The relentless dumb bid.
The Chinese move, ranging from individual investors to corporate entities, into overseas real estate, particularly in West Coast cities in the US, in Vancouver and Toronto in Canada, but also in trophy cities in Australia, New Zealand, and some other countries, has become legendary.
More recently, Chinese companies, supported by state-owned banks and PE firms, have pushed into global M&A on a large scale, including in the US, buying companies lock, stock, and barrel.
But at the same time they’ve been dumping US stocks and bonds.
They’re following the Chinese government, which unloaded $510 billion of foreign exchange reserves in 2015, including $292 billion in US Treasuries, the first ever annual net sell-down, after having religiously piled them up year after year. China still holds about $1.4 trillion in US government debt. So it has a lot left to sell.
That can no longer be said for Chinese holdings of US stocks. From 2008 through the first quarter of 2015, China bought $117 billion of US stocks, riding the big Fed-induced bull market to its peak. Q1 of 2015 was particularly strong, with $20 billion in share purchases.
But in Q2, Chinese investors dumped a net of $14 billion of US stocks; in Q3 $34 billion; and in Q4 they threw another $68 billion out the door, according to a note by Goldman Sachs, reported by MarketWatch. In total, they sold $116 billion in shares over the last three quarters of 2015!
Is this why the market peaked in May 2015? Because by that time, Chinese investors had switched from buying to selling?
From all the stocks they’d accumulated since 2008, a total of $117 billion, they’re now down to their last $1 billion. Of all the purchases since 2006, they only have $25 billion in US equities left. To top it off, they also sold $130 billion of US corporate bonds last year.
Not exactly a vote of confidence in US stocks and bonds, especially since the Chinese are moving so much money into the US to buy real estate and entire companies.
Other foreigners too lost confidence in US equities. And oil producers – budgets mauled by the oil price plunge – also unloaded US stocks:
- Canadian investors dumped $80 billion in US stocks after having been loyal buyers for many years. They still have $102 billion left to sell.
- The Middle East unloaded $39 billion in US stocks, after having already dumped $20 billion in 2014 and $22 billion in 2013. Their holdings are down to a measly $33 billion.
- Europe sold $24 billion, and still has $556 billion left to sell. If Europe gets more nervous about US stocks, watch out!
In total, foreign investors unloaded a net $171 billion in US equities. And they may lose whatever is left of their appetite for US stocks if China continues to rattle everyone’s nerves, and if the dollar continues to rise.
When the dollar is rising – as measured against the largest trade currencies, such as the euro, the yen, and a few others – foreign investors reduce their net purchases of US stocks. When the dollar is falling, they accelerate their purchases. The average annual purchases going back to 1980 under a rising dollar worked out to be $37 billion, according to the report, versus $82 billion when the dollar is falling.
So a falling dollar is good for US stocks because it lures foreign money into the market. And a jumpy dollar, like last year, causes foreign money to flee.
So what’s the outlook for stocks?
Um, despite taking some pretty good licks recently with its bet, Goldman remains a dollar bull. If the bet proves correct, it would send foreign money fleeing. And that’s bad for US stocks.
Goldman forecasts that over the next 12 months the trade-weighted dollar would rise 8%, including 8% against the yuan, 16% against the euro, and 20% against the yen. So this could get ugly for stocks: According to Goldman’s estimate, foreigners would unload another $50 billion!
That scenario doesn’t include European investors getting spooked. They’re still sitting on $556 billion in US stocks that they can unload. Even 30% of it would work out to be quite a number. And that would be even worse for stocks.
But don’t worry! We’ve got a corporate hocus-pocus machine, a little worn-out perhaps, but still functioning. And at its core is Goldman Sachs itself!
Goldman estimates that US corporate buybacks will total $450 billion in 2016 – way more than its estimate of foreign selling. Yes, our trusty financial engineering hocus-pocus machine, the relentless and dumb bid that purposefully buys high to push share prices up. That companies prop up the market by buying back their own shares mostly with borrowed money is, as the report put it, “a means of generating shareholder value.”
While that would be down from $561 billion in share buybacks last year, and nothing to write home about, it would still be head and shoulders, so to speak, above the five-year average of $360 billion and the ten-year average of $240 billion. But it would not measure up to the all-time record of $710 billion in 2007, a huge and final bout of “generating shareholder value” just before it all collapsed.
So Goldman is betting that corporate buybacks will come to the rescue as foreigners are fleeing – just when this sort of financial engineering has begun to backfire against the very companies doing it. Read… This Also Happened the Last 2 Times before Stocks Crashed
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It has been nothing less but sweet three months for stock market.
Now it is time to unload and hibernate until October.
Happy investing.
Cheers.
The “Fraud Preserve” PPPT
Duh!
