7 ms·

U.S. Discloses Saudi Holdings of Treasuries for First Time

53 points by aburan28 10y ago

Aelinsaar 10y ago
I would not want to be holding US debt, this election cycle.
- flubert 10y ago
  What manner are you short Treasuries? Any recommendations?
- toomuchtodo 10y ago
  Can you name a safer financial instrument than US debt? Its definitely not fiat currency nor metals (incl. gold).
  - dragonwriter 10y ago
    > Can you name a safer financial instrument than US debt? Its definitely not fiat currency I dunno. I mean, US government debt is conceptually subject to both US monetary risks (the same as US dollars) and US government fiscal risks, so US government (dollar-denominated) debt must always be (even if only infinitesimally) less safe than at least one fiat currency, to wit, the US dollar.
    - brianwawok 10y ago
      In what case would tbonds go down but not the dollar?
  - eru 10y ago
    Depends on what risks you are looking for. Singapore debt might be in sounder management, but of course the country is smaller; so more of a playball.
    - d_t_w 10y ago
      Gilts have historically been there-or-thereabouts in terms of interest rate with respect to US Bonds. Certainly in the last decade they are near indistinguishable. https://bankunderground.co.uk/2015/08/28/the-special-relationship-uk-and-us-bond-yields/ https://bankunderground.co.uk/2015/08/28/the-special-relatio...
- hueving 10y ago
  If you think you know something about the value of treasuries in the future there is a fortune for you to make in the financial market.
  - dragonwriter 10y ago
    > If you think you know something about the value of treasuries in the future there is a fortune for you to make in the financial market. No, if you actually know something about the value of treasuries in the future, there is a fortune for you to make in the financial market. If you merely think you know something about the value of treasuries in the future, that's a different story. But, anyway, the grandparent post wasn't expressing knowing something about the value of treasuries in the future, they were expressing a perception of risk, which is exactly the opposite.
    - eru 10y ago
      Oh, if you know that risk is going up, you can buy (long term) credit default protection now, and sell it once the market recognizes the risk, too. (You don't need an actual default for the credit default protection to appreciate in value, just more of a perception that the risk of a default has gone up.)
      - fiatmoney 10y ago
        Buying credit default swaps on US treasuries is like buying suntan lotion in anticipation of a nuclear attack. No counterparty can credibly insure such an event & the money you would make in a cash-up-front variant would be incredibly likely to become worthless.
        eru 10y ago
        Oh, I don't suggest holding to maturity. I suggest selling when the market's perception of risk has crept up to the level one feels justified by fundamentals. See also http://www.bloomberg.com/view/articles/2013-09-26/why-would-anyone-buy-credit-default-swaps-on-the-u-s- http://www.bloomberg.com/view/articles/2013-09-26/why-would-...
kafkaesq 10y ago
Utterly fascinating, both that this "special arrangement" has existed and has been kept out of general public awareness throughout all this time. Brought into context with the otherwise inexplicable tolerance for that regime's egregious human rights abuses, and the "delicateness" with which it was handled during the 9/11 investigations (extended the fact that its key people were allowed to slip out of the country in the immediate aftermath, despite a nation-wide travel ban on everyone else) -- it all starts to make sense. Not in any tinfoil kind of way. But in a more banal, mundane, "Why do we keep kissing this bloodthirsty, homophobic, misogynist and utterly decrepit regime's ass, for decade after decade?" kind of way. The U.S. started releasing data on foreign ownership of Treasuries in 1974. Since then, the Treasury’s policy had been to not disclose Saudi holdings, and it grouped them instead with those of 14 other mostly OPEC nations, including Kuwait, Nigeria and the United Arab Emirates, Bloomberg reported in January. The group held $281 billion as of February, down from a record of $298.4 billion in July. For more than a hundred other countries, from China to the Vatican, the Treasury had provided a detailed monthly breakdown of how much U.S. debt each owns. The figures for March are scheduled for release at 4 p.m. New York time Monday. The special arrangement was a product of the 1973 oil shock following the Arab embargo. It’s among concessions that U.S. administrations made over the years to maintain America’s strategic relationship with the Saudi royal family and access to the kingdom’s oil reserves.
- peteretep 10y ago
  Kissing their ass suggests they're getting more from the relationship than America which - while certainly not impossible - seems an odd assumption to make.
- ArkyBeagle 10y ago
  We seem to have two impulses: - Hold up a higher standard to nations and feel somehow entitled/obligated to "enforce" it. - Attribute such deviations from those standards to "culture". I'm not sure which is worse. Nation-states sort of don't judge other nation-states in that way. The US has been ... innovative in that, and it's been no end of trouble. Why Pearl Harbor? Because the US embargoed Japan after the Rape of Nanking. And that ended well... Maybe its changed since '73 but the "access to the kingdom's oil reserves" seems hollow, since my understanding is that there is a small army of engineers and workers who rotate in and out of Saudi to maintain the fields and other infrastructure. Second, there is that Dilbert cartoon about the meaning of "fungible" w.r.t oil. The '73 embargo was at least in part a reaction to the Six-Day War in '67 so it seems typically Kissingerian to pursue a balance of power rapprochement with one of the the seats of opposition to our friendly relations with Israel. The US also ... sort of "inherited" the British Empire after WWII, and Saudi was very much a part of the actions of those within the Empire. Again, I can't recommend "A Peace To End All Peace" enoughly.
