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Here's How Long Saudi Arabia's US Treasury Stash Will Last Under $30, $40, And $50 Crude
On Friday we explained why the most important chart in global finance may well be the combined FX reserves of Saudi Arabia and China plotted against the yield on the 10Y.
Here’s the reason that graphic is so critical: Saudi Arabia and China are sitting on the first and third largest stores of reserves, respectively, and if these two countries continue to liquidate those reserves, it will amount to “reverse QE” or, "quantitative tightening" as Deutsche Bank calls it.
For Saudi Arabia, the FX reserve pressure comes courtesy of the deathblow the country dealt to the petrodollar system late last year.
In other words, the pain is largely self-inflicted as the kingdom is determined to “preserve market share” by bankrupting US shale drillers. The attendant decline in oil revenue has resulted in a fiscal deficit on the order of 20% of GDP which, in the absence of sharply higher oil prices must either be financed by drawing down reserves or else through the bond market because between the war in Yemen (which escalated meaningfully on Thursday) and the necessity of maintaining the status quo for a populace that’s become used to a certain level of stability and comfort, fiscal retrenchment is a decisively difficult task.
On Thursday, we got the latest data on Saudi Arabia’s FX reserves and, thanks to new debt, the burn rate slowed. Here’s Reuters:
The speed of decline in Saudi Arabia's foreign reserves slowed in July after the government began issuing domestic debt to cover part of a budget deficit created by low oil prices, central bank data showed on Thursday.
The world's largest oil exporter has been drawing down its reserves to cover the deficit. Net foreign assets at the central bank, which acts as the kingdom's sovereign wealth fund, have been sliding since they reached a $737 billion peak last August.
But the latest data showed net foreign assets shrank only 0.5 percent from the previous month to 2.480 trillion riyals ($661 billion) in July, their lowest level since early 2013. They had dropped 1.2 percent month-on-month in June and at faster rates early this year.
In July, the government began selling bonds for the first time since 2007, placing 15 billion riyals ($4 billion) of debt with quasi-sovereign funds; this month it sold 20 billion riyals of bonds to banks.
The domestic debt sales appear to have reduced the need for the government to cover its deficit by drawing down foreign assets. Authorities have not publicly said how many bonds they will issue in future, but the market is expecting monthly issues of roughly 20 billion riyals through the end of 2015.
The foreign assets are held mainly in the form of foreign securities such as U.S. Treasury bonds - securities totalled $465.8 billion at the end of July - and deposits with banks abroad, which totalled $131.2 billion. The vast majority of the assets are believed to be in U.S. dollars.
And while taking on debt to offset the reserve burn is a viable strategy, especially when you’re starting from a debt-to-GDP ratio that’s negligible, the reserves are still at risk of running out, even if 50% of spending is financed in the debt markets.
Here’s more from BofAML on how long the Saudis can hold out under various price points for crude and assuming various mixes of debt financing and spending cuts:
Safeguarding Fx reserves will require deep budgetary cuts at current oil prices, in our view. Our dynamic analysis suggested that current low oil prices could rapidly erode the sovereign creditworthiness, even as the sovereign balance sheet is at its strongest on an historical basis. Despite the rapid drawdown over 1H15, SAMA’s Fx reserves still stood at c100% of GDP in June, and government deposits at SAMA represented US$294bn or 42% of GDP. Another way to look at sustainability is a static analysis to calculate the number of years required to exhaust government deposits under various oil, spending and financing scenarios.
Based on the narrow definition of resources available to the government, we think that there is no realistic mix of debt financing and spending cuts at US$30/bbl that can decrease pressure on Fx reserves, and pressure on the USD peg would be acute if oil prices were to be sustained at this level. However, at US$40/bbl and US$50/bbl, debt financing and deep capex cuts (to bring spending 25% lower) can keep government deposits at SAMA covering 7 years and 11 years of government spending, respectively. Government spending has historically adjusted to oil prices with a variable lag. It is worth recalling that spending was 50% lower in 1988 compared to its 1981 peak as oil prices tumbled, and government spending in 2000 was at the same levels as that of 1980 in nominal terms.
