Pirates Reprise

By: Rob Kirby | Fri, May 20, 2005
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To say that today's news headlines are chock full of reporting about possible hedge fund problems arising from the downgrade of GM and Ford's credit ratings is an understatement. In fact, news outlets like yourselves at CNBC have flooded the airwaves with reports and have even gone so far as to investigate this story and question names like GLG partners as to whether or not they have been negatively impacted by this developing situation with the automakers' debt. We aren't the only ones who have noticed this development, with folks such as Eric Fry at the Rude Awakening reporting,

"..If a few big hedge funds are in trouble, as CNBC's Maria Bartiromo has been breathlessly reporting, are a lot of us little investors also in trouble?.."

I say Kudos to both the Rude Awakening and CNBC on this point. Now I have a question along these same lines that we are all owed an honest and frank answer to:

When officialdom boldly claimed that a huge increase in January 05 TIC data was in response to Caribbean Hedge Fund buying of long US Treasury obligations back in March of 05 - Why did news outlets like CNBC fail to report concerns regarding massive implied hedge fund losses in these Caribbean based funds then? If anyone cares to recall, the yield on 10 year treasuries was about 4.00 % in January, when these subject securities were allegedly purchased by hedge funds - and by the beginning of March the 10 year yield had ballooned to 4.50%? Blood should have been running in the street then, which media outlets like CNBC should have been reporting on. Instead, they remained silent.

I would like to draw your attention to January TIC data that was published by the US Treasury March 15, 2005. Make special note of the reserve holdings of China, Japan and Great Britain for the month of Jan. 05. This data set [which appeared in the Pirates of the Caribbean article] was copied from the Treasury's web site in March 05:

MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES
(in billions of dollars)
HOLDINGS 1 / AT END OF PERIOD
COUNTRY 2005
Jan
2004
Dec
2004
Nov
2004
Oct
2004
Sept
2004
Aug
2004
July
2004
June
2004
May
2004
April
