Foreign Cen Banks Continue To Dump Coupon Treasuries

If you are not watching this space, you won’t know what hits you when it hits you. 

Central banks, both the Fed and foreign, have morphed from the largest buyers of Treasury notes and bonds over the past two decades into the largest net sellers.

Japan and China Biggest Monthly Treasury Dump On Record

Japan and China, both private investors and central banks, sold $118 billion of Treasury notes and bonds in September, their largest combined monthly dump on record, which confirms our suspicions from a September post,

We also have no doubt Japan’s holdings are down from the latest observation in July. – GMM,  Sep 29th

As of the end of September, the Japanese have sold $114 billion in coupon Treasuries since July, 9.2 percent of their holdings, and $208 billion from Japan’s peak holdings of $1.33 trillion in November 2021, down 15.7 percent.  

The above goes a long way to explaining the below. 

“In recent months, however, liquidity in the Treasury market has deteriorated further. This recent development is more concerning, as it seems as if market functioning has become a bigger source of risk, rather than just reflecting the uncertain fundamental environment.”

For most analysts, the liquidity problems in the Treasury market are not just about rapidly changing prices, they are also a reflection of a dearth of buyers, or an inability or unwillingness of the buyers in the market to mop up all the supply. The fact the Treasury department has begun discussing the prospect of buying back some of the most illiquid Treasury bonds, says HSBC’s Major, is an implicit acknowledgment that faltering demand has begun to cause problems. – FT

Our The Great Reset: The Bond Yield-Dollar Feedback Loop post provides a fairly reasonable framework to explain the dollar bond yield dynamic based on global capital flows.  It’s an easy read and worth your time. 

The Path to High (per) Inflation? 

If the Fed is forced to step in and finance the U.S. Treasury as they did en masse with the COVID rescue packages or help in the rollover of Treasury refinancings, the economy will be set on a path of high inflation for many years to come. 

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Nonlinear Thinking: 3D Printed [Vegan] Steak

Here is a reminder never to underestimate human ingenuity.  The major reason why thinking linearly (straight-line extrapolating the past into the future) can get you into trouble and wreak havoc on your forecasts and prediction.

h/t:  Jerri and  ZeroHedge

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Crypto Crash Dings TB12 and Steph

It’s disheartening to see two of sports’ GOATs caught up in the crypto implosion. 

Can’t say they weren’t warned.  

FTX and former chief executive officer Sam Bankman-Fried were sued by an investor over claims that the cryptocurrency exchange now in crisis targeted “unsophisticated investors” using celebrity endorsers including Tom Brady and Stephen Curry, who are also named as defendants.

In a complaint filed Tuesday in federal court in Miami, Oklahoma resident Edwin Garrison is asking to represent a class of “thousands, if not millions, of consumers nationwide.” That includes all investors in the US who were enrolled in yield-bearing FTX crypto accounts, which he alleges constitute unregistered securities in violation of US and Florida laws. – Bloomberg, Nov 16th

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COTD: Diabetes Nation

COTD = Chart of the Day

Nice chart with some ugly data from Statista

We have added the following table for some context of scale.

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Global Macro Watch

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Random Chart Action

Services v Goods Inflation

U.S. Savings Rate

China Home Prices

Tech Stock Weighting In S&P500 Falling

Relative Performance: S&P500 v. Equal Weighted S&P500

The Aussie Dollar Carry Trade Cometh

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In Honor Of Veteran’s Day: The Butterfly Effect

Here is a repost of a repost of a repost of a post.

The Butterfly Effect post is by far the most popular post ever on the GMM.  Many universities and high schools have linked it in their class syllabi.

Thank you, Vets.  You are my heroes.

In Honor Of Veteran’s Day: The Butterfly Effect

To honor Veterans’s Day,  we are reposting our June 2017 butterfly piece, which illustrates how sleepwalking can lead the world into a war that nobody wants.

French President, Emmanuel Macron, warned today about sleepwalking into another great conflict.

“I know there are old demons which are coming back to the surface. They are ready to wreak chaos and death. History sometimes threatens to take its sinister course once again.  – President Macron

Vets

History’s Biggest “Butterfly Effect” Occurred On This Day

The butterfly effect is the concept that small causes can have large effects. Initially, it was used with weather prediction but later the term became a metaphor used in and out of science.

In chaos theory, the butterfly effect is the sensitive dependence on initial conditions in which a small change in one state of a deterministic nonlinear system can result in large differences in a later state. The name, coined by Edward Lorenz for the effect which had been known long before, is derived from the metaphorical example of the details of a tornado (exact time of formation, exact path taken) being influenced by minor perturbations such as the flapping of the wings of a distant butterfly several weeks earlier. Lorenz discovered the effect when he observed that runs of his weather model with initial condition data that was rounded in a seemingly inconsequential manner would fail to reproduce the results of runs with the unrounded initial condition data. A very small change in initial conditions had created a significantly different outcome.  — Wikipedia

On this day in history, June 28, 1914, the driver for Archduke Franz Ferdinand,  nephew of Emperor Franz Josef and heir to the Austro-Hungarian Empire,  made a wrong turn onto Franzjosefstrasse in Sarajevo.

Just hours earlier, Franz Ferdinand narrowly escaped assassination as a bomb bounced off  his car as he and his wife,  Sophie,  traveled from the local train station to the city’s civic city.   Rather than making the wrong turn onto Franz Josef  Street, the car was supposed to travel on the river expressway allowing for a higher speed ensuring the Archduke’s safety.

Yet, somehow, the driver made a fatal mistake and tuned onto Franz Josef Street.

The 19-year-old anarchist and Serbian nationalist, Gavrilo Princip, who was part of a small group who had traveled to Sarajevo to kill the Archduke,  and a cohort of the earlier bomb thrower, was on his way home thinking the plot had failed.   He stopped for a sandwich on Franz Josef Street.

Seeing the driver of the Archduke’s car trying to back up onto the river expressway, Princi seized the opportunity and fired into the car, shooting Franz Ferdinand and Sophie at point-blank range,  killing both.

That small wrong turn,  a minor perturbation to the initial conditions, or deviation from the original plan,  set off the chain events that led to World War I.

Archduke_Jan27

Stumbling Into The Great War
Fearing Russian support of Serbia, Franz Josef would not retaliate by invading Serbia unless he was assured he had the backing of Germany.   It is uncertain as to whether the Kaiser gave Franz Josef Germany’s unequivocal support.   Russia, fearing Germany would intervene, mobilized its troops forcing Germany’s hand.

The great European powers thus stumbled into a war they didn’t want through complicated entanglements and alliances, and miscalculation.  Russia backing Serbia;  France aligned with Russia,  Germany backing the Austro-Hungarian Empire;  and Britian, who really didn’t have a dog in the fight except her economic interests, aligned with France and Russia.

Later the U.S. would enter the war due to Germany’s unrestricted submarine warfare threatening American merchant ships and the Kaiser floating the idea of an alliance with Mexico in the famous Zimmerman Telegram, which was intercepted by the British.

Of course, some will argue that Great War in Europe was inevitable

The great Prussian statesman Otto von Bismarck, the man most responsible for the unification of Germany in 1871, was quoted as saying at the end of his life that “One day the great European War will come out of some damned foolish thing in the Balkans.” It went as he predicted.  – History.com

Nevertheless,  maybe the course of history would have been different if not for that wrong turn on June 28, 1914, which created the humongous butterfly effect, which we still experience the consequences this very day.

The botched Treaty of Versailles  sowed the seeds the for World II.  The War contributed to the Russian revolution and Cold War.  The redrawing of borders in the Middle East after the War created the conditions for the instability and breakdown to tribalism the region experiences today.

A map marked with crude chinagraph-pencil in the second decade of the 20th Century shows the ambition – and folly – of the 100-year old British-French plan that helped create the modern-day Middle East.

Straight lines make uncomplicated borders. Most probably that was the reason why most of the lines that Mark Sykes, representing the British government, and Francois Georges-Picot, from the French government, agreed upon in 1916 were straight ones.  — BBC News

If Franz Ferdinand had not been murdered on this day in history,  that conflict between the Serbs and the Austro-Hungarian Empire may have been contained to just the Balkans.   Maybe.

The butterfly effect.  Think how many small events, decisions, mistakes, one small turn, or “minor perturbations” in plans have had enormous consequences in your own personal life.

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Nonlinear Thinking: The Home Of The Future

Geez, talk about an increase in labor productivity, one person building a dozen homes!  Go to 1:15 minutes into the video. 

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Contributions To Inflation

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Debunking Success Myths

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