Rosenberg: "If China dumps treasuries, US households will buy"

M

makloda

http://zerohedge.blogspot.com/2009/03/view-at-consumer-balance-sheet.html

The following snapshot compliments of David Rosenberg:

* Households own $20.5 trillion of residential real estate, even after the value destruction of the past three years.
* Households own $8.8 trillion of equities, despite the vicious bear market.
* Households own a record $7.7 trillion of deposits and cash – earning next to nothing in yield.
* Households own $4.1 trillion of consumer durable goods.
* Households own $1.6 trillion of corporate bonds.
* Households own $960 billion of municipal securities.
* Households own $920 billion of agency paper.
* Households own $273 billion of treasury notes and bonds.

David's conclusion is that even with China and other traditional foreign purchasers becoming skittish about U.S. debt purchases, it is only a matter of time before the U.S. consumer moves to allocate more and more wealth to this least represented holding.
 
Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

http://globaleconomicanalysis.blogspot.com/2009/01/fed-and-boe-shell-games-to-bailout.html
 
Quote from makloda:

http://zerohedge.blogspot.com/2009/03/view-at-consumer-balance-sheet.html

The following snapshot compliments of David Rosenberg:

* Households own $20.5 trillion of residential real estate, even after the value destruction of the past three years.
* Households own $8.8 trillion of equities, despite the vicious bear market.
* Households own a record $7.7 trillion of deposits and cash – earning next to nothing in yield.
* Households own $4.1 trillion of consumer durable goods.
* Households own $1.6 trillion of corporate bonds.
* Households own $960 billion of municipal securities.
* Households own $920 billion of agency paper.
* Households own $273 billion of treasury notes and bonds.

David's conclusion is that even with China and other traditional foreign purchasers becoming skittish about U.S. debt purchases, it is only a matter of time before the U.S. consumer moves to allocate more and more wealth to this least represented holding.
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Possibly, but it's not obvious. For example, if we have a risky asset revival and the spectre of high inflation rears its ugly head, households might just decide to allocate their cash into equities. Why not such a scenario? USTs have performed massively vs equities, their safe haven status will erode if the Chinese dump, etc, etc.

I think Rosie is making an overly simplistic and somewhat disingenuous point. To me it all depends on how the public opinion regarding asset allocation evolves. For example, will the 'cult of equities' die? Will the view that diversification is the only free lunch in the mkt stay with us or go away? All these questions will matter a lot more than the current allocation weights...
 
In a twisted way, I kind of buy into it. During this rally, I have been moving some 401K stock funds over to Treasuries. I know I'm not the only one.
 
Quote from Martinghoul:

Possibly, but it's not obvious. For example, if we have a risky asset revival and the spectre of high inflation rears its ugly head, households might just decide to allocate their cash into equities. Why not such a scenario? USTs have performed massively vs equities, their safe haven status will erode if the Chinese dump, etc, etc.

I think Rosie is making an overly simplistic and somewhat disingenuous point. To me it all depends on how the public opinion regarding asset allocation evolves. For example, will the 'cult of equities' die? Will the view that diversification is the only free lunch in the mkt stay with us or go away? All these questions will matter a lot more than the current allocation weights...
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Uh, yeah. Other than at CNBC the "cult of equities" IS dead.
 
Never underestimate the "mattress" option.

As this financial fiasco progresses and people see pension funds suffer as well as the current crop of defunct institutions- they will want to be able to smell, touch and see their money. They will not trust institutions, especially not the Federal Gov't.

I stash cash now, not much, but enough. :D
 
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