“So Goldman is betting that corporate buybacks will come to the rescue as foreigners are fleeing”
Seems to be working, markets go up every day. Since you anticipate stocks to ramp up as the dollar weakens, the markets should roar as the Saudis start selling treasuries.
Buy stocks, commodities. The fix is in for Hillary, so nothing will change. The US is the best worst place to invest in the world.
The trend is your friend. :)
So here is my question… If the dollar gets stronger then a foreign investor holding a flat $100 u.s. stock could sell that stock for the same price they paid for it a year ago and still win because they will leave with more of their currency than they started with. If the stocks are back up and their currency is down it seems to me they should sell if only to capture the currency conversion gain… no?
As Will Rogers observed during the depression “the return OF my investment is more important than the return ON my investment.”
Very true, but it doesn’t hurt if it comes with little gravy.
That may be true but the dollar is NOT going to get stronger anytime soon Dave İMO
@Frederick… but the dollar already gained the strength and if you are correct it will not get stronger than a wise investor (and PRC is not dumb) would sell their holdings while the market is at the top and but buy when the market drops to a bottom (when the dollar is weak against their currency)… thoughts?
Who else? Need we ask?
Wolf, how do we know for sure that China is selling Treasuries ??? At first glance, it seems to me you can’t be sure. What we know for sure is that their Foreign Exchange Reserve is shrinking ie they might simply NOT buy Treasuries anymore or just buy LESS than before. The only thing we know for sure is that the Capital Account is the obverse of the Current Account. IF Chinese are buying huge amount of overseas assets as to substantially affect the balance of payment as mentioned (am not talking about the local Toronto housing Market) and IF its Current Account levels stay the same and IF the same amount of Foreign investment in Chinese Financial Assets is done (not sure about that either) then it would only means than China (as PBOC) has to buy less Non Chinese financial assets…let’s say Treasuries. So the latter stock can only shrink through amortization.
=> “how do we know for sure that China is selling Treasuries ???”
No one can be sure. But the data came from BAML. Other banks have similar data. The US Treasury publishes some of the data. BAML and others also includes the murky transactions via Belgium.
Well china use to admit how many treasuries it was selling monthly, because of capital outflows, until it garnered international attention, and people used it to speculate against the yuan.
But now they don’t openly admit it too much.
The Chinese don’t have to sell treasuries to get rid of them. They can use them as collateral on a loan and later tell the lender to use them as payment.
They just reported the Saudi’s borrowed $10B. You can bet they used their US treasuries as the collateral.
Petunia, I concur, having read about numerous large deals in the last few years where it has been reported that China had used us treasuries as a substantial form of payment.
My guess is that they are being sold to try and save their economy.
Losses have to be covered eventually.
The Chinese are not stupid, and know what paper is worth, be it stock certificates, corporate bonds or T bills.
It is rational to convert much of the current account trade deficit IOUs we have used to purchase PRC goods to hard assets such as land and buildings.
They also read the newspapers and listen to what Trump says.
With continued stock buybacks and the Fed afraid to raise rates why shouldn’t bulls be embolden?
Because Hillary might lose to Trump and he doesn’t own stocks, just real estate. And being Trump he will probably get even with every financial guy that ever turned him down on a project.
My favorite economist, Lakshman Acuthan, doesn’t see a recession in the short term (next six months) but does see extremely slow growth which indicates a recession is imminent. He says there’s likely an economic event that will knock an economy like ours into a recession. For the stock market, he doesn’t make predictions, but his ECRI indexes are often good indicators of where stocks are headed. Again, there isn’t a big red flag. Personally, the longer the market goes without a major correction, the likelihood of one increases. I’m ready to go all cash (except for real estate) and avoid stocks until I see major crash.
In line with my prediction, hibernate until October and than see how low we go.
Cheers.
And the signs of market manipulation are getting ridiculous. I’m doing dollar-cost averaging on one favorite company I see as a having 10X the value in the future. But I find it difficult to identify what is safe for the next 12-18 months.
Weapon manufacturers and I hate to say this but Gold should be doing fine for time frame you looking for.
Most probably the ESF like it has been for decades. They operate independently, adhere to no laws, have never come under investigational scrutiny, & have manipulated virtually every market out there. It’s a totally rigged game, has been for decades, & fundamentals have no bearing on results as we all can see. If you can calculate their probable moves, you may make a buck. Might also loose it all when they decide to reel in the chips across the board.
Go to the treasury website & take a look at the vast amount of ESF loans throughout the world. Where do you think the IMF & World Bank came from? Study all the countries that have been “helped” by the IMF & World Bank. Things start to fall into place. Here’s a link regarding Harry Dexter White. One really has to go back, learn what seems plausible from history to understand where we are today. Our treasury was taken over 8 decades ago.
http://www.thenewamerican.com/culture/history/item/17147-the-communist-agent-who-caused-pearl-harbor-and-global-economic-havoc
OSS-
https://en.wikipedia.org/wiki/Office_of_Strategic_Services
White was on the advisory board of the OSS, instrumental in the formation of the IMF & their first director.
