Presenting The Shocking Source Of US Treasury Demand In The Past Year

When one thing US Treasurys, and demand thereof, two entities pop into mind: the Federal Reserve, which over the past 3 years has been the biggest institutional buyer of US paper, and China, which is the largest foreign holder of US TSYs. Yet over the past year something curious happened: when it comes to setting marginal demand for US Treasurys, it was neither the Fed, whose sterilized Operation Twist has kept its holdings of US Tsys relatively flat, nor China, which has actually been a major seller of US paper, that has been the dominant source of marginal demand for Uncle Sam's never to be repaid obligations. Japan.

 

Goldman Pulls The Plug On More QE In 2012

One of the most vocal advocates of a NEW QE announcement next month, at either the FOMC meeting or Jackson Hole - Goldman Sachs - has just pulled the plug. From Jan Hatzius: "The US economic data continue to look a bit stronger. Tuesday’s retail sales report for July beat expectations, while inventory accumulation showed a further slowdown in June. Our Q3 GDP tracking estimate edged up to 2.3%. The recent news also has implications for Fed policy. While QE3 at the September 12-13 FOMC meeting remains possible, our best estimate is that it will take until late 2012/early 2013 before Fed officials return to balance sheet expansion." Just as we have been saying. Which means the Fed is now out of the picture until the end of 2012. And with corn prices where they are, so is the PBOC. As for the ECB - talk to Rajoy, who will do nothing as long as 10 Year yields are under 8%. Which means that, as explained previously, Spain and Italy, and in fact the entire world, must all be destroyed first, before they are saved.

In June Foreigners Bought Fewest US Securities Since December 2011; Biggest Corporate Bond Outflow Since January 2010

The June TIC data is out, in which we find that June was not a good month for non-US Treasury purchases by foreigners. While foreign private and public sources of buying did splurge on US Treasurys in June, purchasing a total of $32.4 billion of US paper, every other category experienced a sell off, with Agencies down $604MM, Corp Equities down $4.3 billion and Corporate bonds down a whopping $22 billion: this is the second biggest corporate bond outflow on record, topped only by the $25 billion in January 2010. Overall, June saw only $5.5 billion of net inflows into US securities, the lowest of 2012, and higher only than the big December 2011 outflow of ($17.6) billion. Still despite the big repositioning out of corporates and into Treasurys in the month in which the wheels seemed set to fall off the cart, there was little impact on the corporate market. The historical purchases and sales of US securities by foreigners can be found below.

And The Downtrend Returns: Inflation Disappoints As Empire Manufacturing Posts First Sub-Zero Print Since October 2011

The X-12/13-ARIMA seasonal adjustments on today's data were not quite up to snuff as both the CPI, printing at 0.0% (or 1.4% Y/Y) on expectations of 0.2%, the biggest CPI miss since January and the Empire Manufacturing index, at -5.85 on expectations of a +7.00 print, posting the biggest miss in 14 months. Notably, the number of employees declined in August from 18.52 to 16.47, while margins got crushed as Priced Paid soared from 7.41 to 16.47 as Prices Received slide from 3.70 to 2.35. And so baffle with bullshit returns, as following several weeks of better than expected, if largely seasonally adjusted, the speculation that NEW QE may be coming back is here again. In other words, yesterdays scorching retail data was good, but today's horrible NY manufacturing miss is better. At least to the complete idiocy that the market, and its "discounting mechanism" have become. Sure enough both EURUSD and gold spike on the weak news as the ghost of Bernanke's printing press is back in the room. Finally, how CPI could be unchanged when crude alone posted a 20% increase in July, and gas prices are back to doing their vertical thing, will always remain a mystery.

