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Second Biggest Weekly Drop Ever In Treasurys Held In The Fed's Custodial Account As Foreigners Dump 

Submitted by Tyler Durden on 05/26/2011 20:55 -0400

There was one truly interesting observation in this week's Fed balance sheet update: not that the actual balance sheet hit a new all time record (which it did at $2.779 trillion), or that the Fed added another $24 billion in Treasurys to its balance sheet, or that total reserves hit a new all time record, increasing by $53 billion to $1.59 trillion. No. The biggest surprise was that in the just ended week, Treasury securities held in custodial accounts at the Fed, considered by some the best real-time representation of foreign holdings of US Treasurys considering that the TIC update is not only wildly inaccurate in its monthly update, but is also 3 months delayed, dropped by the largest amount in 4 years. From a total of $2.704 trillion, USTs held in custodial accounts declined by $18.7 billion to $2.685 billion. This is the second largest decline in history, only topped by the $22.1 billion in the week of August 15, 2007 which is the week that followed the great quant crash of 2007 that wiped out, among others, Goldman Alpha. This observation is in stark contrast to the recent record strength of bond issuance, after both the 5 and 7 Years auctions posted record Bid to Cover investor interest.

Marc Faber Is Shocked By How Many Ferraris And Bentleys He Sees In Newport Beach During His Smoke Break 

Submitted by Tyler Durden on 05/26/2011 19:27 -0400

Yesterday Marc Faber first made a guest appearance at the Ira Sohn conference, warning his audience to prepare for war, then promptly shifted to Bloomberg's offices where he discussed his outlook primarily on China, but also on the US, with Carol Massar, once again warning about war. As usual, he did not mince his words, warning of a "recession", and predicting that China is simply not growing fast enough in real terms. Nothing new. He did however branch out into the topic of class divergence in both emerging and developed economies: "in front of far too many luxury hotels there are far too many Ferraris, Maseratis, Bentleys... I see a boom everywhere, except for the working class, except for the lower, middle class. But among the well to do people the wealth that is floating around and the prices you pay for high end properties is incredible, and I think that will come to an end, and a lot of people will lose a lot of money... I was in La Jolla, Laguna Beach, Newport Beach, I was in front of a restaurant smoking and I've never seen so many Ferraris, Maseratis, Bentleys and fancy cars anywhere in the world, and this is in America. I am not saying this is wrong, but there is an opulence among a small group of people that is huge when there are lots of people that are struggling. This gives me a bad feeling because I've seen so many emerging economies when they were booming, that was the time to get out." As for the US economy, Faber agrees that the only thing that can help is a massive crisis (or "conflagration" as David Stockman calls it) that jars America out of its hypnotic state. And, sure enough, it will come.

Guest Post: If Greece Default Would Wreak Havoc On European Banks Then CEO’s Should Be Fired 

Submitted by Tyler Durden on 05/26/2011 18:13 -0400

Every day there is at least one headline about how catastrophic a Greek default would be. These headlines aren’t coming from the doom and gloom crowd, they are coming from senior government officials throughout Europe. There is great concern that a Greek default would hurt European banks. The potential domino effect to other countries scares these senior officials. If these fears are valid, then some senior bankers should be fired immediately because they have wasted the opportunity to reduce their exposures with reasonable losses. Banks have had ample opportunity to cut their exposure to Greece. The original bailout and the announcement of EFSF gave these banks an incredible chance to get out of their Greek debt with manageable losses...If banks didn’t massively reduce exposure when they had these windows of opportunity, and the EU is busy negotiating to save these same banks, someone needs to be fired. It is mind boggling that banks were either so afraid of taking a reasonable loss or so greedy that they thought they could do better that they kept these exposures. It had to have been clear to everyone at the banks how bad it could get, the only prudent, not even smart, just prudent, action was to cut exposures. Even if you missed the May rally which was the best opportunity to get out, how could you sit through the summer fear and not sell heavily into the October rally? Any explanation involves either stupidity, negligence, or complete faith in the government to bail you out. 

 

 

 

 

Guest Post: A Former Marine's Outlook On Inflation, Life Expectancy, And Future Returns 

Submitted by Tyler Durden on 05/26/2011 15:22 -0400

Recently, I have been thinking about a former marine I know that recently "retired" from the federal government after a couple of decades as an US postal inspector. During his entire career in government service, he carried a weapon, and spent most of his time conducting narcotics investigations. He has photos of himself beside giant mountains of cash and drugs that he had seized on raids. Several months ago, before he retired, he shared a little bit about his financial situation; specifically that he has several hundred thousand dollars in a federal retirement account invested in U.S. treasuries. He said it was essentially all that he and his wife had saved, and that he knew it was not going to be enough for him to truly retire, especially because they still have kids to put through college. Being a bit of an instigator, I asked this ex-marine/postal worker what his assumptions were regarding inflation, his life expectancy, and future returns...