philzuco

Why Stocks Scare Me Now

Tim, I suggest you actually do you homework...

Per the WSJ article below (on your bullish read on foreign appetite for Treasuries).

And by the way, I'm no gold bug -- in fact, I don't own a single ounce of gold. I have, however, been accumulating emerging market names in Brazil (I like in Rio) since 1999 and purchased more earlier this year (Vale, Petrobrás, Gafisa Aracruz, CDB, Klabin and Grupo Votorantim) straight off iBovespa. I haven't owned a single US stock for over 15 years. I'm up hundreds to thousands of percent in the select names on my pension fund portfolio -- thank you very much.

You see, I could care less about deflation or inflation in the US or about the doctored numbers coming out of Citigroup or Bank of America (while their loan books crumble behind the scenes). What I see is a long-term trend higher in developing nations (with stable governments and low debt-to-GDP ratios) that will last decades. What is going on is a redistribution of financial flows away from mature, over indebted economies and into developing nations.

It has nothing to do with ideology, fibonacci sequences or Elliott Wave cycles. America is done -- and you don't need to be a gold bug to figure that out.

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Is Foreign Demand as Solid as It Looks?

By MIN ZENG

JUNE 26, 2009

The sudden increase in demand by foreign buyers for Treasurys, hailed as proof that the world's central banks are still willing to help absorb the avalanche of supply, mightn't be all that it seems.

When the government sells bonds, traders typically look at a group of buyers called indirect bidders, which includes foreign central banks, to divine overseas demand for U.S. debt. That demand has been rising recently, giving comfort to investors that foreign buyers will continue to finance the U.S.'s budget deficit.

But in a little-noticed switch on June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners.

On Wednesday, the indirect bid for the $37 billion five-year note jumped to a record high of 62.8%, compared with 30.8% last month. And in Tuesday's, the $40 billion two-year note garnered an indirect bid of 68.7%, compared with 54.4% from the previous auction in May and the average of 36.4% for the past 11 auctions.

Foreign buyers hold more than half of Treasurys outstanding, and have become increasingly important as the Treasury sells larger quantities. This week the Treasury is selling a record $104 billion of notes.

The new definitions are deep in the arcane world of Treasury auctions. The change involves buyers who place orders through primary dealers. Those had been counted as direct buyers, but as of June 1 they were classified as indirect buyers, making that group larger than before. Because investors view that group as being dominated by foreign buyers, they assumed foreign demand was higher.

Treasury officials didn't respond to requests for comment.

Getting a better sense of investors' appetite, especially overseas, is imperative to the U.S. at this time when it needs to sell record amounts of debt in order to tackle surging budget deficits and fund massive stimulus programs to revive the economy.

Some big creditors such as China, Russia and Brazil have expressed concern about the value of their dollar-denominated holdings because they are worried that swelling public debt and aggressive monetary policies may generate inflation and weaken the U.S. currency. That, in turn, may put their massive Treasury holdings at risk of sharp losses.

Why Stocks Scare Me Now

Looking to short gold? hehe So you're part of the clueless Prechter crowd. Just a piece of advice: gold just broke out of an 18-month base. When commodities break out of major consolidation zones, they go higher for sustained periods of time. When oil broke above $40 some years ago, everybody kept trying to call the top. It proceeded to go as high as $150 before breaking down to $30.

Your dollar thesis of deflation is predicated on the idea that just because there's lot's of USD debt outstanding and the government can't print fast enough to offset the destruction of the currency, that the dollar must appreciate. The problem with your thesis is you assume that global store-of-value demand for USD will remain stable.

The problem with the USD is that foreigners have caught on to the fact that America will be a bloated, slow-moving deadbeat for decades to come. Bilateral trade arrangements are also beginning to be made in local currency (China-Brazil announced agreements in that direction a few months ago). Foreign currency flows into Brazil right now are higher than they were before the credit crisis began (needless to say, the Brazil, my home country, is on fire).

As for gold, the Shanghai Daily has repeatedly reported that China is reluctant to sell treasuries to avoid an exodus out of the dollar. However, to hedge their massive dollar exposure, the government is now committed to building a sizeable gold position (as inversely correlated asset to the dollar) as a hedging instrument. The gold market is relatively small one. With a sovereign player like China going for a dollar hedge, your intention to short gold (especially in the initial stages of a major consolidation zone breakout) could not be more misplaced.

Why Stocks Scare Me Now

Hey Timmy. How's that long UUP/ short SP-500 position going? I'll buy those dollars from you.... in 3 year's time -- and wipe my ass with them.