musings from latest TIS ... Not for momo ppl, this is an old school stock, with no debt .. move along.
Sorry .. no charts but reproduced the table by hand. shall we then ? :
SAUDIS THREATEN TO SELL TREASURIES Over the weekend,
Saudi Arabia threatened to sell their Treasury holdings, estimated at $750 billion, if the U.S. government passed a bill which would require disclosure of twenty-eight pages of redacted information in a 9/11 report, as well as allowing the Saudi government to be sued directly by victims’ families. The redacted information, some of which is appearing in the American media already, suggests at least two of the hijackers, located in San Diego, received help from the Saudi consulate there and may have received money, through a third party, from a high Saudi official in Washington.
That the Saudis are already on public record with a threat to sell if disclosure occurs, says a lot. It says even more when the odds of President Obama signing that bill are considered. That is so unlikely to happen, it makes me wonder why the threat was even issued. Then I remembered that the view from Riyadh is that the U.S. has switched sides in the Mideast when Washington did the Iran deal. There may be genuine fear among the Saudis that the U.S. will release the information, some of which on its face, has been known for years. What has not been explained, is why 15 of the 19 hijackers were Saudi and who supported them, financially and logistically, while they were in the U.S. Who did the planning?
It may not be in the U.S.’s interest to pass a law which would allow U.S. citizens to sue foreign governments. At some point the tables may be turned. I can envision thousands of lawsuits being filed against the U.S., for everything from war-related deaths to renditions. I just do not think this bill is a starter, for the U.S. may have far more to lose, than to gain. Having said that, do the Saudis have a good hand to play? Do they have $750 billion in Treasuries to sell?
The next table is U.S. Treasury data which lists holdings by country. What is noticeable is there is a line designated OPEC, but no line which cites Saudi Arabia’s holdings. IF the Saudis hold $750 billion in Treasuries, then the OPEC line must exclude their holdings. If Saudi holdings are included in OPEC’s $290 billion number, then Riyadh would appear to have far less financial flexibility than the market may believe. I do not believe that. The anecdotal evidence suggests from the way they are behaving towards oil pricing, production freezes (or not) and a worldwide hunt to invest their wealth, the number is higher, not lower.
Major Foreign Holders of Treasury Securities
How Long Will Foreigners Continue Buying?
(in billions $)
Country, Jan16, YOY % Change
Netherlands 50.5 36.9%
Spain 37.1 36.9%
Denmark 22.7 33.5%
India 119.8 31.4%
Caribbean Banking Ctrs USD 350.5 28.3%
Ireland 252.2 23.8%
Thailand 39.7 19.2%
Hong Kong 201.6 18.0%
Russia 96.9 17.9%
Switzerland 237.4 15.5%
Germany 80.2 15.2%
Peru 12.5 14.7%
Luxembourg 200.1 13.7%
Chile 28.5 13.1%
Korea 74.2 13.1%
Poland 33.2 12.2%
Italy 36.2 11.4%
Taiwan 183.3 7.4%
UK 223.2 6.7%
Sweden 40.8 6.5%
Philippines 42.6 4.4%
Singapore 113.9 3.8%
Canada 70.7 1.4%
Colombia 36.2 0.8%
OPEC 293 0.8%
China 1237.9 0.1%
Brazil 255.7 0.3%
Australia 32.1 2.7%
Norway 68.1 7.5%
Japan 1123.5 9.3% <------Big Seller
Mexico 69.9 18.5%
France 58.4 22.6%
Israel 18.3 25.6%
Turkey 59.8 27.4%
Kazakhstan 22.6 28.5%
Belgium 137.5 61.2%
All Other 208.8 6.9%
FOREIGN OFFICAL 4093.6 1.0%
TOTAL 6183.1 0.6% (Data Source: Bloomberg LP)
What appears to be the case is Saudi holdings of U.S. Treasuries have been treated as a special case since the 1970s when the Petro-Dollar was born. The true total has not been disclosed. So with the President winging his way to Riyadh later this week, the questions to be answered must be what do they own, do the Saudis really want to sell and could they sell? The last question may be the most important. It is one thing to threaten to swamp a market with new supply. In doing so, the Saudis run the risk of hurting their own positions. It is another thing to be such a large seller that you cannot sell without impairing your own position or to be told by the other side of the trade, you cannot sell.
If I were on the U.S. side of the table, my advice would be to refuse to buyback those Treasuries and let the Saudis think about what prices will be, if they do sell in the open market? Treasuries would not be at today’s price levels and while the U.S. has its own vulnerability to higher U.S. interest rates, the Treasury and the Fed are the best buyers.
Toward the bottom of the Treasury table, there is a line which reads Foreign Official Holdings and it totals about $4 trillion. That number constitutes two-thirds of all Foreign Holdings. Is this where Saudi holdings are “disclosed”?
If they are, and if the Saudis have the ability to convert those Treasuries to cash, then Riyadh’s ability to hold-out on oil pricing is much stronger for longer than the market might have thought. It would explain, in part, why Riyadh’s position hardened at the Doha meetings. They do not need a deal.
I think the de-stabilization of Iran is more important to Riyadh than the price of oil is. Near term, the number of disruptions in oil supplies globally is not something the Saudis can do much about. The Kuwaiti oil workers’ strike took 1.6 million bpd out of the system. Nigeria has a pipeline problem, and in Iraq production is being interrupted. The marginal price setter has become the U.S. shale producer. Meanwhile, Crown Prince Salman has revealed Saudi could raise production another 1 million bpd, immediately.
It may be harder than the Saudis believe to break the Iranian economy, but I think that is the path they are going down. Tehran will not just sit still for this. So while the Mideast may be faced with another massive oversupply problem in a few months, WTI production continues to fall. Watch HYG in the U.S. because it is the energy sector inside the high yield market which could prove troublesome for equities later this year. I am not quite there in terms of calling for oil to re-test the February lows, but the case is building for another leg down in oil prices. Without the production problems in Kuwait, the U.S., Iran and Nigeria, I think prices would be starting lower now.
Oil stuck in the sub $50 price range would accelerate the number of bankruptcies in the U.S. energy patch. A wash-out has been delayed by oil hedges which were in place during 2015, but were uneconomical to renew over the past six months. The casualties will mount now if the Saudis do not relent, reducing production. I am wondering what other topics will come up in Riyadh later this week, aside from the Iran deal which is already going off the rails and the Saudi threat to sell U.S. Treasuries. What if the Saudis hold $1 or $2 or even $3 trillion in Treasuries having accumulated them over 43 years? Who holds the cards then? And what was Iran’s role in 9/11?
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Exciting times ...