaining weight on 12 cals per lb per day, let alone "surviving".

Wed, 08/26/2015 - 15:59 | 6474547 Rubicon727
Rubicon727's picture

Same circumstance in Italy with its huge elderly population.

Why do they live so long: the classic Mediterranean diet, walking, and a strong sense of familial and community ties.

All things the American is sadly lacking in.

Wed, 08/26/2015 - 16:19 | 6474676 Question Reality
Question Reality's picture

Needed something to handle the olestra leakage.

Wed, 08/26/2015 - 16:24 | 6474702 TheReplacement
TheReplacement's picture

Dracula walks into a coffee shop and orders a cup of hot water.

The waitress brings cup of water to his table.

He pulls out a bloody tampon, drops in the water, and announces, "Tea time."

------

Considering it is Yellen's, enjoy the visual.

Wed, 08/26/2015 - 15:41 | 6474438 Stained Class
Stained Class's picture

`ys is correct, Gross knows this. Bogus Tweet. who cares anyway, they are selling into a rising market, their selling is having 0 affect, they are happy as hell not getting screwed on the bid...

 

Wed, 08/26/2015 - 15:05 | 6474212 q99x2
q99x2's picture

It's Goldman Sachs against China. Go China.

Wed, 08/26/2015 - 15:28 | 6474368 Seasmoke
Seasmoke's picture

Take out Blankfein !!!!

Wed, 08/26/2015 - 16:28 | 6474718 Leopold B. Scotch
Leopold B. Scotch's picture

That's LORD Blankfein to you.

Wed, 08/26/2015 - 15:07 | 6474219 Dr. Engali
Dr. Engali's picture

$100 billion? Meh. What's that? Like 32 days worth of printing?

Wed, 08/26/2015 - 15:19 | 6474280 Skateboarder
Skateboarder's picture

Truth. It will constitue actual 'dumping' when the volume in sale exceeds the volume in production. The ratios haven't been tipped yet.

edit: continual volume in sale.

Wed, 08/26/2015 - 15:30 | 6474386 Non Passaran
Non Passaran's picture

How does it not?
It says SocGen estimates they dumped that much within 2 weeks.
The parent comment says that's 32 days of production.

Wed, 08/26/2015 - 16:02 | 6474557 Skateboarder
Skateboarder's picture

That is why I added the edit. Continued, or sustained: should they maintain this figure next month, and the month after... this particular sale would mark the inversion point between UST generation & sale. If this is a one-off, then we haven't reached that point yet.

Wed, 08/26/2015 - 15:33 | 6474398 NoDebt
NoDebt's picture

This is happening exactly as predicted by those who warned of China going to financial war with the US by dumping all their TSYs.  I'm sure you agree.  I mean, just look at those rates soar the last few days!  We're up to almost 2.2% on the 10 year now.  I'm sure the Fed will be crying uncle to the PBOC any day now.

Wed, 08/26/2015 - 15:36 | 6474420 BandGap
BandGap's picture

They dumped 109 billion in two weeks, at least what can be accounted for. By all estimates they have 18 weeks to go at this pace. Happy New Year!

Wed, 08/26/2015 - 16:17 | 6474668 dot_bust
dot_bust's picture

Ask yourself one vital question: Will other countries want to be without a chair at the end of musical U.S. Treasury chairs?

 

Wed, 08/26/2015 - 15:11 | 6474249 Omega_Man
Omega_Man's picture

UST is now a hot potato

Wed, 08/26/2015 - 15:12 | 6474255 Enceladus
Enceladus's picture

Good new for the collateral crisis

Wed, 08/26/2015 - 15:12 | 6474258 thunderchief
thunderchief's picture

More reasons to justify a market crash, drive everyone into the safety of Treasuries,  then close the doors forever.

Wed, 08/26/2015 - 15:39 | 6474442 delivered
delivered's picture

My thoughts as well. Without turmoil and a need for perceived safety (as USTs still hold this title somehow), I'm not sure the global markets could absorb this type of liquidation (i.e., $100 billion) in such short order. So the action in the market begins to make more and more sense as the need to find a home for $100 billion of USTs in very short order could really only be handled by a limited number of parties on a global basis.

The Fed comes to mind (either directly or indirectly through their proxies operating around the globe, Belgium anyone) but if the Fed had to step in, this would be preceived as the next QE and severly undermine its already shakey credibility. 

Emerging markets are a no go as they don't have near the resources available to manage this flow, especially with petroleum based reserves under severe pressure.

Europe and Japan, I suppose could step in but neither has a real balance sheet to work with and would expose these regions to holding even more USTs and the circle jerk cycle of everyone printing and buying each others debt (although both have readily available printing presses).

Could be that the derivative traders are still searching for high quality collateral to back their bets and have an appetite. 

But shaking the equity markets a little to drive capital into USTs to make sure rates don't explode higher via large liquidations from foreign holders would appear to be a somewhat reasonable explanation. 