As Goes Gold So Goes The Gold Stocks

Eric De Groot at Eric De Groot - 1 hour ago

Correlation analysis of gold and other assets reveals that gold, stocks, and gold shares are highly correlated. For instance, the correlation between gold and the gold stocks has been 0.88 since 1925 (table). This strong correlation between the two assets suggests that as goes gold, so goes the gold stocks (and small cap stocks). A technical breakout of gold above $1630-1650,... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

The Untold Muni Story: Default Frequency Is Far Greater Than Reported

Structural problems in state and local budgets were exacerbated by the recession and are likely to further restrain the sector’s growth for years to come. As the NY Fed notes, the last couple of years have witnessed threatened or actual defaults in a diversity of places, ranging from Jefferson County, Alabama, to Harrisburg, Pennsylvania, to Stockton, California. But do these events point to a wave of future defaults by municipal borrowers? History - at least the history that most of us know - would seem to say no. But the municipal bond market is complex and defaults happen much more frequently than most casual observers are aware. As the NY Fed points out "the untold story of municipal bonds is that default frequencies are far greater than reported by the major rating agencies" but, until recently, investors could take some comfort from the fact that many municipal bonds - both rated and unrated - carried insurance that paid investors in the event of a default. But now that bond insurers have lost their AAA ratings, they no longer play a significant role in the municipal bond market, increasing the risks associated with certain classes and certain issuers of municipal debt.

Some Simple Answers - As Requested

Mark Grant stated yesterday on CNBC that Europe will have a “Lehman Moment” and likely a number of them. The construct is a failing enterprise as the available European capital cannot support the combined debts and as real money investors pull their capital and stop lending because of the continuing deceit. You may be able to “fool some of the people some of the time” as Abraham Lincoln so succinctly put it but you cannot fool all of the people all of the time as he humbly nod to his sage wisdom.

Soros Gold Action Speaks Louder Than 'Bubble' Words

George Soros more than doubled his shares in the SPDR gold trust ETF. He increased his position in SPDR Gold to $137.3 million in the second quarter from $52 million previously. SEC filing for the second quarter showed Soros Fund Management more than doubled its investment in the SPDR Gold Trust from 319,550 shares to 884,400 shares at the end of June. In September 2010 (see chart), Soros called gold "the ultimate bubble" and largely dumped his stake in the ETF before gold recorded annual gains in 2010 and 2011 and rose to a nominal high of $1,920.30 per ounce in September.  There was speculation at the time that he may have sold the SPDR trust in order to own far safer allocated gold bars. Another billionaire investor respected for his financial acumen is John Paulson and Paulson & Co increased its holdings by 26% by purchasing an additional 4.53 million shares of the SPDR Gold Trust to bring entire holding to 21.8 million shares.  It was the first time Paulson & Co had increased its position in the SPDR Gold Trust since the first quarter of 2009, when the investment firm initially acquired 31.5 million shares. It means that Paulson's $21 billion hedge fund now has more than 44% of the company's assets allocated to gold.

Congress Approval Rating Slides Back To All Time Lows; 83% Disapprove

Something tells us not even an ARIMA X-12, 13 or even 14 seasonal adjustments will do much to change the opinion of America's population that Congress is now more useless, incompetent and corrupt than ever. From Gallup: "Ten percent of Americans in August approve of the job Congress is doing, tying last February's reading as the lowest in Gallup's 38-year history of this measure. Eighty-three percent disapprove of the way Congress is doing its job." So what happens when the approval rating hits 0%? Does America automatically revert back to Monarchy (for all you Sid Meier fans out there), and what then? Back to Slavery? And in the New Centrally Planned normal is Darwin really right?

Daily US Opening News And Market Re-Cap: August 15

The European morning session has been fairly quiet, with European equities opening lower following over night reports from China that the People's Bank of China might buy back government debt in the secondary market making the much speculated reserve ratio requirement cut it less likely. With several market closures across the Euro-area thanks to the Assumption of Mary holiday, volumes have been particularly light, and with a distinct lack of European data, market focus was on the release of the Bank of England's minutes for the August rate decision. As expected, the MPC voted unanimously to keep the APF unchanged at GBP 375bln and the benchmark rate unchanged at 0.50%, though some MPC members noted there was a good case for further expansion of QE. The better than expected UK jobs report also helped strength GBP.

