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Marc Chandler

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  • Why There's No Reason to Worry About China Selling Off Its U.S. Treasury Holdings [View article]
    Did you even read my post ? Or did you just want to make your statement ? I mean I specifically explained that China let its bills mature and rolled about 2/3 of the funds freed up into long-term securties. I do by best to refute the Financial Times and other doom and gloom observers who see nefarious implications of China's actions.

    Yes you might be warning about a failed auction in the US, but as I argue in my post, China has bought long-term US Treasuries for 9 consecutive months. The reception at US auctions have been strong and US note and bond yields are lower today then they were at the start of the year.

    It seems to have escaped you that several countries in Europe have had failed auctions already.

    And if the US were to issue debt in a foreign currency I am sure either yourself or some of similar thinking would see it as a further sign of the US decline. Yet many countries in Europe, including Germany, have issued and plan on issuing more US dollar denominated debt--partly because they know what you are purposely chosing to ignore: China continues to buy dollar denominated assets.
    Feb 19 01:20 PM | 18 Likes Like |Link to Comment
  • Handicapping European Endgame Scenarios [View article]
    Mr Banks--I generally agree with your optimism regarding Sweden and which is why in early posts I have recommended long SEK positions and why on Friday Dec 17 on was on an hour long Bloomberg radio show also discussing my favorable outlook for Sweden. Of course the krona is not in the euro zone, but I am not sure the EU is parasitic and seem to recall Sweden offering funds for Iceland and Ireland. I most strongly disagree that the financial crisis was brought on by "dumb" you say American presidents. Surely that is not the problem in Europe presently. Do we really want to blame the problems in Greece, Ireland, Portugal on the US ? And collapse of the krona in 2008-9 in part because of Swedish exposures to eastern and central Europe--that is the US fault too ?
    Dec 18 09:27 AM | 9 Likes Like |Link to Comment
  • Understanding the Dollar's Reversal: Who Will Feel the Pain? [View article]
    Fact of the matter is that weekly initial jobless claims peaked nearly nine months ago. Withholding tax deposits have risen. Temporary workers have been added for four consecutive months. I agree one day or one month a trend does not make, but do we really want to stick our head in the sand ? Yes the banking system is still strained and contracting overall. Yes 10% unemployment is still 10%. But the economy is expanding near trend in Q3 and likely here in Q4. The dollar's rally today coincided with a sharp backing up of interest rates and a shift of interest rate differentials toward the US favor. The dollar's decline has not been a year long and that claim may reflect one's bias. The dollar remained strong through Q1, allowing US officials and others to note that the dollar's decline in last nine months needs to be understood in the context of its dramatic rally in the previous nine months.
    Dec 4 06:00 PM | 9 Likes Like |Link to Comment
  • Greece: The Unvarnished Truth [View article]
    It strikes me that the US is not a optimal currency zone and if it is now it wasn't a when it was founded. The poorest states in the union are from the old Confederacy that tried to secede. Perhaps following Asbytec we may conclude that the North model just not fit the South's culture. Greece is not the only country to join the monetary union by, shall we say, creative accounting. Moreover, the fact that Germany and France were the first to violate the Stability and Growth Pact (or what France calls the Growth and Stability Pact) and yet wiggled their way out of fines should not be forgotten either.
    May 28 06:36 PM | 8 Likes Like |Link to Comment
  • The Importance Of The French Elections To The Future Of The Eurozone [View article]
    Jhenn, I disagree. If Greece was "let go" a three years ago, whatever that means as it cannot simply be kicked out as there is no mechanism, but the loss to the private sector would have been greater and the knock on effect, without EFSF, ESM and LTRO may have been catastrophic. Look, the US Civil War took place near 150 years ago and the poorest states are still in the old south...Tell me again how long it takes for the pain to heal. And it might not seem that way from 1000 feet up but there is a big difference in Europe between socialists, which is what Hollande is and communists, which are challenging him from a more left position. I have not seen Hollande threaten nationalization of banks on a sovereign downgrade and think you may be adding the the sensationalism and emotionalism, which I tend to find are the enemies are sober investing.
    Apr 19 04:17 PM | 8 Likes Like |Link to Comment
  • Be Prepared to Buy Into Potential Dollar Decline [View article]
    If you guys really think that Greek bonds or Portuguese bonds are less risky than the US then there is a clear trade--sell Treasuries buy Greek bonds or buy Portuguese bonds. But let's be serious here...the collective wisdom of investors, rating agencies, analysts at banks is that you are simply mistaken in your analysis. The higher yield is not a gift but to compensate you for the risks. Yi Gang made that remark about euro zone government bonds. He did not specify that peripheral bonds. His remarks apply to bunds and oats--German and French bonds. The idea that because Europe is China's biggest trading partner they have a vested interest to buy peripheral bonds is also mistaken. As I point out, media picked up the idea that 1) China will buy 6 bln euros of Spanish bonds, which is more than 2) they have agreed to buy Greek and Portuguese bonds. This is nothing for China. Nor has Chinese indications impress the market as much as it has impressed tadpole76 and Wrixon. China is not omnipotent. They bought stake in US and European banks very very early in the crisis and were criticized locally for the losses. In addition, I think that both confuse China's rhetoric (declaratory policy) with operational policy. When Chinese delegations come to the US all sorts of commercials contracts are signed. They buy our bonds month in and month, with few exceptions and alot more than of the periphery bonds it appears.

