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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Is China Betting Against a U.S. Housing Recovery

This just might be chart of the year. Chinese buying of U.S. government agency bonds.

Foreign Buying of US Securities

Data released last week show buying fell off a cliff in September. In fact, China sold a net $26.3 billion in agency bonds during the month.

This is China's largest monthly net sale ever (by far). And could be a sign China is betting against any kind of U.S. housing recovery.

Agency bonds are issued by government entities mainly in the housing finance sector. Such as Freddie Mac and Fannie Mae, both controversial entities during the financial crisis that were eventually bailed out by the government.

As the chart shows, China's been a lot less enthusiastic on agencies since the financial problems of 2008. But it appears Beijing may have suddenly grown even more negative this fall. Are they seeing problems ahead for U.S. housing?

One point of note: this doesn't appear to be an across-the-board bet against America (or the dollar) by China. Chinese purchases of U.S. Treasury bonds came in at a healthy +$10.3 billion in September.

China buying of US Bonds

In fact, Chinese Treasuries purchases have been very strong since the financial crisis. Perhaps the September action represents some portfolio re-balancing from agencies to Treasuries.

Whatever the case, an important data point if you're considering the future of U.S. housing.

By. Dave Forest of Notela Resources


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