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The Feast Continues…thankfully!


I attended a meeting yesterday and listened to the fear some investors have of China, particularly its ability to crush the dollar by dumping all their dollar-denominated holdings, such as US Treasuries. Their angst is understandable but misplaced. Dumping the Treasuries would create huge losses for themselves and risks sending the world, including themselves, into a genuine depression. Indeed, during a recent visit to the White House, the Chinese leadership expressly assured the President that they would continue buying our Treasuries, which is certainly not a warning to dump Treasuries.

But, such assurances are just pretty words. However, the proof is that they do continue to buy our Treasuries as promised, but there is a difference. They are now buying more 10-year issues and fewer 30-year issues, which limits their exposure to a collapse of the US. In addition, they are spending their huge dollar reserves, which are not invested in Treasuries, to buy assets around the world, especially in Africa. This also limits their exposure to a collapse of the US.

Today, the US Treasury issued another $15 billion in 30-year Treasury bonds. There are always more bidders for the bonds than there are bonds to sell. This is called the Bid-to-Cover ratio and is normally about 2.3 times. Today, it was 2.54X, which means there is considerable appetite remaining for those bonds. While that appetite is not infinite, there is certainly still plenty left.

While the world continues to feast on our debt, the Fed needs to provide us with an “exit strategy” very soon, to keep the guests at the dinner table.

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