Wall Street set to open lower on China report

So, is the bubble finally going to burst?

Wall Street set to open lower on China report

Jan 10, 2018 at 7:56 AM CST

Wall Street was set to open sharply lower on Wednesday as investors were spooked by a report that China is considering slowing or halting purchases of U.S. government debt.

The dollar dropped more than half a percent against a basket of currencies, while long-dated Treasury yields hit fresh 10-month highs after the Bloomberg report said the U.S. bond market was becoming less attractive for Beijing.

"The futures are indicating a nasty opening as climbing yields awaken investors to a possible meltdown in the government bond market," Peter Cardillo, chief market economist at First Standard Financial in New York, wrote in a client note.

If losses hold until markets open, the Dow would open in the red for the first time in 2018.

"For a market that was probably looking for reason to take a pause, it's not unreasonable to use today's rise in yield as a catalyst," said Art Hogan, chief market strategist at B. Riley FBR in Boston.

https://www.reuters.com/article/us-usa-stocks/wall-street-set-to-open-lo...

Is the great unraveling about to begin?

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Amanda Matthews's picture

Dollar suffers big drop after report China may halt bond buys

LONDON (Reuters) - The U.S. dollar slumped on Wednesday after a report that China was ready to slow or halt its U.S. treasury purchases, with the greenback posting its biggest single-day drop against the Japanese yen in nearly eight months.

Officials reviewing China’s foreign-exchange holdings have recommended slowing or halting purchases of U.S. Treasuries, Bloomberg News reported, citing people familiar with the matter.

The dollar had been on the back foot before the news report as the Bank of Japan’s move to trim its purchases of long-dated government bonds (JGB) earlier this week reverberated across currency markets.

The dollar’s biggest losses were against the Japanese yen, falling more than 1.2 percent to a six-week low of 111.3, its weakest since late November.

“If the [largest] foreign holder of U.S. Treasuries were to suddenly stop, that would cause a problem,” said MUFG chief macro strategist Derek Halpenny, in London, referring to China. “The dollar needs to weaken to a level that attracts buyers back to the U.S.”

The dollar’s biggest losses were against the Japanese yen, falling more than 1.2 percent to a six-week low of 111.3, its weakest since late November.

https://www.reuters.com/article/uk-global-forex/dollar-suffers-big-drop-...

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I'm tired of this back-slapping "Isn't humanity neat?" bullshit. We're a virus with shoes, okay? That's all we are. - Bill Hicks

Politics is the entertainment branch of industry. - Frank Zappa

ggersh's picture

@Amanda Matthews tptb, WS/DC just don't know it.

What China is doing only confirms that.

That's my $0.02

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“We now live in a nation where doctors destroy health, lawyers destroy justice, universities destroy knowledge, governments destroy freedom, the press destroys information, religion destroys morals, and our banks destroy the economy”

Chris Hedges

orlbucfan's picture

Rec'd!!

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Some yahoos make me want to change species!

[posted this last year at JPR as part of a longer article. Seems timely today]

When Wall Street melted down in Q3 2008, the Federal Reserve had barely $1.2 Trillion in reserves, almost all in the form of Treasury Bonds. Many of these securities were immediately sold off by member banks to retain liquidity, replaced by various “liquidity facilities” attached to the $850 billion taxpayer Wall Street Bailout and Stimulus. The bailout of AIG and others is indicated in the little green blip on Graph A, below. What followed, as shown in Federal Reserve Balance Sheets, is a much larger intervention that has been largely unremarked upon. That is the red line, which represents the enormous rise in the Fed’s holdings of T-bonds. These are counted as the assets of the Federal Reserve, even though they are really government debt issues. Remarkable in itself, the enormous growth of the Fed’s reserves shows change in the ownership of the US central bank that is more than quantitative. The red line and the line in Illustration B that follows show that after the wreckage of the Wall Street Collapse, someone, other than the U.S. Gov’t and other than U.S. institutions, moved in and scooped up $2 trillion in marketable U.S. Treasury securities. Those were foreign states and entities, detailed in Graphs C-E, who hold those bonds that now control the assets of the U.S. Federal Reserve. Those who own the assets generally control the institution.

