TICS Data

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!"

Bad Day All Around

Pick your poison today. Dow down 360 points. Oil close to $100. Gold up well above $800. But if you ask me, the real problem is the dollar.

The dollar has now reached its record low against all major currencies on the news that China wants to diversify its assets away from the greenback. Have a look at this chart....

So Bernanke's double dip on rate cuts is starting to have its effect, although I'm not sure this is the one he intended. Meanwhile Treasury Secretary Paulson continues to talk about America's strong dollar policy. His credibility is just about shot at this point.

Meanwhile, the largest insurance company in the world, AIG, lost over 7% of its value today which seems to confirm that the subprime mortgage crisis is not "well contained." Citibank wrote down about $38 billion in assets that were overvalued (read subprime) and this indicates that other write-downs are on the horizon. Moody's also downgraded major SIVs further pressuring the credit markets. Furthermore, Mario Cuomo, the NY DA has filed subpoenas on Freddie Mac and Fanny Mae regarding possible collusion with Washington Mutual in overvaluing asset backed securities.

I think we are still at the beginning. This is going to get worse.

The drastic drop in the dollar (which most analysts say are will continue) is going to make it even less likely that the TICS data is going to bounce back. Translation: as the dollar continues to drop, more and more people will refuse to put their money into dollar denominated assets. Hell, even a typical model knows better than that.

The upside? Christmas shopping in the US with foreign currency. Whoo Hoo!

Postscript: Did I say Citibank wrote down $38 billion? Sorry, that was a few days ago. Today it was GM.