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Jim Sinclair: Decline in foreign purchases of U.S. bonds will be earth-shaking
9p ET Monday, May 16, 2005
Dear Friend of GATA and Gold:
There are a couple of important stories tonight about
a sharp decline in foreign purchases of U.S. government
bonds.
The first is Ashraf Laidi's commentary at ForexNews.com
and it has some excellent graphics, so it's best to go
to ForexNews.com directly to read it:
http://www.forexnews.com/AI/default.asp?f=A20050516A.mgn
The second is a Reuters story that is just text and so
is appended.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
Norway dumped US bonds in March in mystery move
By Mike Dolan
Reuters
Monday, May 16, 2005
http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=8506837
WASHINGTON -- A surprisingly small flow of foreign money to the
United States in March was due mainly to a halving of oil-rich
Norway's U.S. Treasury bond holdings, raising questions about
whether overseas governments are cutting huge holdings of U.S.
assets.
A U.S. Treasury report on Monday showed the net flow of foreign
investment to U.S. securities at $45.7 billion in March -- more than
$20 billion below expectations and less than needed to cover the $55
billion U.S. trade deficit that month.
Foreign official institutions, consisting mainly of foreign central
banks, were net sellers to the tune of $14.98 billion.
Close examination of the data shows these sales were dominated by
Norway's more than halving its holdings of Treasury bonds to $16.9
billion from $33.8 billion.
Analysts said Norway's holdings are most likely those of the $160
billion Government Petroleum Fund, a fund of foreign stocks and
bonds set up in 1996 aimed at saving oil and gas revenues for the
future, when energy resources run out.
Norway is the world's third-largest oil exporter, after Saudi Arabia
and Russia.
Analysts said the question was whether the Fund's apparent decision
to halve its U.S. Treasury bond holdings was a attempt to diversify
from what it saw as increasingly risky U.S. debt securities, or
whether it was an unrelated one-time move.
Some pointed to the fact that Norway's oil fund has been a very
active buyer and seller of Treasuries in the past and its
transactions are merely a function of its investment model, rather
than any strategic decision.
Norway's Treasuries holdings rose by more than $20 billion in the
second half of 2004 to $35.1 billion in January, said Goldman Sachs
economist Thomas Stolper. He added that March looked consistent with
a very active investment stance.
"I don't think this is a hidden diversification. I think it's more
within the margins of normal fund management."
No one was immediately available to comment at the country's central
bank, Norges Bank. Norway's Ministry of Finance is responsible for
the fund but delegates day-to-day management to the central bank.
Other analysts were similarly skeptical the Norwegian flows were a
signal of the wider foreign diversification away from U.S. assets, a
potential shift that has concerned investors and and policy-makers
alike for the past year.
"A comparable outflow (from Norway) was witnessed in May of last
year, with little follow-through in the subsequent months," Brian
Garvey, senior currency strategist at State Street Global Markets in
Boston, said in note to clients.
"This leads us to believe the March selling is a one-off event
related to oil reserve management rather than something more
significant."
Foreign governments, particularly Asian central banks, have
increasingly provided the funding to bridge the record U.S. current
account deficit, at $666 billion last year.
There have been concerns many of these central banks, fearing that a
further sharp dollar depreciation will erode the value of their U.S.-
heavy reserve investments, will start to shift more of their
holdings to non-U.S. securities.
"While Norway could be seen as the tip of the iceberg and a warning
of what's to come from other countries, it could just as easily be
seen as a single country making an isolated judgement call," said
Alan Ruskin, research director at 4Cast.
According to Norges Bank (www.norges-bank.no), the fund has a
benchmark portfolio of foreign assets against which returns on the
actual fund must not deviate by more than 1.5 percentage points in
two out of three years.
The benchmark portfolio is 60 percent fixed income and 40 percent
equities. Of the fixed-income portfolio, 35 percent is in the
Americas and 55 percent in Europe.
In 2004, the fund's actual fixed-income portfolio (almost $100
billion worth at the end of last year) returned 1.23 percent
measured in Norwegian crowns -- higher than the 0.87 percent of the
benchmark portfolio.
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