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    Daily Digest – September 22

    by Davos

    Tuesday, September 22, 2009, 2:48 PM

  • Federal Reserve Accounts For 50% Of Q2 Treasury Purchases
  • Report: Strategic Defaults a “Growing Problem”
  • The U.S. Balance Sheet: Households See Net Worth Down by $12 Trillion Since Peak and Total Debt Floating in the Market of $33 Trillion
  • Foreign Investors Flee from U.S. Debt (Possible Re-Post)
  • Obsolescence: Obama Open To Newspaper Bailout Bill
  • Silver Wheaton: the SAFE alternative to SLV
  • Fidelity Investments Thinks You Are A Dumb A$$ (Title from Michael Covel)
  • IMF to sell 403 Tonnes Of Gold To Boost Lending To Poor (H/T SaxPlayer00o1)


Federal Reserve Accounts For 50% Of Q2 Treasury Purchases

The degree of intermediation by the Federal Reserve in the issuance of US Treasuries hit a record in Q2, accounting for just under 50% of all net UST issuance absorption. This is a startling number, as the Fed’s $164 billion in Q2 Treasury purchases dwarfs the combined foreign/household UST purchases of $101 billion and $29 billion, respectively, over the same time period. In fact, the Fed was a greater factor in UST demand than all three traditional players combined: Foreigners, Households and Primary Dealers, which amounted to a $158 billion in net Q2 purchases.

This dramatic imbalance puts a lot of question marks over how the upcoming hundreds of billions in incremental Treasury purchases will be soaked up, now that QE only has $15 billion of capacity for USTs: with Households lapping up risky assets it is unlikely they will look at Treasuries absent some dramatic downward move in equities, while Foreign purchasers, which many speculate are in a game of Mutual Assured Destruction regarding UST purchases, have in fact been aggressively lowering their purchases of Treasuries (from $159 billion in Q1 to $101 billion in Q2, an almost 40% decline in appetite!). Will the US make these purchases much more attractive come October when QE for USTs ends? And if so, what kind of rates are we talking about? One thing is certain: in terms of priorities of the Federal Reserve, keeping the equity market buoyant, is a distant second to ensuring successful auction after auction well into 2010. After all there is near $9 trillion in budget deficits that need financing over the next 10 years.

Report: Strategic Defaults a “Growing Problem”

From Kenneth Harney at the LA Times: Homeowners who ‘strategically default’ on loans a growing problem

National credit bureau Experian teamed with consulting company Oliver Wyman to identify the characteristics and debt management behavior of the growing numbers of homeowners who bail out of their mortgages with none of the expected warning signs, such as nonpayments on other debts.

The U.S. Balance Sheet: Households See Net Worth Down by $12 Trillion Since Peak and Total Debt Floating in the Market of $33 Trillion

Current U.S. household net worth: $53 trillion

U.S. household real estate: $20 trillion

So real estate makes up nearly 40 percent of household net worth. Keep in mind that $20 trillion in real estate is secured by $10.4 trillion in mortgages many that are now going bad. Interestingly enough, if you look at the mortgage data it peaks around $10.54 trillion and has fallen to $10.4 trillion. Do we really think that only a few hundred billion in mortgages have gone bad? This is simply a reflection of banks not writing down option ARMs and other questionable assets.

Foreign Investors FLEE from U.S. debt (Possible Re-Post)

Ben’s magic printing-press – which supposedly can print up infinite amounts of new “money” without diluting all the trillions of existing U.S. dollars (i.e. without inflation).

The fact is that there will never be any more foreign demand for U.S. debt, unless/until U.S. interest rates rise high enough to compensate foreign investors for the high risk of default and the enormous inflationary pressures building up in the U.S. economy, as a result of the current reckless creation of new money and debt.

Obsolescence:  Obama Open To Newspaper Bailout Bill

Sen. Ben Cardin (D-Md.) has introduced S. 673, the so-called “Newspaper Revitalization Act,” that would give outlets tax deals if they were to restructure as 501(c)(3) corporations. That bill has so far attracted one cosponsor, Cardin’s Maryland colleague Sen. Barbara Mikulski (D).

Silver Wheaton: the SAFE alternative to SLV

To begin with, what most people don’t know is that the vast majority of global silver production is in the form of byproducts of other mining operations – sometimes this silver occurs in primarily gold-based ores, but most of it is produced as a byproduct of base metals deposits. Thus, most silver production is of secondary importance to mining companies – making them very receptive to proposals from Silver Wheaton to pay them up front for the silver they will mine, but at a substantially discounted price.

Fidelity Investments Thinks You Are A Dumb A$$ (Title from Michael Covel)


IMF to sell 403 tonnes of gold to boost lending to poor (H/T SaxPlayer00o1)

A prime candidate could be China, which is sitting on the world’s largest foreign exchange reserves, topping two trillion dollars, and has been seeking to diversify away from the dollar.

China in early September agreed to buy the first IMF bonds for about 50 billion dollars and has been on a gold-buying streak, increasing its gold reserves by 75 per cent from 2003 to 2008, according to official media.

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