It’s long been speculated just how much pain foreign investors in U.S. dollar denominated securities are willing to absorb before crying uncle, throwing in the towel and selling.
This headline from the well-respected Ned Davis Research says it all: “Foreigners Dump Record U.S. Securities.”
Perhaps that tipping point arrived with the sub-prime credit crunch correction in August. According to Davis’ economic analysis of U.S. Treasury data, foreign investors sold a record $34.9 billion worth of long-term U.S. securities in August.
Perhaps this is due to the market correction early in the month, but the relentless slide of the buck may have played a role in these asset re-allocation decisions too.
Overseas investors still showed a small appetite for U.S. fixed income securities, as net purchases of bonds “inched up to $5.8 billion.” But foreigners were wholesale sellers of equities, as they unloaded $40.6 billion worth of U.S. stocks – the most ever!
There were other dubious milestones in the TIC data:
August saw the largest ever selling of U.S. Treasuries by official institutions – aka other central banks. However, the U.K. and Caribbean Banking havens were still buying.
Japan and China, the two biggest foreign owners of Treasury bonds pared back their holdings by a combined $33.6 billion in August. Perhaps both nations are growing tired of Washington’s constant bashing about undervalued currencies... so they are retaliating in kind!
Foreigners also sold a record $1.2 billion in corporate bonds, mostly coming out of private investor portfolios. Add to this the $34.5 billion that domestic investors moved offshore into long-term foreign securities in August, and a record $69 billion of investment cash departed this country.
That’s more than three times the net capital outflow of $19.5 billion recorded just the month before.
Perhaps I’m not well qualified to weigh in on what this record outflow of foreign investment cash means to the already distressed U.S. dollar... I’ll leave such complicated currency analysis to luminaries such as Jack Crooks, and our new Currency Chief Sean Hyman, to divine.
For decades U.S. securities were seen by foreigners as the ultimate safe-haven, can’t miss investment. But with the once mighty dollar now in headlong retreat against most major (and many minor) foreign currencies – perhaps foreign investors have become more concerned with the return OF their money, than the return ON their money!
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