Dan Norcini | Jim Sinclair’s Mine Set

The US Treasury Department today released its monthly International Capital Flows data for the month of March 2008. Among the main highlights was a significant NET OUTFLOW of foreign capital of some $48.2 billion compared to a revised INFLOW of $48.9 billion in February. That is nearly a $100 billion swing in one month’s time and illustrates how severe the distress in the US financial system was which forced the hand of the Fed to bail out Bear Stearns at the expense of polluting their balance sheet. Wouldn’t you have loved to have been a fly on the wall in those hidden offices where the various machinations took place as the monetary authorities and their pals in the investment banks plotted and schemed to come up with a way to avert the consequences of their reckless greed and idiocy when it comes to the derivative daisy chain mess they concocted?

That net outflow occurred when short term securities were included in the numbers. When those were stripped out, the data showed a large NET INFLOW of $80.42 billion.

Using the short term measurement, the flows were insufficient to fund the trade deficit for that same month which was at $58.2 billion. That is a shortfall of $106.4 billion. Employing only the long term dated securities, flows were more than sufficient to fund the gap.

Another interesting thing to note for March’s data is the effect of the Bear Stearns news, along with the rest of the investment house troubles, which resulted in a mass exodus of foreigners from US corporate bonds. They sold those things off like they had the plague. In February they had ponied up to the bar to buy $19.2 billion worth of US corporate debt. In March, they sold $4.5 billion for a one month swing of $23.7 billion. Again, you can see why panic alarms were sounding in the halls of the Fed and the Treasury department.

Those nervous foreign investors went charging into US Treasuries for safety more than doubling their previous purchases to $55 billion from the previous month of $20.6 billion. As a matter of fact, foreign purchases of US Treasuries was the highest number that I have on record!

Those same foreign investors increased their purchases of US equities however from $1.1 billion in February to $11.5 billion in March. They also purchased $18.3 billion in US Agency down from $36.9 billion the previous month.

Let’s just say that were it not for US Treasury purchases, one wonders just how lousy these numbers could have been.

The key to watch will be the next month’s release for April, which will reveal whether or not foreigners felt sufficiently convinced that the US monetary authorities’ actions have been appropriate to restore their confidence.

Download the latest TIC data with commentary from Trader Dan Norcini

Similar Posts: