MacroScope

Foreign investors still buying American

Overseas investors have yet to sour towards U.S. assets despite high government debt levels, according the latest figures on capital flows.

Including short-dated assets such as bills, foreigners snapped up $107.7 billion in U.S. securities in February, following a downwardly revised $3.1 billion inflow for January. At the same time, the United States attracted a net long-term capital inflow of just $10.1 billion in February after drawing an upwardly revised $102.4 billion in the first month of 2012.

The data showed China boosted purchases of U.S. government debt for a second month in February, but also some waning of demand for longer-dated securities.

Still, recurring fears that foreign investors might be scared off by high levels of U.S. debt have thus far proven overdone. Writes Millan Mulraine at TD Securities:

Overall, the massive foreign flow into U.S. assets in March suggests that US securities continue to enjoy healthy global appetite in time of fear (Treasuries) and times of hope (equities). The reallocation from Treasuries to shorter-term securities in February is broadly consistent with the risk-on tone that prevailed during the month, reversing the trend of the past few months, when concerns in Europe resulted in the flight to quality.

from Mike Dolan:

Sparring with central banks

Just one look at the whoosh higher in global markets in January and you'd be forgiven smug faith in the hoary old market adage of "Don't fight the Fed" -- or to update the phrase less pithily for the modern, globalised marketplace: "Don't fight the world's central banks". (or "Don't Battle the Banks", maybe?)

In tandem with this month's Federal Reserve forecast of near-zero U.S. official interest rates for the next two years, the European Central Bank provided its banking sector nearly half a trillion euros of cheap 3-year loans in late December (and may do almost as much again on Feb 29). Add to that ongoing bouts of money printing by the Bank of England, Swiss National Bank, Bank of Japan and more than 40 expected acts of monetary easing by central banks around the world in the first half of this year and that's a lot of additional central bank support behind the market rebound.  So is betting against this firepower a mug's game? Well, some investors caution against the chance that the Banks are firing duds.

According to giant bond fund manager Pimco, the post-credit crisis process of household, corporate and sovereign deleveraging is so intense and loaded with risk that central banks may just be keeping up with events and even then are doing so at very different speeds. What's more the solution to the problem is not a monetary one anyway and all they can do is ease the pain.

How to silence Larry Summers

White House economic adviser Lawrence Summers is rarely at a loss for words, which makes Tuesday’s question-and-answer session at the National Press Club in Washington downright astonishing.

Summers, whose term as president of Harvard University ended rather abruptly after he made some unfortunate remarks about women and math and science aptitude, knew he was on very thin ice when he was asked a question about gender differences in retirement savings.

As soon as the question was asked, laughter spread around the room. Summers himself paused for a good 20 seconds before cracking a joke about how the question must have frightened his staff.

Sick of all the red ink? Think Pink.

Singing the blues over your stock holdings? Tired of seeing your portfolio take a beating when company earnings come up short of analysts’ expectations? Societe Generale strategist James Montier has the perfect theme song for you: Pink Floyd’s Comfortably Numb.  Just when it seemed like the world’s central bankers were finally getting somewhere with their trillions of dollars in lending facilities and coordinated rate cuts, earnings season hits in full force and things like dreary. Weak profit forecasts from the likes of Texas Instruments and DuPont served as another reminder on Tuesday that corporate profits will likely suffer no matter how much money Fed Chairman Ben Bernanke and friends throw at the financial sector problems.Montier thinks stock analysts are still wildly optimistic about earnings prospects in the midst of what could be a global recession. ”Hello. Is there anybody in there?,” he writes in a note to clients channeling Pink Floyd. “This (song) gets my vote for analyst anthem of the year. Pretty much everyone is bracing for a recession, but analysts appear to be still predicting double-digit growth. Wake up and smell the coffee guys.”Montier sees this is a “clear and present danger to investors” because expectations are key to how investors judge a company’s performance.”Everyone says that no one listens to analysts, but when the stock misses expectations, it still craters,” he says.Something to keep in mind as Wall Street works through one of the busiest weeks of the earnings season.