Dan Norcini: Huge outflow of foreign capital from U.S. in July

By Dan Norcini
www.JSMineSet.com
Wednesday, September 17, 2008

The Treasury international capital flows data was released yesterday detailing the numbers for July. While I was expecting some lousy data, I was stunned by just how bad it was.

As you may know, they now have two ways of measuring the flows -- one includes long-term securities and the other includes shorter-dated instruments.

The number for the long-term securities was $6.09 billion. The number if one includes the short-term securities was a negative $74.79 billion!

What makes this significant is that the trade deficit for July was -$62.198 billion. No matter which way one measures the flows, long-term only or short-term inclusive, flows were insufficient to fund the deficit. We will have to watch this to see if a pattern develops, especially because the weak numbers were a result of widespread selling of U.S. agency debt, corporate debt, and equities.

The agency debt chart will catch your attention in a large way, as nearly $50 billion was dumped! How's that for a vote of confidence in Fannie and Freddie?

I expect that in the months ahead the equities chart is going to look especially bad, not to mention the corporate debt chart, as foreigners shy away from just about anything except Treasuries. How long Treasury buying can be sustained is anyone's guess.

Also, note that China continues to close in on Japan as the No. 1 buyer of US Treasuries.

For the chart:

http://www.jsmineset.com/cwsimages/Miscfiles/6589_TIC_July_2008.pdf

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