Please take my money: The zero-yield bill
Wall Street firms are begging the U.S. Treasury to take their cash, at least judging by the latest auction of short-term Treasury bills. Treasury sold $30 billion of four-week bills at a “high rate” (pause for laugther) of 0.000% on Wednesday, a mix of strong demand for year-end portfolio shuffling but also a reflection of ongoing fears of a credit crunch emanating from Europe.
It was the fourth straight sale in as many weeks that brought a high rate of zero. The zero percent rate means buyers of the debt will receive no interest at all, sacrificing any return simply to hold cash in the safest of investments.
A rise in repo financing costs is “a sign the year-end demand for short, safe assets has begun,” said Roseanne Briggen, our New York-based colleage at IFR Markets, a unit of ThomsonReuters.
The expensive repo financing also reflects the other typical year-end event – lots of accounts unwilling to lend securities. This scenario worsens into the turn of the year, but then is offset by dealers scrambling to finance what’s left on their books over the turn.
Which strengthens the case of those who think the Treasury market will increasingly behave like the notoriously low-yielding market for Japanese government bonds or JGBs.
While demand for short-term U.S. debt remained strong, key euro zone bank-to-bank lending rates fell for the fifth session running on Wednesday, pushed down by a funding glut after banks took almost half a trillion euros at the European Central Bank’s first-ever injection of 3-year cut-price loans.
Will U.S. criticism affect Japan’s FX stance?
Currency analysts are divided over whether U.S. criticism of Japan’s forex policy will change Tokyo’s currency stance. While some say it could raise the hurdle for further Japanese intervention, others think it might not have much impact. Rob Ryan, FX strategist at BNP Paribas in Singapore says the effect will be limited given uncertainty about the Japanese economy’s outlook and current levels of dollar/yen and cross/yen pairs.
“I think if they (Japanese authorities) feel they have to intervene, they will intervene,” Ryan says, adding that a dollar drop down to the “low 76s” might be enough to prompt further action from Japan.
The U.S. Treasury Department said in its semi-annual report on international exchange rate policies issued on Tuesday that the U.S. did not support Japan’s recent bouts of solo FX intervention, adding that they took place when volatility in dollar/yen was relatively low. USD/JPY was currently trading at Y77.98, not too far from a record low of Y75.311 hit on Oct. 31, when Japan conducted massive yen-selling intervention.
The real facilitators of Europe’s crisis talks
“Sometimes it’s good to do these things in person,” U.S. Treasury Secretary Timothy Geithner said after meeting with German Finance Minister Wolfgang Schaeuble to discuss what to do about Europe’s debt crisis.
But it’s not easy pulling off a 72-hour, five-city blitz of European officials to proffer advice and some discreet prodding. It involves crossing the Atlantic Ocean twice and darting between Frankfurt, Berlin, Paris, Marseille and Milan, holding eight face-to-face meetings and three media sessions, as well as speaking with heads of state, finance ministers and central bankers.
Of course you need your own plane. Not a problem for the U.S. Treasury chief, who regularly has a blue-and-white military 737 at his disposal.
But the narrow, traffic-choked streets of European capitals and business centers could easily throw the schedule off. Geithner has far less influence over European drivers than he does over finance ministers.
The solution? Two words: motorcycle cops.
Escorting Geithner’s motorcades from airports to city center finance ministries and presidential palaces in Germany and France – and back again sometimes in the space of two hours – these fearless ninja riders fanned out across expressway lanes to block cars to let the motorcade pass quickly . When it did, they would scream to the front of the vehicle train on their BMW bikes and do it all over again.
Official motorcades always have two goals – block traffic to let the VIPs pass quickly, and keep drivers from infiltrating the queue. In Washington, it’s mostly three-ton SUVs that tend to do the blocking for President Barack Obama, or streets are simply closed off altogether. But the French and German motorcycle police simply hurled their machines – and flesh – straight in front of on-ramps filled with accelerating cars, not much more than a flashing blue light and a helmet to protect them.
Historic downgrade: U.S. loses AAA
Standard & Poor’s on Friday downgraded the United States’ prized credit rating, a move that is likely to compound recent instability in financial markets. Here is S&P’s statement explaining the decision:
United States of America Long-Term Rating Lowered To ‘AA+’ Due To Political Risks, Rising Debt Burden; Outlook Negative
We have lowered our long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’ and affirmed the ‘A-1+’ short-term rating.
- We have also removed both the short- and long-term ratings from CreditWatch negative.
- The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.
- More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.
- Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon.
- The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.