    And Wrixon is simply wrong. Greece has not reduced their debt one single red penny or euro. Their debt grew 2010 and it continued to run a primary budget deficit and they have a higher inflation rate than Germany meaning that it continues to lose competitive ground. The rate in which it is going into debt may have slowed, but surely the doom and gloom Wrixon peddles recognizes this as different that reducing debt.

    I wish I can explain what LKofEnglish is saying, but again I am at a loss.
    Jan 7 06:53 PM | 8 Likes Like |Link to Comment
  • Marc Chandler's Compelling Perspective in 'Making Sense of the Dollar' [View article]
    Sober Realist: Prior to the financial and economic China was losing manufacturing jobs too. So is nearly every country I can find data on. And yes the primary cause is technologicla advancement--replacing workers with machines.

    David Wrixon: When you said capital is not invested where it would yield the greatest return, IMHO you misunderstand tow important things. The first is conceptual. Capital does not simply seek the highest return. It seeks the highest return on a risk adjusted basis. Second, the data I found in writing the book suggests that US pays about 3% to service its liabilities and receives a little more than 4% on its international assets. That is one of the reasons why month in and month out the US records a surplus on the investment income that is reported with the US current account figures. Lastly, in your last sentence where you see the crisis getting deeper, I would argue the 50% plus rally in US shares shows the market anticipating recovery, and there is nearly universal opinion now that Q3 GDP will be strongly positive. The that fact that the US 10-year yield is only 25 bp more than Germany's and US short-term rates are below Germany suggest suggests that the international capital markets might not be as corrupted as you assert.
    Aug 16 08:26 PM | 8 Likes Like |Link to Comment
  • Handicapping European Endgame Scenarios [View article]
    Daisauce, he who laughs last didn't get the joke. The joke is not that Europe is having an existential crisis--most seem to recognize that, the joke is that folks like yourself want to compare nominal interest rates and draw hard and fast conclusions. Spain is barely growing and has unemployment near 20% and is being forced to may near record (post EMU) premium over Germany and you say that's not so bad because India and Russia and Brazil pay more. Have you heard of real interest rates ? Should not interest rates be understood in the context of inflation, growth and risk premium ? And of those countries you mention, who is the market saying has the highest risk of default ? Who do you think is most likely to need IMF assistance ? I will give you a hint. It rhymes with pain.

    For the record, as of Friday, Dec 17, US 10-year yields was 3.33% and France was 3.37%
    Dec 19 09:52 AM | 7 Likes Like |Link to Comment
  • Handicapping European Endgame Scenarios [View article]
    Tuckfinitee, I am not sure your thesis except that 1) Europe is in bad situation and 2) so is the US. If so part of me wants to say, of course, its called a crisis and we are three years or so into it. But and I imagine I will be writing more about this in the coming weeks/months, but there is an experiment here before our very eyes. Europe says austerity is the answer. Spending is being cut and more next year. And taxes are going up and more next year. The US--both the GOP-Dems, Congress-White House and Federal Reserve says growth first.

