Foreign investors flee US securities

Foreign investors slashed their holdings of US securities by a record amount as the credit squeeze intensified, according to the latest Treasury figures.

The Treasury International Capital report – known as the Tic – for August will be closely watched because it appears amid growing concerns about the weakness of the US dollar, which hit a record low recently against a basket of major currencies.

“The bad news is that [the data] plainly show how vulnerable the dollar is to a continuation of the credit crunch-risk averse environment,” said Alan Ruskin, chief international strategist at RBS Greenwich Capital. “There is no way to get away from the lack of corporate bond inflows, the foreign selling of US equities and the countervailing strong US purchases of foreign equities and bonds.”

The Treasury said net sales of US market assets – including bonds, notes and equities – were $69.3bn in August after a revised inflow of $19.5bn during July. The August outflow exceeded the previous record decline of $21.2bn in March 1990.

Until now, US policymakers have appeared relatively relaxed about the dollar’s decline, since there has been little sign to date that this has been been triggered by a broader global aversion to US assets. However, that attitude could change if signs emerge in the coming months that non-US investors are becoming more nervous about holding dollar assets, as a result of the recent credit squeeze.

Some analysts said on Tuesday that the August data might turn out to be an aberration, since it occurred during the most intense period of this summer’s credit squeeze – when investors were arguably most uneasy about the market outlook. Consequently, some said they hoped that the outflows will have been reversed in September.

“There was clear panic-selling of equities in August, but given the market’s subsequent rebound, those flows should have reversed,” said Dominic Konstam, head of interest rate strategy at Credit Suisse. “If foreign investors return to buying equities, it is not obvious that there will be a capital flight from the US that will lead to a dollar crisis.”

However, others suggested that the scale of swing in August indicated that more fundamental pressures were now bubbling – not least because the dollar continued to decline in September.

The dollar was generally firmer on Tuesday after traders digested the Treasury data. The dollar index was 0.2 per cent higher at 78.25, but that is only 0.8 per cent above its record low set late last month. The dollar was up 0.3 per cent against the euro, but was 0.6 per cent lower against the yen.

Since August 1998, Tic flows have been positive and the last period of pronounced outflows was in the early 1990s when the current account deficit was briefly eliminated.

A breakdown of the data showed that one key reason for the outflows was that there were net foreign sales of US equities of $40.6bn in August, more than reversing the purchase of $21.2bn in July. Reflecting the pressure on US markets and the dollar, US residents purchased a net $34.5bn of long-term foreign securities.

In the debt world, there were net sales by foreign investors of US corporate bonds – but overall holdings of US government debt remained relatively balanced.

"I say we take a vote on the definition of inflation. "

Democrats always want to redefine words when it suits them.

"Those who control language control minds."

Inflation is a perfectly good word with a perfectly good definition: 1) an act of inflating: a state of being inflated: as a) DISTENSION b: empty pretentiousness: POMPOSITY 2) an increase in the volume of money and credit relative to available goods resulting in a substantial and continuing rise in the general prise level

By definition, if there is no increase in money and credit there can be no inflation.

yitbos

“business is eating the increased transportation costs.”

Exactly, and that tends to mitigate the prices you see in other things -- and why we do not have inflation. There are offsets; they are just not what you pay attention to or maybe most of your money does go to things that have gone up while your income does not keep up. It does not matter what tools are used for, also I can tell you that I get cheaper flights using the same mode Delta.com and with the same short term notice. The costs for me to do business have come down dramatically. I use technology. I bought the same tee shirts last year and they were twice as much. If you would understand economics you would understand why. Plus what would your solution be? Deflation? If you think you understand inflation (which we DO NOT HAVE much of) once you learn the impacts deflation you will be more worried about that.

Would you please explain to me why you would not pick up a book at the library on economics? I just do get it. I gave you one title because it is written in plain English and is written by a fabulous conservative economist. Maybe if you read the excellent interview in The Rush Limbaugh news letter that came out a while back you would be more interested. He is a tremendous man.

http://www.rushlimbaugh.com/home/daily/site_052507/content/01125108.member.html

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