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Lollars coming home.
Wait for it .... One gallon paint cans go to 0.9 gal.
Saudis should say we are only taking payment in gold now and consign the petrodollar to the scrapheap once and for all.
Iran's comment on Saudi plight:
"smile"
Isn't that what Saddam did? If they do that, the US will probably flush the house of Saud
It's too late. Russia / China have actually implemented non-USD and non-US controlled financial systems - bilateral currency swaps, SWIFT alternative, BRICS, SCO, etc. The only way out for the US is to take out both China and Russia and that will involve nukes. The US mainland will be a target in spite of US hopes to confine the destruction to Asia and its NATO fall guys in Europe.
Well, while this article got its fact right, but it doesn't mean that the author is right. And you my friend have a huge point.
Reason, the US dollar will became soon-ish irrelevant:
-US treasury sell of began-open QE is coming;
-US treasury recycling stopped working approx. a year ego;
-the RMB bilateral trade settlements are live;
-the Saudis and the Chinese are friends now;
-the Chinese, Indian and Pakistani relationships are normalizing;
-the Russians are supporting the unification of the Arab world, and this week the Arabs formed a military pact/agreement in Egypt (the ISIS/ISIL days are numbered therefor).
EDIT: I want to say, the Saudis will soon take also non US dollar payments, the hottest candidate is the Chinese RMB.
You all ignore fact in your earnest for a dollar crash.
The Ruble is in the toilet for the same reason the Saudi's have problems. Russia depends on high oil prices for cash flow and the Ruble is near all time lows - 65+|$
The Yuan is in the toilet because they have been lying about the state of their economy for at least 4 years and now need their 'dollars' to help prop up their economy.
As much as some hate the US dollar it is still the safe haven in the world and until that changes it will remain as such.
if the dollar crashes so does the rest of the world.
And the FX manipulation is only a myth from "nutty conspiration theorists". Right?!
And one more thing, the entire RMB swap thing is meant as temporal solution for the mess after the US dollar crash.
Iraq and Libya both tried it, and that is why the US had to take them out.
Oh dear. If that happened they would be "liberated" over humnitarian issues. You won't ever see the petro-dollar snap while the House of Faud is around or in power.
=
Die you crooked, evil bastards! Die!
Speaking of which and a little off topic, MSM has decided to pretend to do some journalism now that the oil boom is about over. You see, crooked companies bought all of the toxic FEMA trailers and were paid as much as 4,000 a month rent. Had a friend that lived in one and was sick all of the time. Of course out there it is hard to distinguish what you are sick from but still..
http://www.msn.com/en-us/news/us/people-are-still-living-in-fema%e2%80%99s-toxic-katrina-trailers-%e2%80%94-and-they-likely-have-no-idea/ar-BBmc5QK?ocid=ASUDHP
Tsk, apparently an oil price war doesn't work if the other side is pumping lots of oil too......
Love this global war of attrition which is a zero sum game ;-)
who buys treasuries when they are dumped on the market ? is the us government?. is the money extinguished? or does it represent more us dollars floating around?. to me i'm not sure if china an saudi selling increases liquidity or decreases liquidity.
Well apparently they are not bought in the same quantities as they are being sold, otherwise it wouldn't result in a yield rise. Imagine, a single foreign country has the powerl to influnce 10 Y yield by as much as 108pp indistinctive of market data and other news happening in the market that in itself should be very worriesome for the FED.
I guess it will have to be the FED proxy's Belgium, Luxembourg etc. The FED will end up being the only buyer soon, if not already. The true stats are never released anyway so who really knows. When nations dump the petrodollar scam, that will be the time it all blows up, and we're not far off that moment.
The 'BLICS', in other words.
You know what we need right now? A flight to safety.... Let me think how could we engineer that??? Flush the weak hands out of the stock market into overpriced treasuries resulting in a 50-60% fall in stawks, by threatening to raise rates or raising rates just a little.. Sell treasuries to the scared middle class suckers.... Jump in and scoop up blue chip monopolies on the cheap run by our oligarchcracy... Jump start QE to squeeze the shorts.... Watch the rally...
