C.M.O. 3.1.2010
Credit Market Overview
March 1, 2010
Jef I. Richards holds a Ph.D. in Mass Communication from the University of Wisconsin, a J.D. from Indiana University, a B.S. in Photography from the Rochester Institute of Technology and an A.A.S. from the same school in the same discipline. A learned man by most standards but someone who might have stayed off the radar had he not he said two words that have resonated through all forms of media since they were uttered. Those two words? “Sex sells”.
In all fairness to the good professor, and to my own journalistic integrity Dr. Richards actually said “In advertising, sex sells. But only if you’re selling sex.”
Without getting too far off topic this morning; given all the advertising we are bombarded with each day, all I will say with regards to the qualifying portion of Jef i.’s quote is that there must be a lot of sex for sale because there is an awful lot innuendo broadcast in every form of media.
Of a bit more relevance, hopefully, is the equivalent of the “sex sells” modus operandi in the news. A headline alerting of present or possible crisis goes much further in grabbing out attention, and our dollars, than one proclaiming all is right with the world. A recent example of this has to do with the United States’ relationship with China.
On February 17th my favorite newspaper the Wall Street Journal (seriously), took a third of page A8 for an article describing how China sold a record amount of its U.S. Treasury holdings which resulted in the Middle Kingdom ceding the title of Uncle Sam’s largest foreign holder of his debt to Japan. China, it was reported, sold $34BN Treasuries bringing its holdings to $755.4BN. That number was slightly less than the $768.8BN reportedly held by those from the Land of the Rising Sun and the first time there was a lead change since August of 2008.
This news helped stoke fears that China was moving beyond rhetoric in its displeasure with the United States for the $6.4BN worth of arms sold to Taiwan as well as President Obama’s meeting with the Dalai Lama, the Tibetan spiritual leader whom the Beijing denounces as a separatist for his efforts to win greater autonomy for the Himalayan region. Secretary of State Hillary Clinton was to meet with His Holiness on Thursday although I am not sure how that was viewed by Beijing.
Adding a little fuel to the fire, China announced a day later that Zhang Yesui, originally a vice minister for China’s Ministry of Foreign Affairs, who then went on to become the head of China’s United Nations Mission, would become the new ambassador to the U.S., putting a non-U.S. specialist in the post.
Not to be lost in any of this is the pressure the U.S. has been putting on China to allow the Yuan to float as the view from Pennsylvania Avenue is that the currency is under valued. Towards this end a White House official said, “We expect to see actions by China” to help rebalance global trade flows, adding that ‘if Beijing fails to act, that “will put greater and greater pressure on the U.S. to respond’”. Nice way to speak to your ex-biggest customer!
In total the amount of newsprint allocated to describing the tensions between the two nations was, by rough count, about 1¾ pages. A reasonable amount when considering everyone’s focus on costs these days and the amount by which add spending is down.
Where it gets interesting is that this past weekend in the “World Watch” section of the Saturday edition of the WSJ there was a small piece, about 20 lines, saying that no such lead change had occurred and the China was still in 1st place on the holders lists for Uncle Sam’s I.O.U.’s. The Treasury department, it seems, needed a little extra time to count all of China’s holdings which Geithner & Co. now say equal $894.8BN.
Was it much ado about nothing or does China believe that to really hold Uncle Sam’s feet to the fire they have to be on top of the league tables?
Sovereign CDS for China closed at 76bps on Friday off of a near term peak of 91bps on 2/8. The 90-91bps level has proven considerable resistance has it has not been meaningfully broken since May of 2009 when the CDS entered the 91bps-58bps range from much higher levels.
The CDS for the U.S. has come off of a peak of 63bps on 2/8 and closed on Friday at 46bps. Leading up to the 2/8 high there was a spike to 42bps so that might provide some unwanted support. Having said that the 48bps spike hit last May did not impede the current move lower’s progress so if things continue to calm down on the sovereign stage there could be continued progress lower.
Enjoy the week.
Jim Delaney