2004
Mar
2004
Feb
2004
Jan
Japan 701.6 711.8 714.9 714.2 719.2 721.3 697.2 689.0 667.0 652.4 645.9 613.8 583.2
Mainland China 194.5 193.8 191.1 185.7 180.4 172.6 167.4 165.2 164.4 162.5 157.3 153.7 156.2
United Kingdom 163.0 163.7 152.5 135.6 129.4 129.4 124.9 121.1 114.8 115.5 100.8 94.8 91.8
Caribbean Banks2/ 92.5 69.5 77.4 98.5 100.5 96.5 95.4 100.1 76.4 60.8 62.3 51.8 48.1
Korea 67.7 69.0 69.3 63.7 64.5 61.4 59.4 58.76 57.0 57.6 58.9 57.1 59.6
OPEC 64.7 59.8 60.6 59.7 55.0 49.3 54.6 51.5 45.6 44.9 43.0 41.1 43.4
Taiwan 59.2 58.8 58.1 57.6 57.5 56.4 57.7 58.0 57.3 56.8 54.9 55.8 53.1
Germany 57.1 53.6 55.9 52.5 51.3 48.5 49.1 47.9 49.9 50.2 45.9 46.0 47.5
Hong Kong 59.2 52.7 50.0 50.9 50.6 50.4 51.5 53.4 53.4 53.4 51.8 53.8 54.8
Switzerland 50.0 51.1 51.0 51.4 49.1 49.5 48.6 50.2 49.3 51.1 48.6 48.3 45.1
Canada 43.4 41.2 40.2 34.5 34.1 33.6 33.8 31.1 33.5 33.7 31.0 28.5 26.2
Mexico 41.1 40.3 41.0 40.7 41.6 43.5 42.2 45.9 36.5 30.6 28.9 28.4 27.5
Luxembourg 29.3 29.0 28.0 27.9 27.2 27.2 27.1 27.2 25.6 26.3 27.8 27.7 26.1
Singapore 27.6 28.0 28.1 26.1 23.8 28.9 26.0 27.0 26.2 27.1 26.7 25.8 23.2
Ireland 21.0 21.7 22.5 20.7 20.1 21.1 20.3 17.9 19.7 14.9 14.6 16.0 14.8
Belgium 16.5 16.7 16.5 15.7 15.6 15.5 15.7 16.1 13.6 13.2 12.8 12.6 14.6
Israel 16.0 14.7 14.3 11.7 13.6 12.3 13.8 18.1 18.0 15.5 16.4 14.1 10.5
Thailand 15.8 15.0 15.4 14.6 13.6 14.7 13.8 11.4 10.9 10.7 11.9 15.3 13.5
Italy 14.9 14.7 14.7 14.2 14.4 14.3 15.2 15.5 15.6 15.3 14.6 13.0 14.7
India 13.9 12.9 13.5 13.9 12.8 14.2 15.2 16.1 16.1 16.2 13.8 13.5 15.7
Turkey 12.8 11.9 14.4 16.0 16.8 16.4 15.0 15.0 15.7 16.3 14.9 14.2 14.5
Spain 12.2 11.8 11.8 8.9 9.6 9.0 10.1 10.4 10.0 11.0 9.3 9.6 10.8
Brazil 12.2 13.4 13.6 13.9 14.6 15.1 15.0 12.1 12.1 12.2 13.1 11.3 10.7
Sweden 11.6 12.8 11.8 11.5 10.5 10.3 9.6 9.9 11.3 9.7 10.3 10.5 9.6
Australia 9.7 10.5 8.8 7.1 6.7 7.0 7.8 7.3 7.5 7.6 10.2 12.7 10.8
France 9.2 8.0 7.5 7.8 10.1 10.1 11.8 11.1 11.0 12.2 16.4 12.2 16.0
Netherlands 8.7 9.7 8.2 8.5 9.8 7.1 14.4 14.4 13.4 15.2 12.2 12.4 13.2
All Other 141.3 139.8 142.2 136.8 126.7 120.3 125.3 119.7 116.5 122.4 119.4 116.6 115.7
Grand Totals 1960.3 1935.9 1933.5 1900.4 1879.1 1855.9 1837.9 1821.2 1748.3 1715.3 1673.7 1610.6 1570.9
                           