TORONTO Aug. 5, 2011–Standard & Poor’s Ratings Services said today that it lowered its long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’. Standard & Poor’s also said that the outlook on the long-term rating is negative. At the same time, Standard & Poor’s affirmed its ‘A-1+’ short-term rating on the U.S. In addition, Standard & Poor’s removed both ratings from CreditWatch, where they were placed on July 14, 2011, with negative implications.
The transfer and convertibility (T&C) assessment of the U.S. –our assessment of the likelihood of official interference in the ability of U.S.-based public- and private-sector issuers to secure foreign exchange for debt service–remains ‘AAA’.
We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.
from Reuters Investigates:
China’s U.S. debt holdings make it a powerful negotiator
Worrying about the power China has over the U.S. as America’s largest foreign creditor has become a national pastime. It’s a bipartisan issue in Congress and a favorite subject among pundits lamenting the decline in U.S. influence around the world. But could China really use its Treasury purchases to shape U.S. policy? Diplomatic cables released by WikiLeaks and obtained by Reuters suggest that has already happened.
Emily Flitter’s special report outlines a diplomatic flare-up between the two superpowers following the U.S. financial crisis. Chinese officials said they were worried about the safety of their U.S. investments. U.S. diplomats worked hard to ease the tensions, but the conflict ultimately led to the request of a personal favor by a top Chinese money manager in a meeting with U.S. Treasury Secretary Timothy Geithner.
Don’t worry the over $250,000 a year croud is going to fix it. Congress said so. Anyway, it was still nice to see the US flag in the picture even though it appears to be slightly lower then our new one.
from Sebastian Tong:
Stop pushing and we’ll do it
The growing acrimony in the international debate over China's currency policy has led some to warn that Beijing could dig in its heels if pushed to hard to let its yuan rise.
But Barclays Capital says Beijing could let its currency strengthen as early as next month, notwithstanding its public resolve against Washington's threat to label it as a currency manipulator.
"They do have a 'If you stop pushing, we'll do it' attitude, which is kind of childish, really. But it will happen because they are the only country in the world, besides India, where there is a whiff of inflation," says Barclays' asset allocation head Tim Bond.
"It's in their own interest. It's the right thing to do."
Barclays expects the relaxation of China's de facto dollar peg to result in the equivalent of a five percent annual appreciation over the next year.
Investors should also keep the heightened rhetoric among U.S. lawmakers in perspective, Bond says.
"The anti-China lobbyists in the U.S. are a lot noisier than the pro-China lobbyists."
Inflation Fears, Sputtering Wages
Inflation may not be at the forefront of worries about economy for now, but it’s certainly in the back of many investors’ minds. Not that anyone thinks price increases will be reinforced by the labor market, as per the old “wage-push” theory. A new report from the International Labor Organization showed that wage growth continued to decline around the world in 2008, falling to 1.4 percent last year from 4.3 percent in 2007. The UN group also suggested things have gotten worse this year.
The picture on wages is likely to get worse in 2009 – despite the beginning of a possible economic recovery. Compared to the annual average of 2008, the real wages in the first quarter of 2009 fell in more than half of the 35 countries for which recent data is available. The downward trend in wages raises some questions about the extent to which the consumption of workers and their families will be able to sustain aggregate demand for economic production once the effects of government rescue packages peter out.
This trend has not, however, succeeded in calming those spooked by unprecedented monetary and fiscal stimulus from governments and central banks around the world. Indeed, inflation-hedging is creating market niches all of its own. The Treasury, for instance, is expected to bring back 30-year Treasury Inflation Protected Securities, or TIPS, as part of its quarterly refunding announcement on Wednesday. Gorge Goncalves at Cantor Fitzgerald notes:
The Treasury could expand its TIPS offerings and or bring back the 30-Year TIPS to help finance the federal debt needs. In the latest dealer questionnaire the Treasury asked about potential changes to the TIPS program including the replacement of the 20-year TIPS with a new 30-year TIPS security.
Bond giant PIMCO, in the meantime, has introduced its own new anti-inflation fund, which it says is composed of a mix of TIPS and municipal bonds. John Cummings, who will manage the fund, offers some insight into the reasoning behind its creation.
With growing U.S. deficit projections and continued economic uncertainty, investors are facing the potential for higher taxes, elevated financial risks and the need to protect the purchasing power of their investments against inflation over time.
