Will Russia Add More U.S. Treasurys? “NYET”
By Larry Doyle on June 11, 2009 at 9:01 AM in Economy, Sense on Cents (Larry Doyle blog), U.S. Treasury
The United States government is very much dependent on foreign investors purchasing U.S. Treasury securities on an ongoing basis. In fact, as our fiscal deficit explodes, it is not an exaggeration to assert that Uncle Sam’s dependence on foreign investment will need to increase.
How interesting that on the day of a $19 billion 10yr Treasury auction, Uncle Sam’s fifth largest foreign creditor has indicated it will reduce its holdings of U.S. Treasurys.
Who might this investor be? Why would they make this assertion? Let’s navigate.
The investor is Russia. As reported by the WSJ, Russia, Supply Fears Gang Up on Treasurys:
The Interfax news agency reported that Russian central bank Deputy Chairman Alexei Ulyukayev said Russia plans to reduce the proportion of foreign exchange reserves it invests in U.S. Treasury bonds. Mr. Ulyukayev said reserves are just over 30% invested in U.S. Treasurys at present, but didn’t specify by how much that figure would fall.
Russia is the fifth-largest foreign owner of Treasurys, according to data from the U.S. Treasury Department. In March, Russia lifted its holdings in Treasurys to $138.4 billion from $130.1 billion in February.
What is going on here? I find this development interesting from a number of angles, including:
1. The fact that Ulyukayev made this statement mere hours before Uncle Sam is selling $19 billion 10yr notes, followed tomorrow by a sale of $11 billion 30yr bonds is the height of “financial aggression.” In layman’s terms, Ulyukayev just spit in Secretary Geithner’s face. What’s up with that? Brinksmanship!!
2. Russia’s equity markets have rallied tremendously this year. Why? Russia is predominantly an oil-based economy. Oil has effectively doubled in price (now approximately $70/barrel from $38/barrel in mid-February) over the last 5 months. Oil transactions are made in U.S. dollars. Thus, Russia is VERY HEAVILY exposed to the U.S. dollar already.
Disciplined and prudent investment management dictates that Russia should diversify their exposures.
3. Political winds are shifting the global balance of power ever eastward. Chinese Prime Minister Wen Jiabao and Russian President Medvedev have both called for a shift in the global reserve currency from the dollar to an IMF issued currency. This statement by Ulyukayev is in sync with Jiabao and Medvedev.
What does it mean for Uncle Sam? All other things being equal, the price to finance our operations here in the United States is going higher.
LD
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Have the Communists finally won.
The Return of Stagflation
If you write about domestic issues and you’re jealous that foreign policy bloggers get to throw around “Carter II” all the time, you’re in luck:
In every region, fuel prices are up compared against the week before. Gasoline is increasingly more expensive than diesel fuel per gallon. The national gasoline average is now about a $1.42 below the price this time last year. Despite the increase in price, diesel fuel is still $2.19 below this time last year.
Economic stagnation plus energy inflation equals what again? Stephen Gallo thinks that the current government strategy is going to make it “very difficult” to “manage these stagflation risks that crop up on the horizon.” But he’s just the head of market analysis at Schneider Foreign Exchange.
I cannot get this song out of my head, these days:
Don’t Cry for Me, Argentina….
Latvia’s currency crisis is a rerun of Argentina’s
By Nouriel Roubini
http://www.ft.com/cms/s/0/95df08fe-55f3-11de-ab7e-00144feabdc0.html
Something about that statement sounds familiar….
I agree, mountainaires. We on our way: straight to Broadway Hell. The strange thing? I remember Larry writing an article several months ago warning of “Argentina Revisited” and the Obamatrons going nuts that he was totally off the mark, crazed, laughable.
No one’s going to be laughing when this hits the fan. And it will. It’s coming.
You have that tune in your head. I have the image of a runaway train, headed for a massive collision. And we’re all on that train regardless of our political stand, our philosophy or the absolute truths we hold close and dear.
The numbers are out there. They cannot be refuted or massaged forever. The country is headed for collapse. We’ll get a preview in California very shortly. New York, New Jersey, Florida and Michigan are not far behind.
And what is the Government doing? Happy Talk.
Green shoots?? Get ready for the whirlwind.
This is getting to be like a horror movie you watch through your fingers. Ugh!
Anyway, from articles last year, Russia had a budget based on oil being $70/barrel. So it looks like they are feeling frisky.
Thanks for the news LD.
Who knows maybe this will be good news and our politicians will wake up from the drunken sailor spending? Well…I can ‘hope’.
Larry, funny you should write this…. just speaking to a Wall Street friend of mine this morning…. he said for all the rhetoric that the Russians and Chinese are squalking about our dollar…. both are still buying them. Our media feeds on the rhetoric!
This is a huge development but, because the cameras can’t provide a snappy picture of it, the electronic media is ignoring it.
they ignore a lot of good stuff.that,s why we come come here.