The Banking and Strategy Initiative

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US Economy (EoD Review) : Auto sales 15.1 M, China not to blame for downtick in US Treasury yields!

US Treasuries have virtually come to an end of the 30 year bull run, a view that finds more takers today including Warren Buffet.  China’s  unwinding of US Treasuries of course has been slow and quiet, as seen on Fed Balance Sheet reports. Yuan Trade is already one fifth of Chinese trade and China’s having been the largest holder of US debt may have also hurt China’s surpluses in the downtick as it manages to increase the proportion of Gold in its reserves as well. None of it needs to be a matter of concern for the US as small upticks in yield keep the current downtrend frommanifesting into a depression despite the debt overhang.

China of course manages its $3.2 Tln surpluses using Professional Fund managers employed by the State Administration of Foreign Exchange as fund managers on small professionally managed funds assigned from the surpluses as CIC helps it manage the increased allocation to equities in its funds. many other sovereigns have also joined in the new bid to find professional fund managers for their SWF components with larger allocation to equities, a big help for the struggling PE and hedge fund managers.

The 54% of its surpluses that China assigns to US Treasuries, still makes it the largest holder o f foreign debt, a position it could cede earliest to Japan.. While china holds $1.1 Tln of US debt, Japan holds $900 bln of the same. The problem with lower ranging yields of debt for US itself is of course the spectre of stagflation and a Japanomic malaise of non growth that can easily be broken by large domestic investment right now in infrastructure and the continuing hegemony in Global trade..we willstay here with more immediate data that need the review. China has its own Economic troubles of course with a soft landing already ongoing, before 2012 targets are firmed up by policy planners int o action items.

A new COINS Act is also “breaking the buck” if that catches your fancy as senators Harkin and McCain introduce he bill to banish the $1 note for coins despite $1 coins not being popular, even if it saves the Treasury $5.5 bln over the next 30 years. Buffet of course just does not like bonds for the negative real yield they offer against a 3% inflation.

The Fed Balance sheet continued into its second week of decline even as Treasury holdings increased $4.9 bln , with the Qe fed MBS holdings declining a $12 bln and Money Supply decreased $10 bln after the $25 bln jump last week.

If US markets and the Economic revival survive March, things could easily rest into a good momentum built into the first 8-10 weeks of the year, with 3 mln jobs having returned to the US. Israel and Switzerland joined China and the Arab world in allocating more of their national surpluses to global equities, with US Stocks like Apple and Coke big attractions.

A paranoia run on china’s rapidly dwindling US Treasury stock could however be a big Bernanke concern to watch out for as Financial markets are always vulnerable to investor panic, shown by the situation in Portugal.

February Auto Sales expected to outperform, beat high estimates to score a 15.1 mln run rate i.e. nearly 1.25 mln units for the month unadjusted with a rate of 3.7 mln for imports putting sales in high gear as US producers still managed to score in the Domestic Sales of 11.4 mln rate again beating high estimates with the extra day in the month.

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