Is Bill Gross in the House?
Okay, maybe we don't need Mr. PIMCO himself, but surely I can't be the only Fool who feels plainly duped by the wholesale revision to trailing data on foreign holdings of U.S. debt that took place in February. I remember seeing a headline at the time, but only today did I finally return to the data table that I watched so diligently last year, and discover for myself the enormous implications thereof.
Here is the chart:
You'll find two columns labeled 'June 2010', wherein a massive discrepancy appears between previous estimates of foreign holdings and current estimates of same.
Below the table is the note:
New series reflect new benchmark survey taken in this month. Estimated positions based on the previous survey are shown for comparison.
What is a Fool reasonably to make of such a data series? Back in August of 2010, I remarked upon China's steady reductions in U.S. debt exposure from June 2009 through June 2010; only to find that the June 2010 figure has been restated higher by 32% to $1.11 trillion from $844 billion! Since data prior to June 2010 has not been similarly restated, are we as investors / concerned citizens left with no meaningful ability to interpret trailing data or broad trends in foreign ownership of our debt?
That would certainly appear to be the case.
Does anyone have any specific background information on precisely what is meant by "new benchmark survey" in the context of the above note? The word benchmark suggests that a new reference point has been established by which subsequent data will be measured, so clearly my prior assumption that the table reported actual tallied figures was totally misplaced. Silly me! If anyone has specific knowledge of the Treasury's reporting system and how it operates, I would appreciate further insight on the matter.
Digging around a bit, I found where one blogger posted an excerpt from the May 1998 issue of Current Issues in Economics and Finance: Knowing exactly which foreigners own specific amounts of U.S. Treasury debt in a global market of about $3.4 trillion in outstanding issues, however, is simply not possible. This inability to identify the ultimate foreign owners of Treasury securities does not reflect a lack of effort by the U.S. government to collect data on the foreign ownership of its debt. Nor is it the result of any governmental unwillingness to make data available to the public. Rather, the inability of both policymakers and private sector analysts to determine with full accuracy the foreign ownership of U.S. Treasury debt—whether held by private or official investors—stems not only from the Treasury Department’s obligation to respect the confidentiality of individual respondents but also from the nature of the reporting requirements themselves.
Procedural issues aside, there's a bottom line:
Which is it? Did China hold $843.7 billion in U.S. debt in June 2010, or did it hold $1.112 trillion? Did the UK hold $363.6 billion as stated in the "old series", or a revised $94.5 billion as stated in the "new series" (74% less than the previously reported figure!!). I think it's fair to say that the scale of the divide between those figures as reported by our government's Treasury Department are sufficient to warrant our full attention.
Via Reuters, one analyst addressed the glaring nature of the discrepancies for China and the UK, in particular, with the following intrepretation: "This provides the most substantive evidence to what has been previously suspected -- that China has been increasingly transacting through the U.K.," said Alan Ruskin, global had of G10 foreign exchange strategy at Deutsche Bank in New York.
Does that explanation sit well with you Fools? Is it truly plausible that Treasury could have had so dismal an understanding of the UK's real-world holdings of US debt as to place its stamp of approval on a $363.6 billion figure, only to discover months later that it held only $94.5 billion? C'mon guys, you've fooled us more than once, and you know how the saying goes. Shame on me.
I always aim to take government-reported data with a boulder-sized grain of salt, but this is beyond ridiculous. It's clear to me after observing the revisions that the data is nearly devoid of all utility. Next to the UK data, where is the note that concedes: "actual figures may differ from those reported by plus or minus 74%"!!?!!?? Silly Fools like me who checked the table every month last year looking for signs of fatigue in Chinese demand for Treasuries can now be said to have done nothing more than WASTE THEIR TIME, since sequential changes to monthly data paled in comparison to the now-clear margin of error, and so at their core these numbers must now be perceived in their proper context: as fiction.