China sells treasuries
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Started by wglassfo - Sept. 20, 2018, 10:59 p.m.

I know there are bond traders on the forum, so help me on this one

I read that china sold some 150 billion of treasuries, during the past few months with barely a ripple in the bond market.

It seems that china is having some problems. A rapid movement of capital movement, despite efforts to stem the flow of capital, outside of china. Chinese markets melt down and the need to prop up their markets. This resulted in a drain of capital that had to be replenished. For those who said that china would not feel any affects of the trade war [I posted some reasons why, so I will admit to being wrong]

So: for bond markets, it seems that china is feeling a bit of pain, and the USA market barely felt a blip. Bond markets may be re-acting to future Fed int rates, but china sales seem to be a non event

Have I got this correct or am I wrong once again???

My bond knowledge is veeery limited

Comments
By cutworm - Sept. 21, 2018, 7:55 a.m.
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IMHO

The large inflow of money to the US, because of the lowering of tax rates here, have been going to both the stock market and bonds. If the china is taking out money it is being replaced by that in flow. 

I believe that will not last forever and that the record low interest rates are over and that the US will have slowly raising rates. Possibly getting to 5% in 3 years. 

There are other reasons why interest rates should rise.

By cfdr - Sept. 21, 2018, 7:27 p.m.
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https://tinyurl.com/ybuqouc6

This is a link to Zerohead where Bannon says that "Trump won't back down" and that the trade war will be "unbearably painful for China.

As cutworm said, money appears to desperately want to flow into the US, and there are limited places for it to flow into.  Donald Trump has our economy up and running again, and it appears like jobs will continue to migrate back to our shores.  What business hates most of all is uncertainty, and we seem to have a president who is not just a corrupt incompetent political hack now.

Never underestimate international money flows when thinking about economic issues.

And, never underestimate the worthlessness of politicians and the people who own them.

As for interest rates - the Central Planners have screwed us up so bad that it is anything but certain that we can even recover from their incompetence.  Pension plans in this country need, from what I've read over the years, at least 7% to avoid disaster.  That means we must have a very good economy - or - the unrest we have been seeing so far will look like a walk in the park.

By Lacey - Sept. 21, 2018, 8:11 p.m.
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China problem is that they let their citizens leverage their debt so it's kind of a house of cards if they slow down.  Hopefully we bring back 50 million jobs over time, one third what we lost.  See if they get by without a revolution.

By wglassfo - Sept. 22, 2018, 3:03 a.m.
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One problem I see

It seems that china has been slowly selling treasuries. We seem to agree on that part, One reason of many is because is they don't want to dump too much on the market, too quickly, and destroy their assets [bonds etc] as they need cash. 

However, if what I read is correct, the Fed is reducing the amount of dollars in the currency markets. Countries need dollars to pay their bills and those dollars are for the vast majority USD. If you need USD to pay bills/settlements then the 1st place you stop the outflow is stop buying USA debt. The USA treasury needs cash and once that inflow of off shore funds starts to dry up, who will buy the debt. The world does not have an infinite amount of dollars to buy USA debt.

Eventually if the Fed keeps on reducing the amount of dollars, and foreigners slow down purchases of USA debt, which they will have to, as their supply is limited where will the treasury find dollars to fund the deficit.

Tax revenue will possibly slow down, although trump says it won't slow down [I think tax revenue will slow down] with the tax bill, eventually things will finally level out to a flat line.

Reason being:

I see no quick resolution to tit for tat trade issues with virtually every county, of signifigance and those not in a trade war are mostly sanctioned, [or will be  -   Canada}

The only solution for the USA treasury to keep paying the bills is too print fiat and a lot of fiat as social safety nets demand more money. Higher interest rates will happen, but will quickly kill Trumps job creating programs as new jobs require capital and high int rates will kill many new jobs because of ROI and uncertainty. A few million or billion of new capital spending is not as likely to happen in a high int environment. Plus higher consumer cost has not hit the economy as hard as it will in 6 months as accumulated inventory runs out, and has to be replaced at a higher cost. Economic uncertainty is another reason to hesitate on capital spending as one might wonder who or how many will be able to buy my widgets.

I think we will see higher int rates [that is almost a baked in certainty] quickly followed by lower int [possibly to zero] and then inflation as treasury prints fiat. Pension plans etc plus the deficit will eventually be funded by the printing press, as the gov't attempts to monitize it's debt.

If enough money is not available to the average working Joe or retiree, there will be riots in our streets, as the public eventually realizes politicians of any stripe are not solving the problems. Before we have the riots, gov't [politicians] always smell which way the wind is blowing and will turn to the printing press when all avenues are exhausted and more money is needed


No idea how long for all this to happen, but could happen faster than we think.

I think gov't would risk printing money before allowing another depression. Heck we had QE for how long??

By TimNew - Sept. 22, 2018, 1:24 p.m.
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As an addition to CFDR's comment on the economy...


We are rapidly approaching a point where our biggest problem will be available and qualified workers.


 

By 12345 - Sept. 25, 2018, 11:49 p.m.
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https://www.wsj.com/articles/biggest-u-s-public-pension-looks-to-china-for-new-investment-chief-1537376027

Biggest U.S. Public Pension Looks to China for New Investment Chief 

An official with China’s foreign-exchange regulator is the lead candidate to become next investment chief of the largest U.S. public pension fund, according to people familiar with the matter.       

The California Public Employees’ Retirement System has offered the job to Ben Meng,  deputy CIO of China’s State Administration of Foreign Exchange, one of these people said. The agency is in charge of China’s more than $3 trillion in foreign reserves. Mr. Meng previously worked for the California pension fund earlier this decade.              

Mr. Meng hadn’t signed an offer letter as of Wednesday morning, this person said. Mr. Meng contacted The Journal late Wednesday to say he is a U.S. citizen working at the Chinese agency as a foreign contractor. He said he had no comment on the hiring process.         

The selection of Mr. Meng would place a familiar face in charge of $360 billion in assets managed for police officers, firefighters and other public workers across the state of California. Mr. Meng spent seven years at the system, known by its abbreviation Calpers, in investment roles. He left in late 2015 and joined the Chinese government agency.