Foreigners Dump $74 Billion In Treasurys In 6 Consecutive Weeks: Biggest Sequential Outflow In HistoryOver the weekend, we observed the perplexing sell off of $56 billion in US Treasurys courtesy of weekly disclosure in the Fed's custodial account (source: H.4.1) and speculated if this may be due to an asset rotation, under duress or otherwise, out of bonds and into stocks, to prevent the collapse of the global ponzi (because when the BRICs tell the IMF to boost its bailout capacity you know it is global). We also proposed a far simpler theory: "the dreaded D-day in which foreign official and private investors finally start offloading their $2.7 trillion in Treasurys with impunity (although not with the element of surprise - China has made it abundantly clear it will sell its Treasury holdings, the only question is when), has finally arrived." In hindsight the Occam's Razor should have been applied. Little did we know 5 short days ago just how violent the reaction by China would be (both post and pre-facto) to the Senate decision to propose a law for all out trade warfare with China. Now we know - in the week ended October 12, a further $17.7 billion was "removed" from the Fed's custodial Treasury account, meaning that someone, somewhere is very displeased with US paper, and, far more importantly, what it represents, and wants to make their displeasure heard loud and clear. Whether it is China - we do not know: we may have a better view in two months when the September/October TIC data hits, but even then it will be full of errors, as Direct Bidder purchases by the UK usually end up being assigned to China at the yearly TIC audit. And the sellers know this all too well. What they also know is that over the next few days (or weeks - ZH tends to be a little "aggressive" in its estimates for popular uptake), as soon as the broader population understands what has transpired, concerns about the reserve status of the greenback will start to resurface, precisely as many have been warning. And what has happened is that in six consecutive weeks, foreigners have sold $74 billion, or more government bonds in a sequential period of time than ever before.
UPDATE: EURUSD loses 1.3750
On Oct. 13, 2011, Standard & Poor's Ratings Services lowered the long-term rating on the Kingdom of Spain from 'AA' to 'AA-', while affirming the short-term ratings at 'A-1+'. The outlook is negative. The transfer and convertibility assessment remains 'AAA', as it does for all members of the eurozone. The negative outlook reflects our view of the risks to Spain's economic growth linked to private sector deleveraging, external financing pressures, and their impact on budgetary consolidation. We could lower the ratings again if, consistent with our downside scenario, the economy contracts in 2012, Spain's fiscal position significantly deviates from the government's budgetary targets, or additional labor market and other growth-enhancing reforms are delayed. Conversely, we could revise the outlook to stable if, consistent with our upside scenario, the government meets its budgetary targets in 2011 and 2012, risks to external financing conditions subside, and Spain's economic growth prospects prove to be more buoyant than we currently assume.
Harvey Organ, Thursday, October 13, 2011
Just like goldbugs know the serial number of every single gold bar held (allegedly) in the GLD by heart, so the Federal Reserve carries a soft place in its corrupt, evil heart for fiat and the assorted trivia surrounding it. For example did you know that the Bureau of Engraving and Printing has two facilities, one in Washington, D.C. and the other in Fort Worth, Texas. Together they use approximately 9.7 tons of ink per day. So while paper money may or may not a disappearing species, here are, courtesy of the Federal Reserve, some "fun" facts about the US Dollar that readers may not be aware of as they make funeral arrangements for the endlessly dilutable combination of 75% cotton/25% linen.
Fitch Downgrades UBS, Many Others, Puts Morgan Stanley, Bank of America, Goldman, BNP, Deutsche Bank, SocGen And Others On Watch NegativeSince one can not get a downgrade of a bank during market hours for fears of springing who knows what circuit breakers, Fitch had to wait until just after the market close to release its latest market surprise which consisted of a "watch negative" announcement on the following banks Barclays, BNP Paribas, Credit Suisse, Deutsche Bank, Goldman, Morgan Stanley; others it just slashed some by multiple notches, among which: Landesbank Berlin IDR downgraded to A+ from AA-; Lloyds Banking Group IDR downgraded to A from AA-; RBS IDR downgraded to A from AA-; and most importantly UBS IDR downgraded to A from A+. The reason for the action: "the ongoing Eurozone crisis continues to feed intense market speculation regarding the potential or bank recapitalisation schemes. Therefore for the near term the agency is maintaining a 'single A' range support rating floors for banks in its highest rated Eurozone countries." The Euro is not liking this announcement one bit.
Don't write Google off just yet. The company, which had left many wondering if it can continue to compete with the same level of intensity, just crushed consensus, with Q3 EPS of $9.72 beating expectations of $8.76, while revenues coming at 9.72$ billion on expectations of $7.23 billion. Cash of $42.6 billion, not quite Apple but still lots of potential acquisition targets.. Immediate result: stock up $40 after hours. From Page: ""We had a great quarter. Revenue was up 33% year on year and our quarterly revenue was just short of $10 billion. Google+ is now open to everyone and we just passed the 40 million user mark. People are flocking into Google+ at an incredible rate and we are just getting started!" Some other details from the press release...
David Rosenberg has issued yet another piece of blistering common sense (which most mainstream and sellside economists seem to lack in wholesale amounts these days), in which he explains why the action at the margin is all that matters for asset prices and all that follows. As he says "this is about change, not levels" - a jab directly at the Federal Reserve, whose core underlying premise is that "stock" is all that matters, whereas "flow" (or change) is irrelevant. This is arguably one of the biggest errors that Fed chairman after Fed chairman perpetuates, and further explains why the Fed will always have to be engaged in some (ever greater) form of monetary intervention in order to simply keep asset prices constant as the "stock" theory is disproven time and time again. Alas, since we are dealing with brilliant PhD Economists they will never admit their foolish theory is flawed until it is too late. In the meantime, for everyone else who does not live in Bernanke's ivory towers, here is Rosenberg's explanation why what happens at the margin is all that matters.
Marc Faber: Long The Dollar, But Occupy The Federal Reserve
While it is unclear if the news reported by Shia-News, and amplified by Bahrain News, is in retaliation for the recent deterioration in Iran-US relations following an allegation that Iran sought to assassinate diplomats and blow up embassies in the US using Mexican hitmen, or if this is what led to it, it appears that Iran is playing hard ball. As Bahrain News reports, referencing a new posting in Shia-News, "The Iranian leaders, furious over the Saudi intervention in Bahrain and what they call crimes against the Shiites of that country, have openly created centers to recruit volunteers for suicide bombings against Saudi Arabia’s interests worldwide. Several grand ayatollahs in Iran have issued a fatwa for Muslims to come to the aid of their Shiite brothers in Bahrain, who they claim are suffering horrific crimes from their government in collaboration with the Saudi armed forces. They further emphasized that the people of Bahrain have every right to demand freedom and their fair share from the state. Shia-News, a site associated with Ayatollah Mesbah Yazdi (a hard-line Shiite Twelver and an influential figure in the suppression of Iranians during their uprising to protest the fraudulent presidential election of 2009), is registering volunteers to participate in suicide bombings against Saudi interests around the world. Hundreds have already registered. Reports from inside Iran indicate that an alert has gone out to the Revolutionary Guards Quds forces throughout the world to prepare for attacks on Saudi establishments."