TICS Data

One of the more important bits of economic data that gets little media attention is the Treasury International Capital System or TICS data. There is a lot of data in the official report, but the most important bit is the "net foreign purchases of long term securities".

But what does that mean? Very simply, that is the amount of U.S. bonds and equities purchased world-wide minus what was bought by Americans. This is important because of the current-account deficit (or trade deficit) which is running at close to $60 billion per month. To fund that deficit, the U.S. must get the same amount per month back in by selling bonds and equities to foreigners. If not, the currency (the dollar) will have to adjust to make up the difference. This is why currency traders watch this monthly release very closely.

So last month, I was slightly concerned that the TICS data came in at under $20 billion. One month's data isn't anything to worry about, but since last year the amount per month has been only marginally meeting the target. So I thought, "well, wait until next month and see if it corrects itself."

I thought it was a misprint when I saw that August's data (released yesterday) was negative $69.3 billion! In my limited experience, I've never seen a negative number here. So what are the implications? Well, this will put more downward pressure on the dollar, which in turn makes dollar denominated assets look less attractive, which in turn means less foreign inflows of cash. Think of it this way, would you purchase bonds in a currency that you expected to lose ground against your own currency?

We've been hearing for years that a weakening dollar may eventually result in foreigners buying less U.S. assets, which will further weaken the dollar and could start a chain reaction amounting to a run on the dollar. A decade ago, a run on the dollar was a fantasy that no one took seriously. Not only is it no longer a fantasy, but we may be seeing the beginning of it.