Frontrunning: August 15

• Investors Shift Money Out of China (WSJ)
• Rajoy Risks Riling ECB in Bid to Avoid Union Ire (Bloomberg)
• Romney-Ryan See Fed QE as Inflation Risk Amid Subdued Prices (Bloomberg)
• Spanish savers offered haircut then money back (FT)
• Must wipe all traces of illegality and settle for $25,000: Standard Chartered Faces Fed Probes After N.Y. Deal (BBG)
• Greece debt report backs cuts plan (FT)
• Greece seeks two-year austerity extension (FT)
• Brevan Howard Looks To U.S. To Raise Money For Currency Fund (Bloomberg)
• Can he please stop buying gold? Paulson, Soros Add Gold as Price Declines Most Since 2008 (Bloomberg)
• BOE Drops Reference to Rate Cut as It Considers Policy Options (Bloomberg)
• EU Banking Plans Asks ECB to Share Power, Documents Show (Bloomberg)

Overnight Summary And Look At The Day's Events

It's quiet out there, quieter than usual. Perhaps this is because Merkel is in Canada today and so hasn't had a chance to crash any dreams of magic money trees yet. The EURUSD however did drop preemptively without any news and touched on 3 day lows moments ago under 1.2280, forcing DraghiFX and his long EURUSD call to pay another margin call. Eventwise, in Europe Spain continues to pretend it does not exist, with its bond yields quietly sliding lower even as the country's economy continues to deteriorate, on expectations that Rajoy will ask for a bailout, when in fact the lower yields go, the more unlikely this event is. Of course, all that needs to happen for the deer in headlight market to snap out of its trance is a reminder of just how broke Spain is before it does need a bailout. In the meantime, Spain is extending unemployment benefits. More importantly, it seems that the Chinese slowdown is about to hit Germany like a brick wall: Hamburg - Europe’s second-largest container harbor - reported its first quarterly decline in container volumes in nine quarter. And now the recession is really coming to Germany.






Today’s Items:

First…
Endgame Activated
http://www.stevequayle.com

The Russians, being geographically next to the EU, have a lot more at stake with the euro than virtually any other country.   Russians are irate over the Euro crisis and as the primary natural gas supplier; they will most likely stop the supply of natural gas if the Euro begins to fall apart.   In addition, banks in both the U.S. and the EU are bracing themselves for the official euro collapse in October or November.   So, is your bank a safe place for your money?

Next…
Warning: Get Your Money Out!
http://www.shtfplan.com

Former money manager Ann Barnhardt, who, after the MF Global theft, honorably shut down her brokerage firm; so that, her customers would not be ripped off, is giving a new warning about the stability of US banks and the safety of individual deposit accounts.   Legal rulings are siding against the people and for the banks; thus, get your money out and get it out now.   This is because the market is destroyed and you no longer have any protection for any money invested in any investment, or banking, system anymore.

Next…
Central Banks To Launch Unprecedented & Coordinated Action
http://kingworldnews.com

It will not just be the FED, or the ECB…   But virtually every central bank on the planet is about to do their own version of quantitative easing.   Now that many economies are dependent upon money printing to show some form of positive GDP, they are more and more uneasy about the non-printing rhetoric.   The only problem with that way of boosting nominal GDP requires boosting inflation; thus, the underlying commodities will rise in price.   With that said, after preparing, keep stacking physical.

Next…
The Top 8 Deadly Myths About Survivalism
http://thesurvivalmom.com

Here are a few of those myths that you better not believe.
1. It’s just like camping. Wrong!
2. You can buy enough food and supplies for forever. Wrong!
3. Your neighbors will gather around and help each other. Wrong!

Next…
Paul Ryan
http://wi.rlc.org
http://www.dailypaul.com

Let’s see…  Paul Ryan, against his principles in order to save his principles,
Voted YES on TARP
Voted YES on $15B bailout for GM and Chrysler.
Voted YES on making the PATRIOT Act, which really is unpatriotic, permanent.
and
Voted NO on getting US troops out of Iraq.
Sounds like a perfect match for Ole Goldman-Sachs Romney.   Who, if true, should face disqualification for foreign contributions to his Presidential campaign.

Next…
What Some People Are Willing To Do For A Paycheck
http://theeconomiccollapseblog.com

Things are getting desperate and people will do unusual things to keep the checks coming in; such as:
1. Personally training their Chinese replacements
2. Trading sex for a job
The frightening thing is that a whole lot more layoffs are on the horizon; therefore, stay positive, and if possible, look for multiple sources of income.

Finally, please prepare now for the escalating economic and social unrest. Good Day!

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