Net foreign purchases of U.S. securities for last month came in at an unexpectedly low $45.7 billion (vs. market expectations of $70 billion). The markets have taken this with a big yawn; I, on the other hand, am choking.
Last month's current trade deficit was around $55 billion. This number represents the amount U.S. consumers purchased in goods from foreigners, exchanging dollars for "stuff". The $45.7 billion number above is the offset: foreigners receiving $55 billion in dollars must sell those dollars to someone outside the U.S. who does not repatriate those dollars back to the U.S. by purchasing U.S. securities with them.
The fact that they did not offset means that there was a short-fall of $4.3 billion: the U.S. was unable to borrow that amount to finance the trade deficit.
This number is very important to me. It is evidence that foreign entities, whether private individuals, corporations, or the central banks themselves, are tiring of owning dollar denominated assets. The market obviously does not care, or have been convinced not to care, about this shortfall. Perhaps I am jumping the gun somewhat as maybe the market is looking for a trend, more than one month's data (although other month's show a "fraying" as well).
But I want to go on record as alerting all of you to this situation.
A subset of this number also is eating at me: $32 billion of purely treasury securities was purchased through the Caribbean Islands last month. This is presumably hedge fund money. All I have to say is that is an awful lot of treasury securities bought by hedge funds in one month. An awful lot. We have seen similar numbers before.
I know the world is different. I know hedge funds have proliferated. But I live in this world.
This number is plain weird to me.
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