Launder. Rinse. Repeat...
unless gold.
On that note, what do you guys think of this website? I have not been there before but this is one cool chart.
http://www.statista.com/statistics/242781/copper-demand-and-supply-growth-rates/
The durable goods orders are always good to keep an eye on too. Silver prices key off copper as everyone thinks they know. Not always.
I'm glad getting off the Gold standard and going $18 Trillion into debt to benefit the 1% hasn't damaged the U.S. in any way.
I was going to be upset there for a minute.
well now that you put it that way. lol
In the entire history of the human race, there is not one form of government that did nto spend itself into oblivion. It cannot be any other way because they are wealth destroyers. Forget stuff like peak oil. We are living in an era of peak government. World markets have gotten too powerful for them to control effectively. I can't say what exactly what will replace what we have now. Whatever it is, they won't have any where near the power they have now. There won't be a recovery until that day comes.
Right. Fraudulent fiat has led us to peak gov., peak oil, peak mortgages, peak household debt, peak student loan debt, peak feminism, peak single mom, peak negro, peak homosexual, peak transsexual, peak welfare recipients, etc. Obama should be playing the piano while Caitlyn sings;
https://www.youtube.com/watch?v=QoQZ0qmf-mk
On the plus side: peak guns.
Wars and pilfering destroy economies. Not the economic policy, were it designed to succeed, that is.
"War is the proximal cause of the recurring inflationary spikes that demarcate 50-year "Kondratieff waves" in the world economy. Those waves themselves continue to be controversial. However, they may have some predictive value to the extent they clarify the historical relationships between war and military spending on the one hand, and inflation and economic growth on the other. The 1990s mainly followed a predicted long-wave phase of sustained low inflation, renewed growth, and reduced great-power military conflict. If this pattern were to continue, the coming decade would see continued strong growth but new upward pressures on military spending and conflict, eventually leading to a new bout of inflation in the great-power economies. Since scholars do not agree on the mechanism or even the existence of long economic waves, however, such projections are of more academic than practical interest."
http://www.joshuagoldstein.com/jgeconhi.htm
"During the Cold War, high military spending contributed (among other causes) to the economic stagnation of the Soviet Union and the collapse of North Korea, whereas low military spending relative to GDP contributed to Japan's growth and innovation. During the 1990s, as real military spending worldwide fell by about one-third, the United States and others reaped a "peace dividend" in sustained expansion. However, effects of military spending are long-term, and sharp reductions do not bring quick relief, as Russia's experience since 1991 demonstrates."
"
1811: The charter for the Rothschilds Bank of the United States runs out and Congress votes against its renewal. At the time Andrew Jackson (who would become the 7th President of the United States from 1829 to 1837) says, “If Congress has a right under the Constitution to issue paper money, it was given them to use by themselves, not to be delegated to individuals or corporations.”
Nathan Mayer Rothschild is not amused and he stated, “Either the application for renewal of the charter is granted, or the United States will find itself involved in a most disastrous war.”
Andrew Jackson’s response to this is to say, “You are a den of thieves vipers, and I intend to rout you out, and by the Eternal God, I will rout you out.”"
http://www.planetization.org/rothschild.htm
Man, Putin is sitting pretty about now.
He's got a currency that's been pounded-undervalued
He's got MICEX trading @ a P/E of just under (5).
He's got commodities at multi decade lows.
I'd love to be Vlads friend for the next few years. Banks are going to print, and commodities are going to rise in '16.
Demand won't matter, because it will all be about positioning.
it just shows the Nuland and co made mistake by showing to russian population sure that EU and USA are always going to want to dominate everyone. Great job at uniting russians, otherwise the oil weapon may have even worked. observe Brazil and Russia, both being in economic trouble, but the fortunes of the ppresidents very different. And it is Saudi Arbia who is getting deeper and deeper in trouble invading Jemen. ( funny how USA, Saudi Arabia and Israel assume their rights of sending armies in other countries without any regard to international laws.)
yeah funny how I don't see anyone sanctioning Saudi right now.... Where TF is kerry anyway, he should be looking ridiculous on TV repeating"there will be costs"...while simultaneously trying to extract his leg from his own backside.
