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Foreigners Dump Treasuries: Biggest Sequential Outflow In History
Hi Scott- you think that it might be possible that some of the selloff is by euronations raising cash to throw at their problems? As the congressional bill re China trade/exchange rate has been in the works for a while now, and it really doesn't seem to be going anywhere soon, the timing for a retaliatory "shot across the bow" seems a little strange.
You've been pretty quiet lately, sir. Hope all is well with you.
If things turn South in a significant way, we really cannot be counting on other countries like we have. Other countries have their own problems, and it would not surprise me if various countries start selling out of necessity, such as the European countries (or Japan.)
I do think there will be a point where we infuriate China enough that they will start dumping treasuries or take some other manner of financial action. I do believe in Asia over the long term, but I do believe that there will be bumpy patches and China is going to do what they believe is best for China. Whether or not China's economic actions in the last couple of decades are right/wrong can be debated endlessly, but I think it's apparent to even the casual observer that they are out for themselves and their own interests (whatever one's thoughts on China, at least they continually put out a 5-year-plan; I'd like to see this country have any sort of plan.) If China's finances are not in the best of shape as Jim Chanos and others have continually discussed, all the more likely that they will not cooperate with what we would like them to do.
People have said again and again that "What else is China going to do besides buy treasuries?" Well, give it enough time and push things far enough and they'll look to spend their money elsewhere (continuing to buy real assets, primarily.) Is this that? Maybe not, but I would really not be surprised if that happened. As I've noted before, I think geopolitics will play an increasingly large role in investing over the next decade, whether it involves China, Russia, the ME or elsewhere (such as those crazy Canadians.)
Or maybe someone just started wondering what the heck the fundamentals were behind holding treasuries at these levels and dumped, possibly snowballing. I have occasionally shorted treasuries as a trade, but I definitely think there will be a point soon where a little bit of that will stay.
Thank you for the note; I definitely visit the board quite a bit whether to post or just read, but I suppose not as much going on/not as much to discuss.
Maybe Belgium and other European countries sold some of their holdings to bail out their banks. Belgium announced they will buy their Belgian retail bank Dexia...Belgium needed $4 billion to buy Dexia...Dexia holds $700 billion of global credit risk... twice the GDP of Greece...here's Reuter's coverage...don't worry we'll back fill the redemption with operation twist.
Yeah, that's kinda what I was wondering too. Might be a little uncertain blaming China at this stage. On the other hand, China involvement wouldn't surprise me either.
Actually a very positive report from Wilbur Ross (currently in China) this morning on CNBC, although he said they were angry about the currency bill from Congress and would consider taking dramatic action. Acted like things on the ground there were good - better than he expected and he went there to see for himself if some of the issues discussed were as bad as heard. (*for what it's worth*)
I continue to hold Jardine Matheson as (personally) my largest/main play on the Asia region, although I definitely do not have as much in Asia/EM funds as I did a year or two ago (although given how EM stocks have done lately, I may buy a tiny bit here-and-there, but definitely do not plan to go back to the kind of allocation I had a year or two ago.)
Otherwise, I don't have great excitement about any particular investment/theme right now. Started positions in Marketfield (which I really, really like the looks of in terms of its flexibility) and Aston/RR Independent Value this week.
