In April, Chinese President Xi Jinping marked a historic visit to neighboring Pakistan. China, via Beijing’s “One Belt, One Road” initiative, will invest some $50 billion in Pakistani infrastructure, including power plants, roads, railways, and, perhaps most importantly, the Iran-Pakistan natural gas pipeline. The vast sum represents 53% more than the US has given Islamabad over the past 13 years combined. China is also set to invest an equally large sum in Brazil and is even considering the construction a railroad over the Andes, which would connect Brazil to China via the Pacific and ports in Peru.
Back in mid-March, there was a brief scare after the start of the Ukraine conflict, when Fed custody holdings plunged by a record $104.5 billion (if promptly bouncing back the following week), leading many to believe that Russia may have dumped its Treasurys, or at least change its bond custodian. We noted that we wouldn’t have a definitive answer until the May TIC number came out to know for sure how much Russia had sold, or if indeed, anything. Moments ago the May TIC numbers did come out, and as expected, Russia indeed dumped a record $26 billion, or some 20% of all of its holdings, bringing its post-March total to just over $100 billion – the lowest since the Lehman crisis. Continue reading
Combine this with Bank of America’s warning that “the US Dollar is in trouble” and you can see that the cliff America is heading towards without brakes isn’t too far away.
While we will have more to say about the disastrous December TIC data shortly, which was released early today, and which showed a dramatic plunge in foreign purchases of US securities in December – the month when the S&P soared to all time highs and when everyone was panicking about the 3% barrier in the 10 Year being breached and resulting in a selloff in Tsy paper – one thing stands out. The chart below shows holdings of Chinese Treasurys (pending revision of course, as the Treasury department is quite fond of ajdusting this data series with annual regularity): in a nutshell, Chinese Treasury holdings plunged by the most in two years, after China offloaded some $48 billion in paper, bringing its total to only $1268.9 billion, down from $1316.7 billion, and back to a level last seen in March 2013! Continue reading