Nuland, and her husband, act first and foremost out of what they think will benefit Israel and world Jewry.
I'm not trying to be divisive or shocking - read their own works.
They are Israel Firsters.
Supporting your own people is in and of itself fine - the issue is that the neocons - a Jewish and Zionist movement - seek decades of war to remake the middle east using American blood and treasure.
And part of their thinking, coming from the reprehensible Leo Strauss - is mass deception to move the hoi polloi
http://www.alternet.org/story/15935/leo_strauss'_philosophy_of_deception
https://www.opendemocracy.net/faith-iraqwarphiloshophy/article_1542.jsp
http://www.logosjournal.com/mason.htm
http://www.dominican.edu/academics/osher/plone-cleanup-olli/archives/pri...
They certainly are not the only warmongers, of course, but they are perhaps the most influential and dangerous.
In fact, were space aliens to come and carry away the 100 most influential neocons, the United States and the world would be a substantially better and safer place.
dit: oh, and this
http://nationalinterest.org/feature/athens-the-midway-defending-leo-stra...
is absolute horseshit - apologetics from yet another Jewish Zionist apologist who doesn't understand that Strauss was very much a Jewish Supremacist who disliked democracy and "the masses" precisely because they were not Jews.
Again, sorry if this strikes you as harsh, but you can read his own absurd comparisons of Rome, Athens and Jerusalem.
I should say - if you are a Zionist or religious, perhaps his take will make sense to you.
But from a secular humanist perspective, to compare Jerusalem {qua symbol} to Athens in the way he did was an exercise in ethnocentric revisionism.
Yen let me think here.
Putin is in great shape but the Russian people hate him more than expected. Like that term? I am getting grief from my Russians who are pissed off at me now because to the exchange rate. I have been telling the Russians I know for a long time to get out of the ruble and buy about anything else. There is an issue with PM ownership there in good old Russianlandia that I do not think a lot of people realize. There are mulitple issues in fact. I still Merican.
I see the play Yen. Mrs. M's mother who very could well have inside dope says the ruble will fall all the way to 100. That woman is not dumb so I give respect and I will never underestimate her. I wasn't going to risk much but I will listen to her to see if she is accurate. I will add this, it is DAMN HARD to get anything out of Russia right now that might be a coin.
I know what you mean Yen. I could throw a grand at it and hold but I need physical. I really don't think that we will be able to get that very easily.
It's just a Macro play Manipuflation
Nothing more or less.
I see great value in the Eastern European markets.
When you have these insane valuations in western markets, and all of their manufacturing is off~shore, you should probably plan ahead.
I respect your post and ideas, but "facts are facts".
If you have an opportunity to invest in a product under market value, I'd hope you would be prudent.
How you grow that investment, is at your discretion.
You seem like a very nice, astute, person, and I'd probably work with you, and the local community.
junk bags available Vladivostok above 60 over...
look how much for bags in US
this is sliver price in real
"For Saudi Arabia, the FX reserve pressure comes courtesy of the deathblow the country dealt to the petrodollar system late last year."
When an article starts with utter drivel like that you know for a fact this is scribbling Goebellesque propagandist.
In one sentence wants you to believe that everything to do with oil prices was caused by the fucking sand pigs.
These will twist any bollocks to suit their lying meme, that there IS NO FUCKING GLOBAL RECESSION.
Well guess what, There is a recession and it is a global and the assholes that caused it are all in Washington DC, in the Eccles Bldg and in Wall St.
Global recession was not and never was caused by what happened in a sand pigs tent in a desert
I have a feeling you are capable of going off on quite a rant!
I don't mean that to sound like criticism.
I do however think that there ara a decent number of cunts outside the District of Columbia.
There's a decent number in an artificially created Mediterranean country who would appear to control many of those in DC.
Hey zerohedge, so saudi arabia increases output to crush oil prices and they are worried about this issue they caused willingly? Just like China devaluing their currency and you claiming as a fact that they will sell $100 billion in treasuries to counter their own devaluation?