Its one thing to have the Fed raise short-term rates by 5 to 25 basis points in the coming months (which is the current message). It would be something completely different if the rates on longer dated USTs was forced to be set by market conditions and driven much higher as a result of sellers and supply overwhelming the market. This would not only eventually crush equities but would hammer both residential and commercial real estate values, critical collateral for all bank balance sheets.

If the long end of the interest rate market is lost over the coming months, not due to an expanding/overheating economy but rather from a large supply/demand imbalance and the realization that there simply isn't enough cash flow/earnings to service the debt, then the final economic moment of truth is upon us, starting with the great reset and rebalancing beginning in the Summer of 2015. 

 

Wed, 08/26/2015 - 16:30 | 6474726 Leopold B. Scotch
Leopold B. Scotch's picture

Goal: have 401k participants and IRA holders begging for it in their own accounts.

Wed, 08/26/2015 - 15:13 | 6474263 Peter Pan
Peter Pan's picture

So what happens once China dumps ALL her treasuries?

Will she in future demand payment in YUAN?

Wed, 08/26/2015 - 15:35 | 6474414 NoDebt
NoDebt's picture

They're dumping to support their currency peg to the dollar.  If/when they run out of TSYs to sell, they'll start devaluing the Yuan FER REELZ.  Not 1% at a time.  Big clumps and bunches.

Wed, 08/26/2015 - 15:37 | 6474429 BandGap
BandGap's picture

Can't they do this slow bleed in conjunction with the dumping of TSYs? Because that is what they are doing.

Wed, 08/26/2015 - 15:44 | 6474465 NoDebt
NoDebt's picture

They've devalued 4 times already in the last week or so.  I'd have to say "yes", they can do it in conjunction.  But they were modest moves.  I'm talking a big 'ol 25%-er kinda move.

 

Wed, 08/26/2015 - 15:17 | 6474275 falak pema
falak pema's picture

So if the unabated sale of treasuries will continue what does it mean for :

USD

China's stock market

World stock markets

Looks like the world is very nervous on ALL THREE FRONTS.

That makes a huge interconnection which is being aggravated by the US/SAUD oil price war. Commodities are now a dead cat bouncing.

This spiral is really going out of hand.

Even China does not know what it has started! (for whatever reason; maybe the one ZH suspects).

Wed, 08/26/2015 - 15:24 | 6474353 lasvegaspersona
lasvegaspersona's picture

which commodity bounced?...the ones I watch left a dent in the pavement...

Wed, 08/26/2015 - 15:30 | 6474384 falak pema
falak pema's picture

oil is trying to.

Wed, 08/26/2015 - 15:18 | 6474298 Chuck Knoblauch
Chuck Knoblauch's picture

Bill Gross is Captain Obvious

Wed, 08/26/2015 - 15:29 | 6474378 janus
janus's picture

the oblivious need a captain obvious.

Wed, 08/26/2015 - 15:58 | 6474541 Baldrick
Baldrick's picture

no he is riding Tyler's coattails

Wed, 08/26/2015 - 15:18 | 6474302 bahaar
bahaar's picture

So long rates will rise whether Fed raises the rate or not.  Shucks Fed may as well raise the rates then and save credibility

Wed, 08/26/2015 - 15:22 | 6474330 Lax Accounting
Lax Accounting's picture

Why would they be selling? Selling would strengthen the Yuan. Pretty sure they want it weaker...no?

Wed, 08/26/2015 - 15:24 | 6474352 surf0766
surf0766's picture

They are trying to take the dollar out and convert their manufacturing economy into a consumer economy

Wed, 08/26/2015 - 15:25 | 6474357 Lax Accounting
Lax Accounting's picture

Ok good luck with that.

Wed, 08/26/2015 - 15:33 | 6474404 johny2
johny2's picture

it is easier than you think. see, china needs commodities and food. brazil and russia can produce and export lots of this in exchange for manifactured produsts. gold as a means of payment. 

Wed, 08/26/2015 - 15:25 | 6474355 Son of Captain Nemo
Son of Captain Nemo's picture

No worries!...

Japan or Brussels will be at the ready with the straw to slurp them up when they hit the floor!!!...

Wed, 08/26/2015 - 15:27 | 6474365 Perimetr
Perimetr's picture

Here's another related question:

If the Fed can create unlimited $$

then what prevetns them from allowing their helpers to buy unlimited shares in the market?

In other words, can any crash be prevented (or created and then "fixed")?

Wed, 08/26/2015 - 15:28 | 6474369 Allen_H
Allen_H's picture

Out of the frying pan for the dollar........

By time this fake shit party ends, all the more power to the rest of the world. I wonder how much Russia is shedding. At a time it was quite high as well, Thats what Cyprus was all about. 

Wed, 08/26/2015 - 15:42 | 6474459 Ms No
Ms No's picture

One question I have is if China is selling US treasuries, devaluing their currency and not really supporting their market where is the 100 billion going? 

