Bloody Hell!

That's what Macro Man said when he saw the August TIC data, released today. The figures were always going to be freaky, given that they captured the height of the recent market crisis, but whoa Nellie!

* The monthly long-term flow was -$69 billion

*The montly total flow was -$163 billion

*The monthly private sector flow was -$141 billion

All of these are comfortably in record territory- and not in the direction that the US would want.


Private sector flows are running at roughly 40% of their 2006 run-rate. That, ladies and gentlemen, is a big reason why the buck has fallen this year.

The only sector to see a US inflow was Agencies. This is curious, bcause it puts paid to the notion, that Macro Man himself has subscribed to, that US investors would repatriate assets wholeheartedly in tims of crisis.

RUMOURS ARE NOW SWIRLING THAT THE DATA IS ABOUT TO BE CHANGED. WHAT A JOKE...




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Corey
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October 16, 2007 at 4:07 PM ×

As US equities stabilize around option strikes during the lunchtime hour, there is a looming sense things could fall apart here.

The rest of today will be telling.

Also, this morning's London AM gold fix spike with a lower PM fix makes it highly likely gold has made its interim high. COMEX downside action looms if this is the near-term top.

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"Cassandra"
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October 16, 2007 at 4:09 PM ×

everyone's a momentum investor now. when there is some flame & burn in em-land, and returns go negative either because they end up being linked to usa consumption and/or growth thereof, people will sell-up and get outta dodge. Recall: the biggest pukes from tech were in Qs 2&3 2002, at or near to the lows. recent flows have sent em prices abso-f-ing-parabolic. i've seen lots of parabolic price action before, and one always must ask: is it really different this time?

$85oil will do little to improve the trade acct in short term, and lower dollar across-the-board will just cause bigger dislocations.

i'd just like the admin (like Carter in 1979) to admit there is a problem, and maybe make some plausible suggestions (other than MLECs) for solving it. that is what leaders are theoretically supposed to do, right?

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Macro Man
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October 16, 2007 at 4:21 PM ×

Corey, today's wealth-destruction in risk-land is certainly suggesting deteriorating micro-liquidity, and hence chances of your suggested downmove in gold.

Should conditions not improve over the next 12-18 hours, I will likely trim risk.

C, the problem is that politicians of all stripes are so beholden to various and sundry interests that it makes rational, good policymaking very difficult to come by.

I've spoken to one guy today who thinks the Super-SIV is a great idea and will solve a lot of problems...most of the others are scratching their heads. I, too, am sceptical, as I laid out earlier today. (As an aside, I'm a trifle disappointed that my 'leaking like a SIV' gag did generate any response.)

And yes, parabolas typically end badly. Word on the street is that one of August's high-profile loss-makers has been active in reducing ertswhile star trades today....

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prophets
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October 16, 2007 at 4:22 PM ×

forgive the neophyte in the room for my econ 101 question. I'm looking at the TIC data and trying to reconcile MM's comment:

"The only sector to see a US inflow was Agencies. This is curious, bcause it puts paid to the notion, that Macro Man himself has subscribed to, that US investors would repatriate assets wholeheartedly in tims of crisis."

I see *foreigners* piling into short term treasuries (flight to quality) as noted in line 23. However, US investor (domestic) flight to t-bills doesn't appear to be stated in the TIC data anywhere.

If anything, the data shows US investors continue to send money overseas and not repatriate it? (line 16).

thx for comments in advance.

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Macro Man
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October 16, 2007 at 4:28 PM ×

Prophets, US buyers of T bills would be captured in this data unless they bought from foreigners.

But that last bit of your query is what I am saying...I'd expected to see US investors selling foreign equities and bringing the money back home...instead, the data suggests that US investors continued to export capital despite the ruptures in financial markets. Hence, the data put paid (i.e., did away with) the notion that American investors would repatriate at the drop of a hat, and lends a bit more credence to the 'secular reduction in home bias' thesis that some (though not all, eh, Cassandra?) believe is another reason to hate the buck.

"pu

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"Cassandra"
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October 16, 2007 at 4:55 PM ×

MM - you're really too harsh on me, and my view while perhaps provocative is not that coarse.