Did Goldman's interest rate swap team hire you to spew this BS in favor of primary dealers losing positions in multi billion dollar interest rate swaps or are you spewing gold theoretical nonsense into fixed income?
Or, as seems more obvious, do you only care that you get 100,000 clicks on silly articles that confirm readers biases?
You did realize that risk assets were in freefall and the yield curve was collapsing, which is what Dudley can't syand, right?
The difference between your reporting and CNBC is thinning. Don't let that happen. Looks like its too late.
...because it had absolutely NOTHING to do with the VIOLATION of the Henry Kissinger brokered, USA-Saudi AGREEMENT that the USA would NOT burn thir own DOMESTICALLY PRODUCED Oil...which just happened to be the FUNDAMENTAL BASIS for the ESTABLISHMENT OF THE PETRODOLLAR...in the first place???
Yes it was the CRIMINAL Obama Admisistration which has NO REGARD FOR LAW...domestically or internationally. So STOP your apologist BULLSHIT.
Anything brokered by a war criminal like kissinger is not enforceable in a legal sense. The only reason we need a petro-dollar is because Nixon and Kissinger abandoned the gold standard so they could bomb civilians in North Vietnam and expand the war on drugs and the war on poverty. All fascist big government policies that were the seed of our destruction as a country.
They are both treasonous criminals.
I am seeing a rising demand for copper globally. Silver price plays from that. I would be careful on bullion but there is no reason to not focus on numismatics right now. Just learn one series and try to find the key dates. It is not a bad hobby. It is way better than going to the strip club, losing your wallet and ending up with a DUI.
I have made more money in numismatics lately than any bullion at all. You can't buy online to expect a great result. You have go into a major coin show with a list of what you expect to buy and what the price needs to be. Easier said than done. You need to know what the hell you are doing and you have maximize value by knowing what you are seeing.
I am guessing that there are fair amount of ZH'ers that are in the numismatic market themselves. Actually, I am not guessing. I forget a lot things these days though.
Wanna make a small fortune?
Take a large fortune and invest it in Coins.
You will end up with a small fortune after all.
Numismatics is a hobby, not a profession for most...for a reason.
It is a weathy man's folly.
Hide all your camels! The Saudis are coming!!!
It was reported yesterday (27th Aug) that Saudi Arabia invaded Yemen.
A new war to be paid for completely changes all of the above numbers.
They are going in to debt to pay for their war. Thats how you become the banksters bitches.
Also they might find that their gold is missing when they try to withdraw.
Yes. Saudi Arabia invaded Yemen. Gold goes up 11.00 and oil shoots up to the moon. And nary a peep about it in the established financial and news media. Instead they attribute it to "short covering".
Every Saudi citizen get a check every year of like $40k US from the gov. And of course there's no taxes.
Once the taxes come in and the free money disappears, it's gonna be hilarious.
short term thinkers
The Saudis kill women who had sex out of wedlock by stoning them to death.
Who sells them F-15s and M-1 tanks so that they can kill human beings with impunity?
Americans.
Even as the Saudis bankrupt American shale oil producers?
Americans...
You do realize Americans can no longer be rehabilitated and incorporated back into the human race?
Quarantine and sterilize Americans in order to save the human race.
oh 4 fucks sake.
http://www.theguardian.com/world/defence-and-security-blog/2014/jun/23/e...
Britain's biggest arms market last year was Saudi Arabia, with the government approving £1.6bn worth of exports, including "components for military equipment for initiating explosives", "equipment for the production of machine guns", "CS hand grenades", "components for water cannons", and "tear gas/ irritant ammunition".
http://www.theglobeandmail.com/news/politics/foreign-affairs-found-no-re...
The Canadian government weighed the impact on Israel of selling $15-billion in arms to Saudi Arabia, as part of an early effort to identify obstacles to this massive deal, and then informed the London, Ont., manufacturer it could find no “red flags [or] objections” to the transaction, e-mails show.
http://www.theglobeandmail.com/news/politics/canadas-arms-deal-with-saud...