Here’s an old article/overview of the IMF.
http://www.bibliotecapleyades.net/sociopolitica/sociopol_globalbanking02.htm
Another good read – Legacy of Ashes
http://www.amazon.com/Legacy-Ashes-The-History-CIA/dp/0307389006
Another good read- Confessions of an economic hitman
http://www.amazon.com/Confessions-Economic-Hit-John-Perkins/dp/1576753018
Massive amounts of propaganda through control of our media has been unleashed for decades to obfuscate the truth & shape our beliefs.
Carl Bernstein ref
http://carlbernstein.com/magazine_cia_and_media.php
Propaganda legal-
http://www.businessinsider.com/ndaa-legalizes-propaganda-2012-5
Without an understanding of where we have been & the events that have transpired in the last hundred years, it is very difficult to grasp how we got to our current situation.
What do you mean by ESF? I found lots of possibilities when I looked it up.
JB
Here’s a few links. The first is an article written by a couple of fed bank employees about the esf -exchange stabilization fund. Some people also refer to them as the ppt – plunge protection team.
https://www.researchgate.net/publication/5028581_The_Exchange_Stabilization_Fund_how_it_works
I’m just throwing darts at a board like everyone else. One does have to wonder about the secretive nature of the esf, their ability to operate outside of congressional oversight, their coming into being in 1934 after FDR’s ex ord 6102, & the fact that their seed money came from revaluing the gold confiscated from americans under threat of imprisonment at $20.77 an ounce & then revalued to $35.00 an ounce some 7 months later. You can also look at this as a devaluation of the dollar.
https://en.wikipedia.org/wiki/Exchange_Stabilization_Fund
The stated main purpose of the esf was/is to intervene in the fx markets.!!??
This guy was the first director of esf
https://en.wikipedia.org/wiki/Archie_Lochhead
us import export bank, another one of the ‘tentacles’
Reading this should raise your eyebrows when you see all the connections..
https://en.wikipedia.org/wiki/Export%E2%80%93Import_Bank_of_the_United_States
A couple of other articles on iexb, there’s a lot out there
http://cnsnews.com/news/article/us-governments-ex-im-bank-gave-44-its-financing-just-3-companies
http://www.downsizinggovernment.org/export-import-bank
http://www.informationclearinghouse.info/article4264.htm
Don’t forget the BOJ.
http://www.zerohedge.com/news/2016-04-20/why-stocks-rebounded-overnight-goldman-expects-boj-double-its-equity-purchases-soon-
If this isn’t the def. of insanity, I don’t know what is.
Hi Wolf. I thought it was axiomatic that corporations were buying back their stock, they were paying off their “1%er” investors and saddling themselves with debt. What does it say when a country sells it US equities and the companies buy back? Is this a repeat of the Japan property buying spree of the 1980’s? That turned into a non-event…is it different this time?
When the PRC sells their U.S. Treasuries the “company” isn’t buying them back – the “company” is the U.S. Treasury. So other purchasers are stepping in. It is VERY good we as a country can withstand foreign sovereigns unloading our debt. I much prefer when super economic countries own a lot of our debt (though it would be nice if we were closer to debt-free) as it creates a deterrent to armed conflicts. Hard to blow up your neighbor’s house when you own one of the five condos in the building.
Probably some huge fund in the Bahamas or some vaguely defined financial entity in Belgium, just like all the bonds they scoop up when China dumps them. In other words, the US government. They just run the printing presses to get the money. Actually, that is a figure of speech. They just type a lot of zeroes into a PC and the funds appear like magic.
China uses the money to buy gold, copper, beryllium, cobalt, and other easily stored non-perishable commodities.
You mean Fed/CIA off-shore covert sham corps, i.e. PPPT ops?
Corporations feel that they can not invest money back into their own businesses so they buy their own stock
The enlightened policy of the world’s central banks have forced interest rates of all maturities down to extremely low levels enabling many corporations to issue medium and long terms bond at very low rates.
At least some of this money is used for stock buybacks
Because of the even handed tax policy (at least in the US ) much of corporate compensation is in the form of stock options.To make sure that their executives stay happy corporations just buy stock to absorb any selling by these executives.
Of course there are some exceptions,but stock buy backs have been very profitable for corporations as a whole.
I don’t like share buybacks. It distorts the purpose of the stock. It only benefits the CEOs who own the stock options.
I am still wrapping my head around the us dollar. Its always been a perplexing one to me. A strong dollar indicates a strong US economy including lots of jobs, low employment and solid growth? Which then is bad for foreign money as theirs is worth less and trade wise will be on the losing end? Where does inflation come into play? Doesn’t a strong dollar also encourage more companies to flee the US with a strong dollar going farther in a weaker currency country?
