New Treasury holders report out yesterday. The foreign sector slightly reduced U.S. Treasury holdings in Aug, from July, despite ongoing large issuance.

YTD through August, the foreign sector only bought about 5% of net new Treasury issuance.
We know from Fed custody data, which is incomplete but faster-updating, that going into October, the foreign sector still isn't really buying Treasuries in size:
About 2/3rds of net new U.S. Treasury issuance this year was bought by the combo of the Fed and U.S. banking system.

There's very little foreign demand. There's moderate non-bank domestic demand, but not enough vs the massive issuance (at least at current prices).
This is why Randal Quarles of the Fed recently stated that the Fed likely has to continue Treasury purchases, because the Treasury market has become so big vs the amount of realistic demand out there.…

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More from @LynAldenContact

1 Aug
It's a common view that QE leads to wealth inequality, and this view is largely justified.

Here's a weird fact though: Between Japan, Europe, China, and the United States, there is an *inverse* correlation between the amount of QE they did as a % of GDP, and wealth inequality.
Japan did the most QE in terms of how long they did it, and what percentage of GDP they did it. And yet, they have among the lowest inequality, and the share of assets among the top 1% actually deceased over the span of doing it.
On the other hand, the U.S. did the least QE as a percentage of GDP, and yet has the highest wealth inequality among major developed nations.

China and Europe performed middling amounts of QE as a percentage of GDP, and have middling wealth inequality.
Read 4 tweets
3 Jul
This chart shows the price of gold vs broad money supply per capita, normalized to 100 in 1973, on the left axis.

On the right axis, is the inflation-adjusted interest rate of the U.S. 10-year Treasury note.
Over the past ~50 years, gold's price rose at about the same rate as monetary inflation per capita (which is not the same as price inflation).

It tended to overshoot that trend during periods of low real rates, and undershoot that trend during periods of high real rates.
Gold's price in year-over-year terms tends to inversely correlate with the inflation-adjusted 10-year yield.

When real rates are positive, the opportunity cost for owning gold is high. When real rates are low/negative, it makes more sense to have gold exposure.
Read 5 tweets
19 Jun
Here’s a new thread on the dollar, swap lines, and the treasury market. With lots of charts.🧐

AKA “Why the global dollar shortage is not insurmountable.”
There is $250+ trillion of debt in the world.

Of this, over $50T is USD debt by American households, nonfinancial corporations, and the govt.

Much of the rest is debts for other countries in other currencies.
However, governments and nonfinancial corporations outside of the U.S. also hold $12+ trillion in USD-denominated debt, since it’s the most-used global currency.

And they rely on USD-based global trade to get dollars to service those debts.
Read 26 tweets
15 Jun
New foreign-sector Treasury holding data out today; for the month of April (comes with a lag).

From Feb-end through April-end, the foreign sector sold over $300 billion in U.S. Treasuries.
This likely bottomed in April, based on Fed Treasury custody data which comes out weekly (less complete data set, but much shorter lag).

When swap lines ramped up to provide USD liquidity, the foreign sector stopped selling Treasuries, and has since been buying some. Image
The Treasury issued like $3 trillion in net Treasuries YTD, with very little purchased by the foreign sector. The majority of the issuance went onto the Fed's balance sheet.

The Fed accumulated more Treasuries in March and April than the foreign sector has in six years.
Read 4 tweets
1 Jun
One of the key ratios I am watching is the Russell Value/Growth ratio.

It tends to pivot shortly before the end of each market cycle, but the pandemic shutdown disproportionally affected value stocks this time, so the question is whether it will pivot during/after this one.
Looking at the latest chart, there are signs of consolidation and a potential bottom, but no clear confirmation.

We've seen these attempted bottoms in the charts in recent years, which ended up not being "the bottom", but they weren't during recessions.
I like to look at equal-weight S&P 500 vs market-weight S&P 500 as well.

Equal outperforms over the long run but tends to have periods of underperformance leading to and during recessions as market leadership changes.

(The #1 stock in SPX in the previous recession was $XOM)
Read 5 tweets
26 May
Ray Dalio had a great chart in mid-2019 that showed the expansions of the monetary base during the endings of long-term debt supercycles.

Here's my updated version for May 2020, based on current data:
This was the original from @raydalio:…
In the early 1930's, private debt as a % of GDP peaked, bank crisis, and dollars were devalued vs gold, but without much CPI inflation.

Then in the more inflationary 1940's war era, federal debt as a % of GDP peaked, and currency was devalued again, this time CPI inflationary.
Read 4 tweets

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