Of which official 1177.9 1172.9 1177.3 1159.8 1144.1 1127.4 1109.6 1101.5 1068.7 1051.4 1034.9 994.9 967.3
Bills 242.1 244.6 256.0 259.5 259.5 253.7 251.3 248.9 232.9 224.8 231.6 225.6 214.5
Bonds and Notes 935.9 928.4 921.4 900.3 884.7 873.8 858.3 852.6 835.8 826.6 803.3 769.2 752.8
Department of the Treasury/Federal Reserve Board, March 15, 2005
1) Estimated foreign holdings of U.S. Treasury marketable and nonmarketable bills, bonds and notes are based on Treasury Foreign Portfolio Investment Survey benchmarks and on monthly data reported under the Treasury International Capital (TIC) reporting system. 2) Includes Bahamas, Bermuda, Cayman Islands, Netherlands Antilles, and Panama. [emphasis added]

Now, if you take a look at the latest release of TIC data - you might notice that these numbers have been dramatically altered - after the fact. On May 16, 2005 - we received our latest installment of TIC data from the good folks at the Fed and Treasury. It is appended here.

MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES
(in billions of dollars)
HOLDINGS 1 / AT END OF PERIOD
COUNTRY 2005
Mar
2005
Feb
2005
Jan
2004
Dec
2004
Nov
2004
Oct
2004
Sept
2004
Aug
2004
July
2004
Jun 2/
Ser V 
2004
Jun 2/
Ser IV
Japan 679.5 680.3 679.3 689.4 692.5 691.8 696.8 698.9 674.9 666.6 688.3
Mainland China 223.5 224.9 223.5 222.9 220.2 214.8 209.4 201.6 196.4 194.3 165.9
Caribbean Banking Centers 3/ 137.2 104.7 94.2 71.4 75.7 96.9 98.8 94.9 93.8 98.5 100.3
United Kingdom 4/ 122.9 110.7 100.3 101.0 89.8 72.0 67.6 67.2 63.0 59.6 119.9
Taiwan 71.1 68.5 68.3 67.9 67.1 66.6 66.5 65.5 66.8 67.0 57.6
OPEC 62.2 67.6 67.0 62.1 63.0 62.1 57.4 51.6 56.9 53.9 51.5
Korea 57.1 53.1 53.6 55.0 55.3 49.6 50.5 47.3 45.4 44.5 58.6
Germany 56.0 53.0 53.8 50.2 52.6 49.2 47.9 45.1 45.9 44.9 51.4
Hong Kong 45.2 45.3 45.1 42.4 43.3 42.9 42.8 43.8 43.8 45.8 53.4
Switzerland 44.1 44.5 41.0 42.1 41.9 42.3 40.1 40.4 39.6 41.2 49.9
Canada 43.4 41.2 40.2 34.5 34.1 33.6 33.8 31.1 33.5 33.7 31.0
Mexico 41.1 40.3 41.0 40.7 41.6 43.5 42.2 45.9 36.5 30.6 28.9
Luxembourg 42.1 43.0 41.8 41.6 40.6 40.4 39.7 39.7 39.6 39.7 27.2
Canada 38.4 38.0 35.4 33.3 32.2 26.6 26.1 25.7 25.9 23.2 31.2
Mexico 32.5 33.0 33.5 32.8 33.5 33.2 34.0 36.0 34.6 38.3 45.9
Singapore 30.7 29.2 29.9 30.3 30.4 28.4 26.1 28.2 28.4 29.3 27.1
France 25.1 27.2 21.2 20.0 19.5 19.8 22.0 22.1 23.8 23.1 11.1
India 18.4 18.1 15.9 15.0 15.5 16.0 14.9 16.3 17.2 18.2 16.1
Netherlands 18.0 16.5 16.8 17.8 16.3 16.7 18.0 15.2 22.5 22.5 14.4
Ireland 17.2 17.8 15.6 16.3 16.9 15.0 14.5 15.5 14.7 12.7 17.5
Norway 16.9 33.8 35.1 30.4 32.6 33.0 24.2 21.2 18.6 14.9 4.2
Sweden 16.9 16.3 15.8 16.9 16.0 15.6 14.6 14.4 13.7 14.1 9.9
Belgium 15.3 16.7 16.8 17.0 16.8 16.0 15.9 15.8 16.0 16.4 16.1
Brazil 14.7 13.6 13.8 15.1 15.3 15.6 16.3 16.8 16.7 13.8 12.1
Israel 14.6 14.3 14.9 13.7 13.2 10.6 12.5 11.6 12.8 17.1 18.1
Italy 14.5 13.7 13.0 12.8 12.8 12.3 12.4 12.4 13.3 13.5 15.5
Thailand 12.1 13.0 13.3 12.5 12.8 12.1 11.1 12.2 11.2 8.8 11.4
Poland 11.4 10.6 10.2 10.8 10.8 10.6 10.3 9.4 9.4 9.4 10.6
Turkey 11.4 10.4 12.9 12.0 14.5 16.1 16.9 16.5 15.1 15.1 15.0
All Other / Revised 128.0 128.0 125.8 128.8 127.4 117.4 116.5 116.4 123.1 121.1 120.5
Grand Total 1777.1 1945.7 1908.1 1883.9 1877.6 1843.7 1824.1 1800.6 1783.2 1767.5 1820.8
                       
