Prague Twin

Friday, November 16, 2007


Last month I reported on the "TICS" data, otherwise known as net foreign purchases (of domestic assets). So just quickly, because of the trade deficit (averaging about $57 billion per month) it is necessary that there are net positive cash inflows to make up the differences. Essentially, we need foreigners to buy stocks, property, t-bills, and the like in roughly the same amount as our trade deficit. Anything that Americans take out of the country of course counts against that total (which is why we say NET foreign purchases). If not, the currency suffers.

So as an FX enthusiast, I watch this data. I don't know why it is largely ignored, because it is a crucial bit of information. I suspect that if this trend continues, we will be hearing more about it.

Two months ago, July's data revealed a shortfall. Only $17 billion net. Analysts expected a rebound as this data is usually pretty volatile (I've seen months well over $100 billion) but instead the Treasury reported -$69.3 billion. Since it had been just about level going into that month, we were looking at about $100 billion shortfall, and the dollar has been suffering in part due to that.

Today, September's report was released. Analysts expected $66 billion, which would cover September's trade deficit, but not much more. Want to guess what the real number is? -$26.4 billion.

The dollar is down sharply on the news. No one on CNBC has even mentioned it.

I remember last year when I was obsessed with the looming mortgage crisis and my conservative friends called me chicken little. Well, I think we will be hearing about this in the coming months.

People seem to be saying, "if Bernanke wants to debase the dollar, fine, but not with my money!"

Labels: , ,


  • can I add you to my blogroll- do you mind ?

    By Blogger enigma4ever, at 12:11 AM  

  • Go ahead, I'll return the favor.


    By Blogger Praguetwin, at 12:14 AM  

  • praguetwin, the mortgage and foreclosure problem is still largely a media myth.

    Though it may be true that foreclosures are occurring at an historically high rate, so too was the real estate speculation that brought many buyers into this asset class.

    Meanwhile, a meaningful percentage of foreclosures are occurring due to the foolishness of the borrowers. Not misdeeds by lenders.

    It is beyond ridiculous to think that lenders are in business to make loans to people who will default. That's how you go out of business and become the defendant in huge lawsuits while you face criminal prosecution.

    Perhaps there are cases of fraud, but the vast majority of problems follow from the normal human desire of people to make money through leveraged investments.

    However, if some of those people extracted equity from their appreciated real estate assets, and spent that money on frivolous purchases, well, don't blame the lender.

    Or if borrowers lied about their income or took loans that did not require income verification, well, don't blame the lenders. Taking risks is a way of life. Some will fail with borrowed money.

    Even Donald Trump has filed for bankruptcy via his casino properties -- twice. He lost his huge yacht, he lost the Plaza Hotel, he lost his Trump Shuttle airline and undoubtedly other properties I cannot recall at the moment. Big deal.

    By Blogger no_slappz, at 5:24 PM  

  • no_slappz,

    Well, you didn't even believe that it was a looming problem last year, I wouldn't expect you to see it as a problem now.

    But the post was about TICS and capital flight.

    My point is I'm about a year ahead of the media.... again.

    By Blogger Praguetwin, at 6:02 PM  

Post a Comment

<< Home