Mark McHugh

Candy from Strangers

In Open Thread on Tuesday, August 3, 2010 at 12:41 pm

Warning: This version of the article contains known errors – a corrected version can be found here:

When TrimTabs Charles Biderman questioned the source of the money that propelled stocks 65% from the March 2009 lows, he got beaten with the idiot stick so badly that he actually turned bullish in April 2010.  Lost in the ensuing choke-out was the fact that no one ever actually answered his question, unless scoffing and muttering “dark pools and stuff,” under your breath counts (and he’s the one who should be wearing the tin-foil hat?).  Here we go again. 

The first thing you should notice when looking at The Treasury’s 2010 Q1 Bulletin is that it’s  incomplete, as I’m sure most of Secretary Tim Geithner’s homework assignments were.  Of the 12 columns on Table OFS-2 (Estimated Ownership of U.S. Treasury Securities), Turbo managed to fill in only 5 (FYI: it takes Treasury more than two months to prepare the bulletin).

From the data actually present, we can determine that Treasury issued 461.7 Billion in new debt Q1.  That’s not surprising, we’ve been running at the $500 per person per month clip for almost two years now.  What is surprising is that the Fed  &  Intragovernment holdings went down $17B.  Foreigners, God bless ’em, scooped up an additional $192.5 B, while  US saving bond  holdings were basically flat (-$1.1 B).

Um, we’re out of data now, but not debt.  287.4 Billion  (62%) of  Q1’s public debt is not accounted for on the report.   Fortunately when discussing who could digest that much debt in three months, we can quickly eliminate 6 of the 7 “not available” data points (depository institutions, pension funds, mutual funds, insurance companies, and State & local governments).  The only logical conclusion is at least a quarter trillion  in debt was purchased by “Other Investors” in Q1.

Aren’t you glad we cleared that up?

What’s that?  “Who the hell are Other Investors,” you say?  Good question.  It does seem rather nebulous, especially considering that they are now clearly our best customer(s).   Not very bright though.  They stepped in and bought like crazy as interest rates went to record lows.  Still I think we should send a basket of fruit and a nice thank you note, because without them we would surely have had a failed auction (read Keynesian apocalypse).

The Treasury defines Other Investors as: 

Individuals, Government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors.

Thanks Turbo, for narrowing  it down to just about everyone under the sun.

Let’s go ask Ben!

Geithner’s a slacker, this is known, but Fed Chair Ben Bernanke’s SAT score (1590!) suggests analality (?) (mine was considerably lower).   Besides, Treasury’s footnotes on tables OFS-2 tell us that  the source for 6 of the 7 empty columns is the Federal Reserve Board of Governors, Flow of Funds Table L.209 (and which was actually released before the Treasury Bulletin – don’t get me started…).

The Fed’s flow of funds data is an exercise in convolution, but it wasn’t too difficult to extract the data missing from the Treasury bulletin.  Here’s the breakdown:

  •  Depository Institutions   +$59.6 B
  • Private Pension Funds   +$30.9 B
  • State & Local Government Pension Funds  +$7.1 B
  • Insurance Companies  $2.1 B
  • Mutual Funds  -$18.9 B
  • State & Local Governments  -8.5 B

Depository institutions and Private pensions purchased record amounts of  Treasuries in Q1.  Which means that “Other Investors” accounted for $215 B of the Treasuries issued in Q1.  Yes, I realize that this is somewhat lower than my original estimate, but in my defense that was a logical conclusion.  Who knew banks and private pensions are expecting another stock market collapse?  Nobody at CNBC anyway.  They’re too busy laughing at Main Street for not seeing the awesomeness of the recovery.

Before putting away the Fed’s flow of funds, it is worth noting that brokers and dealers (who are included as other investors) do not share the pessimism of banks and private pensions.   They dumped $19 B during the quarter.  This brings us to the turd in the punchbowl.  The Household sector, who the Fed says purchased a whopping $68 B.  Now before you start thinking your neighbors are taking their unemployment checks and sneaking off to Treasury auctions, listen to what Sprott Asset Management’s Eric Sprott and David Franklin said of the household sector in their December 2009 report entitled, Is it all just a Ponzi Scheme?:

To quote directly from the Flow of Funds Guide, “For example, the amounts of Treasury securities held by all other sectors, obtained from asset data reported by the companies or institutions themselves, are subtracted from total Treasury securities outstanding, obtained from the Monthly Treasury Statement of Receipts and Outlays of the United States Government and the balance is assigned to the household sector.” (Emphasis ours) So to answer the question – who is the Household Sector? They are a PHANTOM. They don’t exist. They merely serve to balance the ledger in the Federal Reserve’s Flow of Funds report.

