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Why is HUD Guy in China, Hat in Hand?

Bloomberg is reporting today that US Housing Secretary Al Jackson (no relation to Michael, or Reggie, as far as I know) is over in China begging the Chinese to buy our Agency paper– Fannie, Freddie and Ginnie et. al. I don’t get it. Foreign Central banks already own half of this dogshit, and at their current rate of accumulation will own all of it within a few years.

Foreign central banks currently hold $745 billion of Agency Paper (Fannie, Freddie, and some Ginnie, I suppose) in custody at the Fed. That’s 52% of Fannie and Freddie debt outstanding. Who knows, perhaps they hold more elsewhere.

They bought $4 billion last week, and over $500 billion since Fannie admitted its problems in October 2004. They are currently growing their Agency holdings at the rate of nearly 16% quarterly. At this rate it won’t take long to own it all. Makes you wonder what the heck their game plan is when a big chunk of it floats to the surface with a dead smell.

The idea that the People Bank of China or the BoJ should be buying more of this stuff is just preposterous. They’re already buying it by the boatload.Furthermore, this is not a new idea. It’s almost 3 years old.

I first pointed out this sub rosa bailout back in late 2004 before anyone else was on to it. At that time, I was among the first to illustrate the correlation of and the critical importance of foreign central bank accumulation of Treasuries and Agencies to the US markets.

I continue to track, analyze, and chart these buying patterns and their correlation to US stock prices, every day in the Wall Street Examiner Professional Edition Fed Report. The current analysis including the data released by the Fed last night will be in today’s report to be released for subscribers later this morning.

Anyway, in light of all this, the fact that Al Jackson is in Beijing, hat in hand, seems all the more bizarre and scary.

The Bloomberg piece

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4 Comments

  1. FranSix

    One thing is for sure the mortgage industry doesn’t own all of the tea in China. But the Chinese might wind up owning all of the houses in the U.S. I guess you would have to ask what would the top management of a company be doing when they make a special trip to address the bondholders?

    Explain the subprime debacle, or perhaps discuss the merger of the various flailing entities?

  2. Andy

    Russ referenced $16 billion in FCB purchases of US Old Maid Cards this week and you reference $4 billion last week. Are we really talking $20 billion in Agency paper in the last two weeks?

  3. Lee Adler

    Actually, I was referring to the same data Russ was. It’s this week through Wednesday. The total was indeed $16 billion. $4.3 billion in Agencies and $11.7 billion in Treasuries. Sorry for the confusion.

    By the way, they were actually laying off the GSE paper in the two prior weeks, so I thought, maybe, just maybe they were beginning to re-evaluate. But over the last 13 weeks the quarterly rate of accumulation reached 15.6%. Somebody, please annualize that. It makes me too dizzy.

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