I grant that globalization and modernity is of course driving a secular diminishment in home bias. But IMHO there are times when the magnitude of the "hot" flows dwarfs the scale of diminishing home bias - both OUT, and perhaps back IN. That begs the question: How can tell the difference? Look at the whites of their eyes, the price action of the instruments their trading or investing in (& unrealized gains/losses), and financial press they're reading upon which they are basing decisions. I do not think "diminishing home bias" is any more profound explanation of the flows today than "secular anti-luddite investor" would have been descriptive of buyers of web 1.0 bubble-trash in 1999 & 2000.

Sure Pennsylvania Teachers & Philly firemen are allocating more of their pension funds globally. But the aggregate ebbs & flows still FOLLOWS price action, just as sure as Frank Rizzo was of I-talian descent.

What IS new is the size of the electronic herd, and the growing shift in balance of origin from west to east. Will the chinese herd be more or less herd-like than american or japanese herds? I may think I've seen parabolic, but have a suspicion that the definition of bubble may take on an entirely new meaning with heretofore unconceived proportions.

I just hope, by then, that I've outfitted my Gallic 'Plan B' down the road from RJH, with sufficient cows, sheep, solar & water to (comfortably) weather the aftermath

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Anonymous
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October 16, 2007 at 5:09 PM ×

macroman -- any more on the rumors that the data is to be revised; the data does really suck (from the US point of view), but it also makes a bit of sense. the fall in demand for us corp debt is consistent with a) the subprime crisis and b) sivs blowing up and shrinking rather than growing their london balance sheet.

CBs -- especially in asia -- seem to have sold treasuries. makes sense. they sold into the rally. i suspect they also are among those still buying agencies.

I'll have more in a bit (on my blog) but do send any additional tidbits my way.

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Macro Man
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October 16, 2007 at 6:38 PM ×

C, I wsn't trying to snark. I think we both recognize that there are secular and herd-like functions at work, but disagree as to their relative importance in driving asset prices in normal circumstances. That the TIC at least shows outflow during extraordinary circumstances in pretty remarkable.

Brad (I assume it's you!), nothing more has come from that rumour. It was, I suspect, the product of some enterprising mind who wanted to trade at a slightly les adverse level than was the case immediately after the release.

Given that August is a quarterly refunding month, might repatriation of maturing Tre4asuries be partially responsible for the massive all-in figure, as well as the steep devline in Japan's Treasury holidngs?

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Macro Man
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October 16, 2007 at 6:48 PM ×

Prophets, to clarify: if US investors are net sellers of foreign securities, it is recorded in the data as an "inflow" from that sector. That foreign stocks and bonds continued to see outflows in the maelstrom was pretty impressive indeed.

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t
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October 16, 2007 at 7:00 PM ×

A classic post. Timely, punchy, relevant, and graphic. Yet sparse enough to hang discussion off.

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"Cassandra"
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October 16, 2007 at 7:10 PM ×

MM - There is also a potential Darwinian angle reinforcing momentum: The successful [hedge, mutual, what-have-you] funds, i.e. the ones that didn't have to deleverage (or shutter)are precisely the ones that have already allocated. With flow chasing performance, there are lots of guys putting to work whats thrown at them in a virtuous performance circle. The honest ones, certainly within dedicated intl bias funds, however, will recognize that there is less magic in their offerings, and they are mere purveyors of "good-times" to sailors pulling-in across the port.

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JulienG
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October 16, 2007 at 7:41 PM ×

i'v got -$40b for US corp Bonds am i wrong ?

Main holders are also also selling US T

-$14b USTBonds for china
-$23b USTBonds for Japan

carib sold $26b of Foreign stocks

UK bough $33b of USTBonds

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Macro Man
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October 16, 2007 at 7:55 PM ×

Julien, US corporate bonds looks like $ 2 billion to me...the $40 billion figure was US corporate stocks

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JulienG
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October 16, 2007 at 9:32 PM ×

you right, this is incredible $69b appears to be a all time low by far

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Josh
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October 16, 2007 at 9:57 PM ×

can you guys just give a quick primer on TIC flows mean

preeesh

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Macro Man
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October 17, 2007 at 2:12 PM ×

Josh, the TIC is a report from the US Treasury that attmepts to measure capital flows into and out of the US. It is not perfect, and released with a lag, so its utility is primary explanatory rather thean predictive. That being said, it can alos be useful to distill long-term invetment trends.

The data is borken into long-term andshort-term securities, and can be found here.

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