I guess that means your neighbor isn’t our superhero, and besides, if he was he’d have a cooler car.  So who are these strangers with candy hell-bent on making sure this sugar high doesn’t end?   I don’t know.  There I said it.  Maybe Charles Biderman gets rattled when everyone calls him a moron, but I’m used to it.  S0 fire away, but answer the question.

By the end of 2010, Other Investors will own more than 10% of the US public debt (1.5 Trillion or so).  They bought more than 45% of the new debt in Q1.  At what point does this kind of opacity become unacceptable?  Why can’t the Treasury fill out its own bulletin with information already available?  Why do we have to wait five months for information that is so vague, you can’t even call it information with a straight face?

And last but not least, where do we send the fruit basket?

Other Reading:

Is it all just a Ponzi Scheme? (Sprott & Franklin)

Smoking Guns of US Treasury Monetization (Jim Willie)

Treasury table OFS-2 (updated by author).


Thanks to the Daily Bail, Zero Hedge, Business Insider and anyone else who carried this story.  This issue requires far more brain power than I possess.

If I may, I’d like to add two points not in the original post:

1) GSEs, who are included as “other investors” bought $38 B in Treasuries Q1. Um, yes that strikes me as odd.

2) Treasury’s bulletins have always omitted the most recent data – the omissions are not unique to Geithner. The omissions are inexcusable, especially now, but not new. I didn’t explain that because I didn’t think it was paticularly relevant and it ruined a perfectly good joke.

Geithner’s been a disappointment, to put it mildly, but for whatever it’s worth, I think I am the only person on the planet who ever defended Geithner for his tax problems:

  1. Great post Mark, “they” would like you to “ignore the man behind the green curtain” though.

    You had a live one on your last post didn’t you.

  2. Thanks, Gomp

    The last one was an accident, but it did make me want to write again. This one has been eating at me for a while. I’m so glad to finally get it off my chest.

  3. […] is a guest post with permission from the author, via The Daily […]

  4. […] is a guest post with permission from the author, via The Daily […]

  5. Have spent last 24 hours reading your entire archive (following the ZH heads-up), and just wanted to say ‘thanks’!

    Ideally the world would magically transform such that there’d be nothing that’d make you ‘want to write again’, but given there’s more chance of me getting a job as a space-miner, please keep it up.

  6. Thanks very much, Michael.

    You know, I saw all the hits in the archive (I thought it was the FBI) and I thought “well, at least somebody’s reading it.” But you’re right; I wish we could trust the powers that be enough that I didn’t feel the obligation to write about this stuff. Originally I wanted to write about stocks, but the game’s become such a sham, there’s no point to that anymore.

    And it’s not so much that I don’t want to write, I don’t want to write about this stuff anymore. I want to write about my family, baseball, hell-“life in general”, but there’s a tugging in my conscience that just doesn’t let me. “You’re fiddling while Rome burns…”; that sort of thing. So I find my self trying to decipher government reports in the middle of the night, mad at the world, my wife mad at me. It’s not such a good time, but I believe it’s important.

    The fact that there are people out there like you that read and hopefully enjoy the pieces (few as they are) mean a whole lot to me….

    Here’s hoping you get that space-mining gig!


  7. No – I did briefly want to be an FBI agent, but that’s because I was 14 and obsessed with Twin Peaks.

    You should write about whatever you like – it’s your blog! I’ll certainly be reading whatever you have to say – even about baseball, which, being British, I’m not allowed to understand (still trying to get my head around cricket).

    That all said, the fact that there are people out there who try to decipher the financial through-the-looking-glass-whilst-on-a-near-lethal-amount-of-every-illegal-drug-you-care-to-name (deep breath) world we live in means a whole lot to _me_, so I hope the ‘obligation’ doesn’t leave you anytime soon.

    And THAT all said, look after you & yours first, of course, to the exclusion of anything else, if necessary! Hell, everyone else does…

  8. Good advice, Michael

    Haven’t thought about “Twin Peaks” in quite some time….

