Thursday, October 27, 2011

Foreigners Sell Second Largest Amount Of US Bonds Ever In Past Week, Record $93 Billion In US Paper Sold In Past 2 Months

Two weeks ago when we reported that there had been a record consecutive week dump of US Treasury paper in the Fed's custodial account, as reported by the weekly H.4.1, we made the assumption that this was China preemptively selling US paper. Well, that may or may not have been the case, but it was only part of the full story. We have now learned that Europe, and especially Germany has been just an active seller of sovereign bonds, most certainly including US paper, in recent weeks. As FAZ reports, the head of Commerzbank Martin Blessing has been dumping all bonds in his possession, primarily PIIGS paper, but also US and German ones. He does add the clarification that this has been a complicated project as there has been a buyer's strike (and with the CDS extinction it will only get more difficult as there is no natural hedge remaining), and his dumping has certainly not made things easier. Now as we all know by now, when starting a panic exodus, one has to be first, be smarter, or cheat. Here we will add a fourth one: or sell US paper. After all the demand for this is nearly insatiable, or so the neo-Keynesians out there will have us believe. Well, in the last week, someone used our definition. According to today's update in the H.4.1, the total amount of securities held in the custodial account for foreign official and international accounts just plunged by $20 billion, of which $19 billion was attributable solely to Treasurys: the second largest weekly dumb ever. And since this total number includes both Treasurys, which are used for political purposes, as well as Agency securities, which don't really serve much in terms of a diplomatic statement but are great at shoring up liquidity, one can assume that the relentless selling in all types of US paper has had one purpose only: to generate capital. As the third chart shows, that amount is substantial: in the last 8 weeks foreigners have sold a unprecedented $93 billion across the custodial account bringing it to $3.392 trillion, the lowest since March 2011! So the next time someone asks where European banks are finding emergency liquidity now that commercial paper, money market and Libor Markets are all dead, you will have the answer.

Are Foreign Central Banks Slowing dumping Treasuries

Trader Dan at Trader Dan's Market Views - 1 hour ago
Each week the Federal Reserve provides an updated number for its Custodial Accounts. A very crude way of understanding these is to consider them as a type of savings account for Foreign Central Banks that are held at the New York Branch of the Federal Reserve. When the US buys goods from a foreign country and pays for those goods with US Dollars, oftentimes it ends up running a trade deficit with that particular nation. The result is that the foreign country ends up with a large amount of Dollars that it needs to "sterilize" in order to prevent an inflationary outbreak. What genera... more » 

Did POTUS Just Become A Self-Congratulatory FT Op-Ed Blogger?

While we have become used to the most 'important' thinkers, book-talkers, and self-aggrandizers gracing the pages of various mainstream media outlets with op-eds, we were somewhat surprised when the FT posted Barack Obama as El-Erian's replacement this evening. His thoughtful prose provides little of substance but does highlight the fact that self-hypnosis and surrounding one-self with a willing crowd of yay-sayers can make any disaster seem soluble. Presented with no snark, we suspect readers will enjoy his perspective on saving the world, on making austere domestic plans create jobs in a balance sheet recession (our wording), and the obvious jab at the Chinese.

In The News Today

Dear CIGAs,

QE to infinity – there is no other choice. There is no other functional tool in anyone’s toolbox to stop camouflaged runs on the bank.

QE to infinity in the western financial world is assured. As a result, gold in the $2000s is coming soon.

Jim Sinclair’s Commentary

Here is the latest from John Williams’

- Consumer Confidence and Sentiment Sink to Levels Never Seen Outside of the Worst Recessions

- No Economic Recovery Is in Place or in the Works

- Third-Quarter GDP Gain Not Statistically Meaningful

- GDP Nonsense:  Consumption Surged 1.7% While Disposable Income Collapsed 1.7%?



Jim’s Mailbox

Euro deal leaves much to do on rescue fund, Greek debt  
Trend energy reveals that downside force has been dominating the Euro’s recent trading range. This is illustrated by a series of lower highs and lows in REV(E) since mid 2008. While the Euro has rallied on news of an enhanced bailout, it has yet to reverse its footprint of distribution.
Euro ETF (FXE) clip_image001

Headline: Euro deal leaves much to do on rescue fund, Greek debt
BRUSSELS (Reuters) – Euro zone leaders struck a last-minute deal to limit the damage from the currency bloc’s debt crisis early on Thursday but are still far from finalizing plans to slash Greece’s debt burden and strengthen their rescue fund.
After a summit in Brussels, governments announced an agreement under which private banks and insurers would accept 50 percent losses on their Greek debt holdings in the latest bid to reduce Athens’ massive debt load to sustainable levels.
Reached after more than eight hours of hard-nosed negotiations between bankers, heads of state and the IMF, the deal also foresees a recapitalization of hard-hit European banks and a leveraging of the bloc’s rescue fund, the European Financial Stability Facility (EFSF), to give it firepower of 1.0 trillion euros ($1.4 trillion).
European stocks surged to a 12-week high and the euro shot above $1.40 to reach its top level against the dollar in seven weeks following the deal, which had appeared at risk due to deep differences between Berlin and Paris.
But key aspects of the deal, including the mechanics of boosting the EFSF and providing Greek debt relief, could take weeks to pin down, meaning the plan to rebuild confidence after two years of crisis could unravel over the details.
"I see the main risk is that we are left waiting too long again for the implementation of these agreements," European Central Bank policymaker Ewald Nowotny said on Thursday. "Speed is very important here," he told national broadcaster ORF.




All signs point to Kenny’s accordion chop and extended timing breakout above $1695.
That opens targets in the $2000-$3000 level.

CIGA Stefaan
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