Of which Foreign Official 1128.2 1242.2 1238.0 1232.7 1237.1 1219.5 1204.3 1187.6 1169.7 1161.0 1099.3
  Treasury Bills 236.2 235.2 242.3 244.6 256.0 259.5 259.9 254.1 251.8 249.0 249.0
  Treasury Bonds & Notes 992.0 1007.0 995.7 988.1 981.1 960.0 944.4 933.5 918.0 912.0 850.3
Department of the Treasury/Federal Reserve Board, May 16, 2005 1/ Estimated foreign holdings of U.S. Treasury marketable and nonmarketable bills, bonds and notes reported under the Treasury International Capital (TIC) reporting system are based on annual Surveys of Foreign Holdings of U.S. Securities and on monthly data.
2/ Denotes series break: Series IV positions data for this month and prior periods to June 2003 are based on the end-June 2003 annual Survey; Series V positions data for this month and subsequent periods are based on preliminary results from the end-June 2004 annual Survey.
3/ Includes Bahamas, Bermuda, Cayman Islands, Netherlands Antilles, and Panama.
4/ Includes Channel Islands and Isle of Man.
Source: US Treasury

Economic history has apparently been rewritten folks. The inconsistencies and conflicting data being fed to us by officialdom are brazenly astonishing. In the month of Jan. 05 alone, Japan's holdings of US securities have been retro altered to the tune of over 20 billion, China's by close to 30 billion and the United Kingdom's by more than 60 billion. Can any of us really believe anything these folks have to say? Imagine, a restatement of this magnitude without as much as an explanatory footnote or a press release? Somehow, none of this is even deemed to be newsworthy? What's beginning to scare me; if the US Treasury tells us the world is flat - what happens to the South Pole?

On Monday morning, May 16, 2005 at 11:40 am. I listened to CNBC reporter, Rick Santelli, reporting from the Chicago Board of Trade. He made the claim that this latest [March] anemic' TIC data does not really matter. He went on to claim that foreigners continue to have strong demand for American debt - so much so claimed Rick, "that they're even talking about bringing back the 30 yr. bond".

Well, I see things differently. His claims that this data deserves little to no scrutiny are misleading. His candy coated assessment is tantamount to treasonous fraud being perpetrated on those that rely on CNBC for accurate and timely financial reporting. Clearly, America's two major financiers - Japan and China - have completely stopped accumulating American debt. In fact, the data suggests that they have been completely absent from the bidding process at the debt auctions over the last 3 months. If you go back and look at the Treasury auctions in March [where a lot of the latest TIC data is drawn from] you will see that the Fed proudly announced robust bid to cover ratios on their debt auctions [2Yr. on Mar. 30, 10yr. Mar. 10, 5yr. Mar. 9]. - yet the latest TIC data suggest that both China and Japan were not even at the table?

The proposition that hedge funds 'slipped in' and completely replaced the machinations in the auction process of both the central banks of China and Japan is completely and utterly preposterous. With each successive release of TIC data, it's becoming clearer that traditional buyers of US debt are not and have not been in the picture for a few months - this is reality - according to the Fed and Treasury's own numbers.

This is news. This is deadly serious and has extremely dire implications for each and every American citizen - no - how about each and every person in the industrialized Western World? Remember, folks, the American Dollar currently still enjoys global reserve currency status. This is a privilege - not a god given right. As such, the dollar's fate is of grave and utmost concern to many beyond US borders. I do not understand how a "press" that claims to be the freest in the world can remain stone silent on this issue. Don't you think we all deserve better? Does anyone really believe that ignoring this issue and failing to report it altogether will alter the stark, dark and disturbing reality outlined in the Treasury's own published numbers? Better put your mitts on folks - and get in the game. In absence of an explanation to the contrary, it sure looks like somebody's monetizing debt and printing money - and lots of it. The silence on the part of officialdom on this issue is truly deafening. Remember folks, the shenanigans outlined above are all brought to us by the same swashbuckling clowns who claim the economy is doing fine, there are lots of jobs, are adamant that the gold market is not rigged and oh, yes, they perpetually remind us that inflation is a non issue too. What a mess.

A very special thanks goes out to Mr. Willem Middelkoop, a sharp journalist with RTL Nederland for drawing my attention to this altered data. I must admit I never even noticed the change - until he pointed it out.

Special thanks to Mary Puplava at www.Financialsense.com for her talented assistance rendering the charts in this article.


 

Rob Kirby

Author: Rob Kirby

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