marcosdumay 10y ago
US$120G does not put their reserves bellow China, Japan, Brazil, and Russia? How is it the 3rd?
fredgrott 10y ago
Here is the interesting thing, why now? Let me give you a hint....what resource do Saudi's loose in the next 5 to 10 years? Give up? Its the next thing to reach $100 per barrel..at least in several parts of the Middle East Okay okay okay...Water, specifically the water table Saudi has relied upon for so long will be gone.
- dmfdmf 10y ago
  Interesting side note. In a previous life back in the 90's, I worked in the (civilian) nuclear power industry. I came across some old company reports from the 80's for selling nuclear reactors to Saudi Arabia for desalination and not electrical power generation. I asked my boss about it because he was around at the time and he said the Saudis were serious but the numbers just didn't work out. I think the main problem was fouling of the tubes used to boil off the water leaving behind all sorts of dissolved mineral and salt deposits. Chronic cleaning or replacing the tubes killed the economics.
secfirstmd 10y ago
This is yet another fascinating step in the disenagement of the US from Saudi Arabia (pity it took so long to happen). Drip by drip stories are emerging which are preparing for it. The Saudi 9/11 pages in the report. Diplomatic spats etc. It's fascinating to watch such a deal with the devil break down. The long term natural ally for US in the Middle East is Iran. It seems the Washington establishment knows this.
- partiallypro 10y ago
  Just because we made a deal with Iran doesn't mean they are our ally, and I'd hardly call them our "natural" ally; their regime is only marginally less bad on human rights than Saudi Arabia. Iran still funds terror groups, much like Saudi Arabia. They are just part of two different tribes and despise one another. Really the U.S. mission should be to do whatever it takes to prevent Saudi Arabia and Iran from going to war. They are already in a proxy war in several locations, Iraq and Syria being the two largest. I think that's what people in Washington know, has nothing to do with being their ally and everything to do with stopping an implosion. If Iran got a nuke, it's not likely they would give it to a terror group (from what I see) it's just incredibly likely that it will push Saudi Arabia to get one too and then we'll have quite the situation on our hands.
  - avn2109 10y ago
    Before the Iranian revolution, Iran under the Shah was the USA's staunchest regional ally. And before that, the British and Russians spent centuries wrestling over influence inside Iran. There are sound geopolitical reasons to court Iranian friendship, and undoubtedly the days of Anglo-Persian cooperation will someday return. Though perhaps after regime change.
    - GFK_of_xmaspast 10y ago
      I don't see the regime in London changing anytime soon.
    - JumpCrisscross 10y ago
dharma1 10y ago
My guess is they will reduce those holdings - they have a large budget deficit they need to cover, before it bankrupts them. Defense and fuel subsidies make a large part of that deficit. For a country of 30 million people with a lot of sun, I find it crazy they produce most of their electricity with oil and are the 6th largest oil consumer in the world. Much of that is simply wasted through inefficient power plants and AC. Would do them well to use their foreign reserves (while they still have them) to cover their energy needs by building solar.
- brianwawok 10y ago
  Oil is $1 a barrel for them. I bet solar is 40x the price per MW.
  - chillacy 10y ago
    But if it would have sold for $50 a barrel, that's $49 in lost revenue (ignoring supply/demand curves shifting). They could have used that $49/barrel to buy some solar panels and (maybe) come out energy even in however many years.
    - beagle3 10y ago
      The $50 includes transportation, storage and other costs. It's more like "use it for $1 or earn $20". Also, they are selling as much they can right now; so it's not like they are leaving money on the table.
    - brianwawok 10y ago
      But they can't sell anymore! Supply currently exceeding demand. If they put 1 million more barrels of oil a day on the public market, prices go down by Y, making the net gain of that 1 million barrels low (maybe negative, but if not at least close). So if market has demand for you to sell 10 million barrels of oil a day, but you have capacity to pump 20 million... you found a way to basically have "free" energy by burning some oil. Yes it shortens the length of your oil reserve and yes it kills the environment, but in the short term it is the best option. Most people/countries make decisions in the short term. So to me it is very logical that the middle east burns oil for electricity, nowhere near a "duh why not use solar" moment.
sehugg 10y ago
They sure bankrolled the heck out of the Iraq War, didn't they? To the tune of around $80 billion starting in 2003.
c-slice 10y ago
This calls Saudi Arabi's bluff. Just a few weeks ago they threatened to sell all their US treasuries and some speculated that they held much larger ownership in US treasuries. They claimed to hold up to $750 billion in US treasuries. http://www.nytimes.com/2016/04/16/world/middleeast/saudi-arabia-warns-ofeconomic-fallout-if-congress-passes-9-11-bill.html http://www.nytimes.com/2016/04/16/world/middleeast/saudi-ara...