"The Canadian government is refusing to say whether it obtained assurances that light armoured vehicles being sold to Saudi Arabia in a massive $15-billion deal would not be used against the Saudi people – a key guarantee required by federal export controls when arms are destined for countries with a “persistent record of serious violations of the human rights of their citizens.”
http://www.rt.com/news/260661-us-sell-arms-israel-saudi/
"Pentagon - ...$1.9 billion deal with Israel implies supply of some 3,000 Hellfire precision missiles, 250 AIM-120C advanced medium-range air-to-air missiles, 4,100 GBU-39 small diameter bombs and 50 BLU-113 bunker buster bombs."
http://www.rt.com/news/265453-germany-corruption-arms-football/
'Germany allegedly sent arms to Saudi Arabia in return for the Arab nation giving its support to Germany’s successful bid to host the 2006 World Cup. The claims made by the Die Zeit newspaper are the latest revelations to rock scandal-ridden FIFA."
War kills young men who might grow up to be somebody (competition to the status quo), leaves children without a father, and their govt to subsidize them (Stockholm syndrome).
Follow the fucking money you mindless prick.
Videos of the 'Saudi' invasion show columns of Leclerc tanks. According to Wiki, the only current operators are France and UAE. These tanks are most likely from UAE so this war is another case of war by a coalition of the 'bought and paid for'.
The UAE has no option but to be part of the coalition. They are going to get screwed over too.
Unfortunately for them, Pakistan refused to join. So they have to give up their own people as cannon fodder .
No one can beat the French on hypocrisy. They were also the biggest foreign investor in Turkey last time I looked at these things. "Pays des droits de l'homme", my ass!
You make a good argument for sterilizing the Brits and the EU serfs as well. But I don't know about the quarantine thing being applied to them too. Paris and London still have a few neat out-of-the-way corners not completely overwhelmed by former Colony members, that I like to visit from time to time.
Save yourself the effort. If we lived in older days, you'd be run out of town as an antagonist. Americans are from all over the world. My neighbor is Mexican, the other Japanese, I've lived beside Iranians, Polish, filipino, worked beside Scandinavian, Indian, German, I am a Canadian, but I am SCOTTISH and WELSH and I live in AMERICA. Your lay seeds of hate, and are beyond dangerous. What you are doing is a criminal act, promoting hatred isn't enough, "He did it" mob mentality and suggesting the ultimate goal is to see "Americans" vanquish from earth. Do ya keep a shovel and duct tape in your trunk? Psycho
I abhor violence. I think that the chemical castration method that the Russians use on pedophiles is perfect for the job.
Where is the hate in publicly acknowledging that Americans are allies and collaborators of Saudi Arabs who kill women for the crime of loving a man?
Yes, all Americans (except for the Indians) are immigrants. That doesn't give you the right to torture and kill human beings and feel smug about it.
Hence,
Fuck ALL those who are proud to be American - because they just declared themselves enemies of the entire human race.
You're right about my prick not having a mind, by the way. It is rather single minded though when it comes to where it wants to stick its lovely little head.
http://nypost.com/2013/12/15/inside-the-saudi-911-coverup/
The Saudis slaughtered several THOUSAND Americans.
And the Republicans give them private planes out of the country.
And start a war with Iraq to distract from the real murderers.
Go USA!!!!!
In ANY other country, the people would have punished those responsible in their government.
I just watched an African-American woman dance with President Bush during their anniversary of Hurricane Katrina festivities!
You Americans are the sickest fucks in history.
The Saudis did?
Are you sure?
How'd the Saudis get US air defenses down?
I think the preponderance of the credible evidence points to 9/11 being an Inside/Israeli job.
Of course, using Saudi patsies was a great move.
Just like having a Palestinian murder RFK was.
Cui bono?
If you look at the IEA graphs (world demand, world supply) it looks like demand has been more or less at about 92.5 mbpd. Whereas, the supply is well in excess of that since 2Q 2014. Saudis have had to cut back due to burgeoning supplies from their other low cost producers, Iraq and Iran. That is the real problem for the Saudis, but certainly shale gas, as a supply that can be shut off and wait for higher prices, is a big problem.
Couldn't have happened to a nicer bunch of assholes.