From the mind of a non-economic program graduate...except the diploma I filled in myself and printed to hang on a wall. I will revisit the "turd" pile of what any of the countries of the globe value and; at least in the past, have run to when times are not so happy......U.S. Treasury issues and perhaps some yellow metal. Let us presume the entire holdings of Treasury issues of all Euro countries were sold to raise money for the backing of the monies being thrown around to support the Euro banks and all other stake holders; including the bond folks. I suppose the Euro central banks could sell their gold reserves, too. What in the heck are they left with today the represents something of value? My best guess to the reported sales of Treasury issues is that they may have been "sold" in an electronic file entry; but are still being held for the seller to maintain their acct. value.......a kinda deposit function for a line of credit, not unlike a home equity loan. And indeed, monies may have actually been transferred to the ECB or whatever other gov't entity needs the money. A pure good faith loan that appears to be more legal, versus the Fed/U.S. Treasury taking actions in another form to help prop the Euro banks, etc. The EuroZone folks could sell all their Treasury stuff and all the central bank(s) gold and still be in the financial hole with nothing left that the world would consider of value; other than the industries. 'Course, it is very possilbe that some in the high positions are completely delusional and stuck in some time warp from 30 years ago and are not really up to the task of fixing the problems there. As one continues to read statements from any number of EU folks over the past two years and right up to today; they remind me of a continuing line of folks working the used car lot where I have been shopping for two years and they all have repeating stories using different words attempting to convince me that they have the best used car and I should not be concerned about a purchase; although they are not in a position to offer any type of warranty of condition; event for the shortest period of time. I still have not bought a used car from them..... As to China being sellers..........well, they are smart folks; and they know the U.S. must function to some degree to help support China's export markets; as China's internal consumption markets are reported to still be fairly small. If I were "the decider" of China's policy regarding the buy or sell of Treasury issues, now would be the best time to buy. Why? The yuan versus the dollar is near all time historic highs. China gets a lot of bang for their yuan when buying the cheaper dollar. The sell point would begin when China might decide to let their currency devalue a bit against the dollar; and then start to sell the Treasury holdings. A stronger dollar against a less valued yuan would be a more positive cash flow back to China in these terms. I may viewing all of this improperly. Please reshape my thinking if I am traveling down the wrong path of thought. Regards, Catch
After a run-up in treasuries, if you do not sell some you are a pig. Treasuries have positive flows in stressful times and when stress is relieved, there are outflows. This is very normal. I think people are trying to make more to the story. Sometimes, simple explanation is the best one.
Reply to @Investor: I agree. During market downturn, the flight to safety is normal. Same trend holds for TIPs and TIP funds when the yield is nearly zero, but it is up close to 10 % YTD. It is time to take profit and move on elsewhere.
I think most everyone is correct. There's been some generic rebalancing, some cash raising in europe and some further chinese rebalancing. The chinese were always going to arrive at a point, where their trade surplus dollar holdings became greater than they wished . . . at which point, they would start to diversify out of dollars and into other currencies/asset choices. The question has remained how fast, or how drastically, they wanted to move. Even so, it will never be in their best interest to be so drastic in their movements as to negatively impact the price.
Comments
You've been pretty quiet lately, sir. Hope all is well with you.
Regards- OJ
If things turn South in a significant way, we really cannot be counting on other countries like we have. Other countries have their own problems, and it would not surprise me if various countries start selling out of necessity, such as the European countries (or Japan.)
I do think there will be a point where we infuriate China enough that they will start dumping treasuries or take some other manner of financial action. I do believe in Asia over the long term, but I do believe that there will be bumpy patches and China is going to do what they believe is best for China. Whether or not China's economic actions in the last couple of decades are right/wrong can be debated endlessly, but I think it's apparent to even the casual observer that they are out for themselves and their own interests (whatever one's thoughts on China, at least they continually put out a 5-year-plan; I'd like to see this country have any sort of plan.) If China's finances are not in the best of shape as Jim Chanos and others have continually discussed, all the more likely that they will not cooperate with what we would like them to do.
http://en.wikipedia.org/wiki/Five-Year_Plans_of_the_People's_Republic_of_China#The_Twelfth_Five-Year_Guideline.2C_2011.E2.80.932015
People have said again and again that "What else is China going to do besides buy treasuries?" Well, give it enough time and push things far enough and they'll look to spend their money elsewhere (continuing to buy real assets, primarily.) Is this that? Maybe not, but I would really not be surprised if that happened. As I've noted before, I think geopolitics will play an increasingly large role in investing over the next decade, whether it involves China, Russia, the ME or elsewhere (such as those crazy Canadians.)