Nothing they do will work. They should have taken care of the people and let the banks suffer the consequences of their actions.Stimulus was supposed to have been applied for the citizen. We citizens got one round of stimulus checks. When the banking industry saw that we were focused paying our debts, the banks argued that they would loose profitability due to lack of “securitization”.So the idea was that if we citizens pay down our debt then it would be bad fro them because they would loos profit. Our representatives felt it was more important to “stabilize” the business/banking sector than to ensure that the citizenry was protected from the fallout of this stupid path.Our citizens are treated like cattle to be bought and sold by merchants who grease the palms of our leaders. When whole families are going homeless, sick, and hungry, the government is busy kissing AIG, BOA, and Goldman’s Sachs collective ass.We are not animals and we should not be content to live as such.
Uncle Sam Wants YOU: To Help Pay Off His Debts
Worried about the growing debt? You can help. In a little-known cranny of the Treasury’s website, the government asks for the help of everyday Americans in repaying the total public debt, which it tallies at a startling $11.3 trillion (or 80 percent of GDP).
In a section called “Debt to the Penny and Who Holds It,” Uncle Sam provides advice for those looking for the tip jar.
“How do you make a contribution to reduce the debt? Make your check payable to the Bureau of the Public Debt, and in the memo section, notate that it is a Gift to reduce the Debt Held by the Public.”
And cc us if you do make a donation.
And you thought your hard earned tax dollars were enough…
Unfortunately, when people realize that they are spending YOUR money, not THEIR money, it will be too late.
You can vote people out of office, You can vote people into office who will re-write laws, however, you cannot erase debt…YOU must pay it, and pay it and pay it.
Bazooka Ben Bernanke?
You’ve heard of Helicopter Ben Bernanke. What about Bazooka Ben? Barclays Capital strategist Michael Pond thinks it’s time for the Federal Reserve to pull out the really big guns and announce it will buy $1 trillion in U.S. Treasury debt in order to counteract a recent jump in Treasury and mortgage interest rates.
The Fed has already said it would buy up to $300 billion, but this week’s bond market drama suggests that investors are beginning to worry that this isn’t enough.
“We tongue-in-cheek believe that the Fed needs to take the approach from former Treasury Secretary Paulson’s quote at a July 15 Senate Banking Committee meeting that ‘if you have a bazooka in your pocket and people know it, you probably won’t have to use it,’” Pond wrote in a note to clients. “While this didn’t work for Secretary Paulson, as he eventually had to use that bazooka and more, the Fed should try to come up with a big enough number that the threat of that purchasing power alone will be enough to keep rates low. For now, we believe that number is $1 trillion and recommend that the Fed make an announcement soon, rather than wait for its June 24 meeting.”
What’s your take? Time to bring out the big guns or has the Fed printed enough money already ?
If printing money actually solved problems we wouldnt be in this predicament. The mere fact that there was a bubble from the Fed’s last round of tomfoolery, combined with the fact that it DID pop, is proof enough that these actions border on criminality. If he screws things up so bad that the American Idol gets turned off, then the pitchforks might come out. This mad money printing has already costed the average family over $500 in increased energy bills just in the past 2 months, practically ensuring another wave of defaults. A trillion more and we’re looking at smashing last years oil price records. If they do it, it will remove all doubt as to whether the Fed is a criminal racket. My guess is that Ben might be having second thoughts about printing because he knows a) it wont help anyone except wall street parasites for a short amount of time, and b) he’s likely to find himself swinging from a lamppost one day as a result. The general public is beginning to catch on to this money printing racket, and that has never happened in the history of the Federal Reserve. Any parasite will tell you, in their own way, that it isnt wise to actually kill the host…
from Photographers Blog:
Tim Geithner : What’s In Your Wallet?
What's in U.S. Treasury Secretary Timothy Geithner's wallet? Not much.
While testifying in front of a House Appropriations Subcommittee on Capitol Hill Thursday Geithner was shown a $50 Billion Zimbabwean bank note (rendered worthless by Zimbabwe's hyperinflation) by U.S. Representative John Culberson (R- TX) and asked if he had ever seen one himself. Geithner immediately pulled a piece of Zimbabwean currency out of his own pocket and showed it off to the committee. At the next break in the hearing I approached Geithner and asked how he happened to have a piece of foreign currency in his pocket. His response was "I often have some foreign currency in my wallet. Want to see?" He pulled a very thin and mostly empty wallet from his pocket.
Amongst many empty slots in the thin weathered leather wallet there could be seen three credit or debit cards with Visa and Mastercard logos (all inserted into the wallet upside down so that the card issuers could not be seen) and an old and yellowed looking identification card of indeterminate origin.
From inside the wallet Geithner extracted a small pile of receipts and paper including a New York City MTA farecard, pointing out that there were European Euros tucked amongst the paper.
Notably not seen in the U.S. Treasury Secretary's wallet? Any U.S. dollars.
