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In the spirit of being transparent about our research process, I have decided to start showing more of the back and forth we have within our exclusive idea generating network. We have some very bright people who are transparent enough to tell us when they disagree with us and why. We are grateful for their trust. Hedgeye’s goal isn’t to be inflexible. It’s simply to be right.

On the topic of China selling Treasuries, this is what I wrote in the Early Look yesterday:

All the while, the Chinese are selling Treasury debt to the masses of people who are punch drunk at this global debt rock concert. Just plow it into whoever’s 401k that will take it as the Chinese sell it right back down our Congressional wind pipe.


China selling? Oh, no – they’d never do that, would they? I’ve said this enough times to be as annoying as Chris Dodd telling you he has it figured out this time, but please, for the sake of sobriety – please watch what the Chinese do versus what they say.

 

China was a net seller of US Treasuries for the 3rd consecutive month in January, selling another $5.8B net and taking its balance of America’s debt holdings down to $889 Billion.

 

That’s another $889 Billion reasons to ignore the reality that you can just “take me now but know the truth.” If we anger The Client (China) enough, rates are going a lot higher than your “exceptional and extended” Congressman’s sense of self is telling you.

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Here was a response and ensuing debate between Hedgeye and a major Fixed Income PM from Massachusetts:

1. It is factually incorrect that they sold...they can buy out of London. Also, they extended out the curve to coupon bearing bonds instead of discount notes. A few months back the TIC data said they sold...but when more info came out, it turns out they were still the biggest net buyer....
most likely same thing happened here.

 

Hedgeye: Are you suggesting that its factually correct that they didn’t sell?

2. I am suggesting that other reports show they didn't.

 

Hedgeye: Well it sounds like no one can say, factually, that they didn’t sell – so I am going to go with what I see them doing every day, which is giving America the bird and reducing risk to her compromised financial system.

3. I’ll find where in report and send it to u when I get a chance. It is buried in the TIC data…

 

Hedgeye: ok, thanks - we looked there and didn’t come to the same conclusion, but this isn’t crystal clear and we may have missed something.

4. Let me revise...it is NOT factually wrong that the Chinese have sold. Net net it appears as though they have, although they could have purchases through UK custodian. there is no way of knowing who is buying all the USTs through UK custodian.

On the other hand, they have net added coupon bonds (us treasuries, as opposed to us bills) to the same tune as they have been buying for a while.

bills expiry > ust treasury buying = net "selling" that is apparent on the report (without being able to adjust for the potential to buy through UK custodian).

hope this helps.

Hedgeye: this is very helpful - thanks for taking the time to flag this. We need to do more work here and we will be back to you with anything incremental.

Keith R. McCullough
Chief Executive Officer