    To say both the US and Europe have problems and each should be avoided is fine perhaps in theory, but not really practical for many investors. My sense, as I think my articles have argued, is that the growth strategy is superior. I fully appreciate that I see the world through American (even if it is not as homogeneous as it sounds) cultural values and of course recognize that culture matters. I do not think that growth solves all problems, but rather that growth gives us more degrees of freedom and helps make solutions our current set of problems easier to implement.
    Dec 18 10:26 AM | 7 Likes Like |Link to Comment
  • Handicapping European Endgame Scenarios [View article]
    Angel Martin asks whether a debt restructuring wipes out the capital of most European banks? I suppose it depends on how much debt is involved, the size of the haircuts and the loan loss reserves set aside. It is not immediately clear. Policy makers could respond in a number of different ways including easing the regulatory burden for a period (forbearance). In general yes, 1) private sector debt, as we saw in Ireland can become a public sector debt problem and 2) the debt is largely held by European banks, and 3) therefore what is called a bailout of Ireland or Greece or maybe Portugal and Spain is to a large degree a bank bailout, European-style.

    But then I also disagree with Tuttle's assertion that debt restructuring is never orderly. Surely we can find some restructuring in both the private and public spheres that were more orderly and less disruptive than others. GM and Chrysler was fairly orderly no ? See Brady Plan as potential model.
    Dec 18 09:39 AM | 7 Likes Like |Link to Comment
  • Why There's No Reason to Worry About China Selling Off Its U.S. Treasury Holdings [View article]
    It seems to me that many of these comments prove the old adage that it is not what we don't know that gets us into trouble, but it is knowing what just ain't so.

    1. As I point out there are a number of other sources for dolllar denominated paper besides US Treasuries that China could invest in if it chose. I cite in my essay that several countries, including Germany have issued and plan on issuing dollar denominated paper. I am sure many of you woulde be screaming about the demise of America if the US Treasury were to issue a euro or yen bond now, but not a peep out of you that other soveriegns, who may be more fiscally prudent than the US are issuing dollar paper.

    2. Because Chiina does not report the currency composition of its reserves, claims like they will diversify out of dollars is impossible to prove or refute, like debating how many angels can stand on the head of pin.

    3. The point I imply at the end of the essay is that given the dollar's rally to nine month highs against the euro, efforts to diversify out of dollars may not have paid off in the short run and the long run future of the euro may be somewhat more clouded than it was say at the end of last summer.

    4. I argue that China exports do not simply rely on a cheap curerncy. The bigger discrepancy is labor costs.

    5. China's current account surplus has been roughly halved as a percentage of GDP and the US trade deficit has also been roughly halved. The smaller Chinese c/a surplus suggests they may have somewhat less funds to be re-cycled and witha smaller current acocunt deficit, the US may have somewhat less need for foreign capital inflows. The government's dissaving is offset domestically by higher hoousehold and corporate savings.

    6. There is no compelling evidence that foreign investors are selling US Treasuries. There is nothing the Fed has said that suggests that it is about to sell the long-term assets that it has purchased.

    7. Hypotheticals like what if China sells Treasuries for the next 12 months are probelmatic for sure. What if the sun does not rise ? What if the world ends on the winter solstice 2012 ? My point is that China is not selling Treasury bonds, it bought them. It let is tbills roll off.

    8. My point also is that given the data collection methodologies there are too many loopholes to derive hard and fast conclusions. All we can get is general feel. Surely using one or two data points from this volatile and flawed time series is to misuse an otherwise helpful report.
    Feb 20 09:27 AM | 7 Likes Like |Link to Comment
  • Under-Reported Aspects Of The S&P 500 Rally [View article]
    bbro, i am not sure why you think margin to GDP is a meaningful ratio. Why should margin usage be a function of the size of the US economy? Is margin use a function of widgets the US is producing or is a function of low interest rates and rising stock prices? Is speculation a function of GDP ?
    May 26 09:27 AM | 6 Likes Like |Link to Comment
  • Two Things Ail the Euro, What We Know and What We Suspect [View article]
    Iditarod, I disagree with your premise about gold and the currency markets. There are two topics I have ventured an opinion on that seems to irritate a large number of SA readers.

    The first is to suggest that Ayn Rand's thinking about capitalism, like her student Alan Greenspan, may raise more questions than it answers, to put it diplomatically.

    The second is gold. I think gold is more of a commodity/momentum story than a story about the fx market. I do not think major industrialized countries will revert back to a gold standard in our life times (and I plan on living a long time). As I have pointed out before, there is more gold in a ton of cell phones and computers than there is in a ton of gold ore.

    The dollar goes down as it did in H1 2008 and gold rallies. The dollar goes up in now and gold rallies. Dubai in late 09 and gold sells off. No safe haven, I think. Momentum. In addition, when calculating the return on gold, remember to take into account storage and insurance.
    Jun 1 04:23 PM | 6 Likes Like |Link to Comment
  • Why There's No Reason to Worry About China Selling Off Its U.S. Treasury Holdings [View article]
    I disagree with user 396040, China's peg to the dollar is not simply about exports. Recall that in Jan 2005, economists at the Pete Peterson Institute in Washington argued that in order to redress the trade imbalance, the yuan would need to rise 20-25% against the US dollar. In July of that year China began to allow its currency to appreciate and over the next three years, it appreciated 20-25%. And by the end of 2008, China's trade balance with the US was substantially larger.

    The more meaningful imbalance between the US and China are labor costs. Their labor costs are about 5% of ours.

    Appreciating the yuan would be seen as bowing to international pressure and not just any international pressure, but by countries that historically took advantage of China (like Western Europe and Japan) or are presently at loggerheads on a range of issues (like the US).

    It is not clear to me what China gets out of currency appreciation. It is really a very blunt instrument to curb inflation, especially for a country with the macro characteristics of China. It would ease one problem, reserve accumulation, but only under certain circumstances. And it would create other problems, especially for the low cost, small profit margin labor intensive goods and that could lead to greater unemployment and social instability.

    I do not think China was talking down the dollar earlier this year or last year. I think it was proposing changes in the international monetary order that would reduce the role (but not necessarily the price) of the dollar. Indeed I would argue China (and Saudi Arabia) has done more for the strong dollar policy than several US administrations.
    Feb 19 04:16 PM | 6 Likes Like |Link to Comment
  • Generally Good News for the U.S. Economy, But USD May Still Weaken [View article]
    Donald, did you have something informed to add, or do you just like reading you own words ? The correction I was talking about was the downside move of the dollar, which if you take the time to read my work, you'll see I have been talking about this correction since the end of last week when EU/IMF reached their deal of sorts over Greece. I had picked levels that I thought the foreign currencies would rally to. I evaluated the progress in the last couple of days. I thought the dollar would begin to recover late this week with the help of a strong jobs report.

    I don't know what planet you are on, but here on Earth 1, the US private sector has begun adding jobs. Finally. The US economy is growing. Not contracting. Government stimulus has only margin relationship to the inventory cycle and the recent private sector job creation. The fact that orders are outstripping shipments suggest production will continue to increase. Perhaps you were busy criticizing others, you did not notice that auto sales last month were the strongest in a couple of years, leaving out the peak of the cash-for-clunker program. As I have said before, I repeat now--the US economy is growing faster than the other major industrialized countries.

    This is ultimately the point--you and some others still want to pretend the US economy is contracting. It most certainly is not. It could again, but I have not seen a serious GDP forecast of contraction this year or next. Slow, yes, sub-par growth compared to other recoveries, but growth nonetheless. The health care reform has not ended the equity market rally or derailed the dollar. Things are not ideal. For sure. But surely there is a difference between 2008 and 2010 and the difference is for the better.
    Apr 2 03:11 PM | 5 Likes Like |Link to Comment