Why the dollar goes overseas…. Smedley Darlington Butler was a United States Marine Corps major general, the highest rank authorized at that time, and at the time of his death the most decorated Marine in U.S. history…. Smedley Butler on Interventionism
— Excerpt from a speech delivered in 1933, by Major General Smedley Butler, USMC.
War is just a racket. A racket is best described, I believe, as something that is not what it seems to the majority of people. Only a small inside group knows what it is about. It is conducted for the benefit of the very few at the expense of the masses.
I believe in adequate defense at the coastline and nothing else. If a nation comes over here to fight, then we’ll fight. The trouble with America is that when the dollar only earns 6 percent over here, then it gets restless and goes overseas to get 100 percent. Then the flag follows the dollar and the soldiers follow the flag.
I wouldn’t go to war again as I have done to protect some lousy investment of the bankers. There are only two things we should fight for. One is the defense of our homes and the other is the Bill of Rights. War for any other reason is simply a racket.
There isn’t a trick in the racketeering bag that the military gang is blind to. It has its “finger men” to point out enemies, its “muscle men” to destroy enemies, its “brain men” to plan war preparations, and a “Big Boss” Super-Nationalistic-Capitalism.
It may seem odd for me, a military man to adopt such a comparison. Truthfulness compels me to. I spent thirty- three years and four months in active military service as a member of this country’s most agile military force, the Marine Corps. I served in all commissioned ranks from Second Lieutenant to Major-General. And during that period, I spent most of my time being a high class muscle- man for Big Business, for Wall Street and for the Bankers. In short, I was a racketeer, a gangster for capitalism.
I suspected I was just part of a racket at the time. Now I am sure of it. Like all the members of the military profession, I never had a thought of my own until I left the service. My mental faculties remained in suspended animation while I obeyed the orders of higher-ups. This is typical with everyone in the military service.
I helped make Mexico, especially Tampico, safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefits of Wall Street. The record of racketeering is long. I helped purify Nicaragua for the international banking house of Brown Brothers in 1909-1912 (where have I heard that name before?). I brought light to the Dominican Republic for American sugar interests in 1916. In China I helped to see to it that Standard Oil went its way unmolested.
During those years, I had, as the boys in the back room would say, a swell racket. Looking back on it, I feel that I could have given Al Capone a few hints. The best he could do was to operate his racket in three districts. I operated on three continents.
David,
Thanks for taking time to post this. The book written in 1935 by Smedley Butler “War is a racket” expounds on the content of this speech. The book is a relatively short read & is available in a pdf download, paperback, or even a u tube voice reading. Easy to find on the net. As good a place as any to start you awakening.
As far as currencies go, 4x is one of the frontlines of war. The manipulation is ever present & unending. Countries are brought to their knees with this form of financial warfare.
@Bigfoot… I am finding the book in PDF but it seems like a very short read – like only an hour or so. Is that correct? Is this a link to the whole book?
http://www.ratical.org/ratville/CAH/warisaracket.html
This too… (just 53 minutes?)
https://www.youtube.com/watch?v=TuNYBsUHiXc
DR
There was no reply button on your last question but yes, those are the downloads I was referring to. It’s short & to the point. There’s plenty enough info for someone to connect the dots. I do recommend the other links I cited above as well as the ones below because the subject matter is connected.
It’s kinda sad actually when you find out that world affairs & our countries affairs are not what one has been led to believe over the entirety of ones life. Here’s another link regarding the finance of WWII. A fairly short read also. Here is a link to the author, Antony C. Sutton, who was brave enough to write many books that were ignored or dismissed for the many inconvenient truths he revealed.
https://en.wikipedia.org/wiki/Antony_C._Sutton
Here’s a link to one of his books, Wall Street & The Rise Of Hitler. You can read entirely from this link. His documentation is seemingly irrefutable.
http://www.reformation.org/wall-st-hitler.html
This ties in directly to what Smedley discusses.
I been reading about alot of insider buybacks and co. buybacks
Despite all the selling of treasuries by china, interest rates didnt rise, they must be soaked up by secret QE.
Actually, US Treasuries are HOT: that they yield 1.9% when 10-year German Bunds yield 0.23% and 10-year Japanese JGBs yield a negative -0.13%. So in this crazy world of NIRP, there is a lot of demand among yield-seeking investors for US government debt.
A more important question is who are the corporations borrowing the money from for buybacks, and why are these lenders confident in loaning the money. Food for thought.
The banksters are not lending their own money, but the depositors’/taxpayers’ money. They get their fees up-front which generates the bonuses, and may receive personal finders fees/kickbacks for arranging financing.
This is a no lose situation for the banksters in that the bank depositors/taxpayers eat any losses, and a portion of any “profits” are credited to the executive bonus pool and deferred compensation/stock options.