    I run across Brits in the blogosphere pretty often and I wonder what you must make of all this, and why it would be of any interest to you.

    By the way, sorry about what I’ve done to the language….

    I am an Amero-centric thinker if ever there was one, which I never thought about before (because I’m Amero-centric). I make passing references to things that I’ll bet a lot of American don’t get, I wonder what it’s like for you.

    Since you read the whole blog, I was wondering what you thought of “Giant Leaps”? It is by far my favorite piece and I feel like it’s the best thing I may ever write. It bombed horribly (very few reads) and I don’t know why. Do you?

    Understand I like just fine exactly like it is and I’m not looking for ways to attract an audience, I just thought people would really enjoy it, but apparently not. ???

  9. There’s all sorts of reasons why it’s interesting stuff!  On a personal level, I’ve always been a bit of an American-ophile – i.e. very interested in various aspects of American culture (as if it would be possible to avoid it these days!), and this interest combined with its general prevalence tends to make it easier to understand US-specific idioms (and suchlike) than you might imagine.  (Plus, my boss is an American with a mirror-image interest in Britishness, so I can always ask him if I’m confused.)

    Secondly, at the general level, it is a bit of a truism that where America leads, the rest of the world follows – in particular Britain, of course (if anyone needed any evidence of this they’d only need to look at our current troop deployment… – but it’s true in a much wider sense, too).

    For various reasons, including globalisation, the position of the dollar as reserve currency, and simply the size of the US economy, when America finally falls off the financial cliff, the rest of the world will certainly follow it! – this fact alone means whatever Ben Bernanke is currently smoking is a matter of interest to everyone.  And again, even more-so for us Brits; just two little examples off the top of my head: our banks also had their noses deep in the subprime trough, and are now currently reporting impressive profits based purely on a bit of loan-loss reserve accounting wizardry.

    I’ll certainly have another read of that particular article, and let you know what I think – but basically, there’s no accounting for taste!  (My own favourite bit of my writing (not for publication, and from an absolutely tiny ‘oeuvre’!) makes pretty much no sense to anyone else…)

  10. Aha – that one! Well, I thought it was quality, so probably can’t help too much with why other’s didn’t (if they didn’t). If I had to guess, I would probably go for:

    -Length: you do make a nod in that direction at the end
    -Subtlety: e.g if you miss (or forget by the time you’ve read it all!) the big ‘Caveat’ right at the start, and perhaps read it too quickly, it’s probably possible to think ‘hmm, he’s blaming TARP on NASA’ – which you were, in a way, as part of the wider point, but if one isn’t willing to see that wider point, then as it stands that statement is a little odd.

    The comment from Jochra is a good one – I think that highlights how what _is_ a virtue could be _taken_ as a vice. Nothing is more idiosyncratic than humour, and so if people just aren’t ‘getting’ it, then they might indeed be thinking in terms of tinfoil!

    But all in all, I wouldn’t stress about it too much – you’ve clearly got at least some of us ‘on-side’, and as a general matter, those things which are most personal and special to particular individuals are, almost as a matter of logic, least likely to impress the collective hordes. It’s the exact opposite of the ‘lowest common denominator’ effect!

    Still laughing at the ‘Van Allen belt’ bit!

  11. Thanks again,
    I guess I understand the interest, but I think more than anything else, people like you must think, “How did these idiots get in charge of the place?” And that thought’s embarassing.

    I thought that little “van allen belt” bit was maybe the funniest thing I ever wrote. Still cracks me up.

    I was wondering if you knew the story behind the women in the mugshot. She was an astronaut caught in a love triangle with a married man, so she drove 900 miles to do some kind of ill to the other woman (duct tape, rope, bb gun), in an astronaut diaper. The thing that cracks me up about our culture (and I think of what we have here as “anti-culture” or something) is that the diaper part is the only part where we stop and say “That’s fucked-up.”

    I’m not confident enough to say people don’t “get it,” but I do wonder how many people written humor is completely lost on. I have one friend who read it and saw no humor, which left me unsure if it was him or me. But I’ve also noticed that most comedies on TV without laugh tracks have trouble surviving regardless of how funny they are (“Arrested Development” being a classic example).

    Thanks for sharing your thoughts.

  12. […] Cavanaugh | August 6, 2010 Mark McHugh at Across the Street asks a question that has been the topic of some hushed speculation around here: Who is actually buying all the […]

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