After decades of insider bank and investment fund looting, the Fed’s reserves in 2008 were entirely inadequate in the face of cascading failures of over-leveraged banks and big financial funds held together with junk options, making the American banking system in 2008 what was charitably referred to as “fragile.” When the Lehman Brothers investment house and the Merrill Lynch brokerage went bust in September, and AIG with its trillions in derivatives threatened bankruptcy, most of the big U.S. banks almost went down with them. They would have, had the federal government not borrowed trillions of dollars to cover the Wall Street bailout and the recapitalization of the Federal Reserve. In fact, the $700B TARP program authorized by Congress was only a small fraction of the true scale of the bailout. According to a 2015 study, the Fed’s bailout to 170 banks through its internal lending facilities, the Term Auction Facility (TAF), actually amounted to 11 times the amount authorized. Furthermore, the biggest banks that were the recipients of TAF funds netted $13 billion off of these near-zero interest short-term loans. This Uber-bailout was unknown to Congress, the White House, and the public – the complete picture was withheld for years: https://www.bloomberg.com/news/articles/2011-11-28/secret-fed-loans-undi...

In fact, $7.7 trillion of the secret emergency lending was only disclosed to the public after Congress forced a one-time audit of the Federal Reserve in November of 2011. After the audit the public found out the bailout was in trillions not billions; and that there were no requirements attached to the bailout money – the banks could use it for any purpose.

What has still not been discussed is how the Fed covered its lending of that scale — seven times its reported 2008 reserves — and what was the source of those funds. All that borrowing had to come from somewhere, and someone will have to pay it back, with interest.
If things continue under the existing rules, the pay back comes from out of the pockets of you and me, and our kids, not from those who caused and continue to profit from this game of upward and outward income transfer. Public debt has to be repaid by individuals, most of whom are middle-income. But, nothing and nobody is inevitable. The payback in the end — only if we play our cards right and organize an alternative to Radical Center politics — may eventually bring accountability and a reordering of the costs and the benefits of government under new management.

Illustration A – Fed Reserve Balance Sheet (2007-17)

Two trillion dollars came from the only people on earth who had sizable surpluses – primarily China, Japan and the Arab oil exporting states. Here’s the next thing that few Americans know, and both political parties and the corporate media don’t talk about – today, more than $3 trillion of the Federal Reserve’s holdings of government securities of $4.2 T are being held by the Fed in custody for foreign official and foreign-owned accounts. Almost the entire growth of the Federal Reserve since 2008 has been due to the growth of foreign official and international accounts. That means that the upside of the “uneven recovery,” as well, has been due primarily to a buying spree of assets and companies with money from abroad, a phenomenon that can be again quickly cut off. Indeed, there are some signs that it is – at least warning shots across the bow by some unhappy foreign buyers. See, illustrations C, D and E, below.
Those foreign-held Fed accounts grew steeply from 2009 before leveling off in 2012, but virtually all of the stabilizing growth of the Federal Reserve has been due to an infusion of foreign funding, or more accurately, purchases of US debt, mostly in the form of freshly-issued 15 year U.S. Treasury Bonds. https://fred.stlouisfed.org/series/WMTSECL1
Illustration B – Fed Reserve Securities Held for Foreign Official and Int’l Accounts

Today, the Fed is virtually owned by foreign banks and sovereign wealth funds. The US economy was bailed out from abroad, and you can bet there are strings attached. The biggest recorded purchaser has been China (which masks some of its buys through Belgium.) Not surprisingly, China which is going through a foreign earnings slump has dumped a sizable amount of its holdings since mid-2016, and a lot more since Trump was elected.

- MORE - https://jackpineradicals.com/boards/topic/a-simple-explanation-for-why-t...

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Meteor Man's picture

Two more financial meltdown stories:

SEC Halts Trading in my Biggest “Blockchain Stock” Hero

https://wolfstreet.com/2018/01/09/sec-halts-trading-ubia-my-biggest-bloc...

Chap. 11 Bankruptcies Spike 107% from Year Ago:
What caused the biggest jump since the Financial Crisis?

https://wolfstreet.com/2018/01/08/chap-11-bankruptcies-spike-107-from-ye...

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"They'll say we're disturbing the peace, but there is no peace. What really bothers them is that we are disturbing the war." Howard Zinn

Dhyerwolf's picture

Wall Street has already shaken off most of their distress and most of this morning's drop has been erased.

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