Jim Rickards (http://www.tangentcapital.com/team/rickards.html) has an interesting discussion of financial threats (in greater depth starting at page 95 - a discussion of China/treasuries and possible scenarios starts on p101) in this 2009 presentation:
http://www.jhuapl.edu/urw_symposium/proceedings/2009/Authors/Rickards.pdf
Or maybe someone just started wondering what the heck the fundamentals were behind holding treasuries at these levels and dumped, possibly snowballing. I have occasionally shorted treasuries as a trade, but I definitely think there will be a point soon where a little bit of that will stay.
Thank you for the note; I definitely visit the board quite a bit whether to post or just read, but I suppose not as much going on/not as much to discuss.
http://www.reuters.com/article/2011/10/10/us-dexia-idUSTRE7962XE20111010?view=222385619
I continue to hold Jardine Matheson as (personally) my largest/main play on the Asia region, although I definitely do not have as much in Asia/EM funds as I did a year or two ago (although given how EM stocks have done lately, I may buy a tiny bit here-and-there, but definitely do not plan to go back to the kind of allocation I had a year or two ago.)
Otherwise, I don't have great excitement about any particular investment/theme right now. Started positions in Marketfield (which I really, really like the looks of in terms of its flexibility) and Aston/RR Independent Value this week.
I will revisit the "turd" pile of what any of the countries of the globe value and; at least in the past, have run to when times are not so happy......U.S. Treasury issues and perhaps some yellow metal.
Let us presume the entire holdings of Treasury issues of all Euro countries were sold to raise money for the backing of the monies being thrown around to support the Euro banks and all other stake holders; including the bond folks. I suppose the Euro central banks could sell their gold reserves, too. What in the heck are they left with today the represents something of value?
My best guess to the reported sales of Treasury issues is that they may have been "sold" in an electronic file entry; but are still being held for the seller to maintain their acct. value.......a kinda deposit function for a line of credit, not unlike a home equity loan. And indeed, monies may have actually been transferred to the ECB or whatever other gov't entity needs the money. A pure good faith loan that appears to be more legal, versus the Fed/U.S. Treasury taking actions in another form to help prop the Euro banks, etc.
The EuroZone folks could sell all their Treasury stuff and all the central bank(s) gold and still be in the financial hole with nothing left that the world would consider of value; other than the industries.
'Course, it is very possilbe that some in the high positions are completely delusional and stuck in some time warp from 30 years ago and are not really up to the task of fixing the problems there. As one continues to read statements from any number of EU folks over the past two years and right up to today; they remind me of a continuing line of folks working the used car lot where I have been shopping for two years and they all have repeating stories using different words attempting to convince me that they have the best used car and I should not be concerned about a purchase; although they are not in a position to offer any type of warranty of condition; event for the shortest period of time. I still have not bought a used car from them.....
As to China being sellers..........well, they are smart folks; and they know the U.S. must function to some degree to help support China's export markets; as China's internal consumption markets are reported to still be fairly small. If I were "the decider" of China's policy regarding the buy or sell of Treasury issues, now would be the best time to buy. Why? The yuan versus the dollar is near all time historic highs. China gets a lot of bang for their yuan when buying the cheaper dollar. The sell point would begin when China might decide to let their currency devalue a bit against the dollar; and then start to sell the Treasury holdings. A stronger dollar against a less valued yuan would be a more positive cash flow back to China in these terms.
I may viewing all of this improperly. Please reshape my thinking if I am traveling down the wrong path of thought.
Regards,
Catch
I think most everyone is correct. There's been some generic rebalancing, some cash raising in europe and some further chinese rebalancing. The chinese were always going to arrive at a point, where their trade surplus dollar holdings became greater than they wished . . . at which point, they would start to diversify out of dollars and into other currencies/asset choices. The question has remained how fast, or how drastically, they wanted to move. Even so, it will never be in their best interest to be so drastic in their movements as to negatively impact the price.
and so it goes,
peace,
rono