Gold?

Wed, 08/26/2015 - 19:45 | 6475473 Chauncey Gardener
Chauncey Gardener's picture

Yep. You can count on it. Buying physical in record quantities.

Wed, 08/26/2015 - 15:30 | 6474381 johny2
johny2's picture

We have been set up for quite a big conflict. Hopefully the China realises it can feed its population by trading with Brazil for food and commodities, and Russia for energy and commodities. use gold as the currency. defend its borders and keep from getting suckered by false flag.

and lets hope that people raised with idea that they are exceptional will realise they have been enforcers for mafia too long.

Wed, 08/26/2015 - 15:34 | 6474410 Tsar Pointless
Tsar Pointless's picture

The first paragraph of your comment is possible. The second? No fucking way.

Wed, 08/26/2015 - 15:48 | 6474496 johny2
johny2's picture

surely the self preservation instinct still may overide the conditioning. 

Wed, 08/26/2015 - 15:35 | 6474417 Arnold
Arnold's picture

Brazil air lift?

Wed, 08/26/2015 - 16:07 | 6474571 metaStable
metaStable's picture

The last thing on the minds of chinese officials is feeding its population. They are in it for their skins first and foremost. The populace will just have to learn to live on one meal a day like in DPRK.

Wed, 08/26/2015 - 16:21 | 6474689 johny2
johny2's picture

I can only guess what they will do. To me it seems quite reasonable idea trading needed goods with other countries. plenty of food, commodities that can be exchanged for manifactured goods. only thing lacking is money, which was and can be PM. 

Wed, 08/26/2015 - 15:32 | 6474396 Consuelo
Consuelo's picture

Bill Gross should be asking the other obvious question:

 

At what point does the U.S. consider these sales by China to be 'hostile acts'...?    And how much more $$$Dumping until the political class starts calling for 'swift action' against these 'currency manipulators'...?

Wed, 08/26/2015 - 16:12 | 6474629 tunetopper
tunetopper's picture

When China sells a US Treasury it gets US dollars back. This causes the US $ to go up in theory.  (therefore they have not devalued their own currency, except in relation to the $'s they are holding). They cease to earn interest at that point, and they are no better off in the end.  What would you say they'd do with that cash? Buy another currency?  Buy bonds on a country's debt like Vietnam? Japan? Italy?  Or buy a basket of non-correlated bonds?  We know they are trying to devlue the Yuan, so maybe thry should buy Russian Rubles... b'cuse they are losing value very very fast-- that'll help them devalue. 

Wed, 08/26/2015 - 15:34 | 6474411 Ms No
Ms No's picture

According to the market @ 12:33 PST this news is EXCELLENT for everything but gold and silver.  We are so phucked!

Wed, 08/26/2015 - 15:40 | 6474452 Fuku Ben
Fuku Ben's picture

A breakdown of liquidation totals by day over the last 30 days should be very revealing.

Wed, 08/26/2015 - 15:48 | 6474489 ThroxxOfVron
ThroxxOfVron's picture

Haven't you made enough money off of skimming other people's savings, Bill ?

How many people as as much better off for what you did for them with their money as you are better off for what you did for yourself with their money?

Wed, 08/26/2015 - 15:53 | 6474516 Iudaea Delenda Est
Iudaea Delenda Est's picture

no, not at all!

they're merely giving them to Belgium to hold.

Belgium keeps selling them.

Wed, 08/26/2015 - 16:08 | 6474589 robertocarlos
robertocarlos's picture

Does the Pope shit in the woods?

Wed, 08/26/2015 - 16:29 | 6474723 the grateful un...
the grateful unemployed's picture

the real issue is not are they selling but who is buying, and if yellen is buying up the paper where is she getting that money, take away the bitchez credit card and then we'll see how damned almighty she is

Wed, 08/26/2015 - 17:39 | 6475034 Kiwi Preacher
Kiwi Preacher's picture

Its funny in a way, pre crisis there was a lot of talk about the South China Sea leading the USA to war with China and how China could crash the US economy by dumping its dollars. NO NO NO! Cried the detractors, China would never do such a thing because it would destroy their own economy. I guess no-one considered what would happen if China's economy started sinking and began chucking dollars out left right and centre in an effort too stay afloat.

Wed, 08/26/2015 - 17:40 | 6475035 Kiwi Preacher
Kiwi Preacher's picture

Its funny in a way, pre crisis there was a lot of talk about the South China Sea leading the USA to war with China and how China could crash the US economy by dumping its dollars. NO NO NO! Cried the detractors, China would never do such a thing because it would destroy their own economy. I guess no-one considered what would happen if China's economy started sinking and began chucking dollars out left right and centre in an effort too stay afloat.

Wed, 08/26/2015 - 18:18 | 6475166 VWAndy
VWAndy's picture

Wow nobody could have seen that coming.

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