53 points by aburan28 10y ago

Aelinsaar 10y ago

I would not want to be holding US debt, this election cycle.

flubert 10y ago
What manner are you short Treasuries? Any recommendations?
toomuchtodo 10y ago
Can you name a safer financial instrument than US debt? Its definitely not fiat currency nor metals (incl. gold).
- dragonwriter 10y ago
  > Can you name a safer financial instrument than US debt? Its definitely not fiat currency I dunno. I mean, US government debt is conceptually subject to both US monetary risks (the same as US dollars) and US government fiscal risks, so US government (dollar-denominated) debt must always be (even if only infinitesimally) less safe than at least one fiat currency, to wit, the US dollar.
  - brianwawok 10y ago
    In what case would tbonds go down but not the dollar?
- eru 10y ago
  Depends on what risks you are looking for. Singapore debt might be in sounder management, but of course the country is smaller; so more of a playball.
  - d_t_w 10y ago
    Gilts have historically been there-or-thereabouts in terms of interest rate with respect to US Bonds. Certainly in the last decade they are near indistinguishable. https://bankunderground.co.uk/2015/08/28/the-special-relationship-uk-and-us-bond-yields/ https://bankunderground.co.uk/2015/08/28/the-special-relatio...
hueving 10y ago
If you think you know something about the value of treasuries in the future there is a fortune for you to make in the financial market.
- dragonwriter 10y ago
  > If you think you know something about the value of treasuries in the future there is a fortune for you to make in the financial market. No, if you actually know something about the value of treasuries in the future, there is a fortune for you to make in the financial market. If you merely think you know something about the value of treasuries in the future, that's a different story. But, anyway, the grandparent post wasn't expressing knowing something about the value of treasuries in the future, they were expressing a perception of risk, which is exactly the opposite.
  - eru 10y ago
    Oh, if you know that risk is going up, you can buy (long term) credit default protection now, and sell it once the market recognizes the risk, too. (You don't need an actual default for the credit default protection to appreciate in value, just more of a perception that the risk of a default has gone up.)
    - fiatmoney 10y ago
      Buying credit default swaps on US treasuries is like buying suntan lotion in anticipation of a nuclear attack. No counterparty can credibly insure such an event & the money you would make in a cash-up-front variant would be incredibly likely to become worthless.
      - eru 10y ago
        Oh, I don't suggest holding to maturity. I suggest selling when the market's perception of risk has crept up to the level one feels justified by fundamentals. See also http://www.bloomberg.com/view/articles/2013-09-26/why-would-anyone-buy-credit-default-swaps-on-the-u-s- http://www.bloomberg.com/view/articles/2013-09-26/why-would-...

kafkaesq 10y ago

Utterly fascinating, both that this "special arrangement" has existed and has been kept out of general public awareness throughout all this time. Brought into context with the otherwise inexplicable tolerance for that regime's egregious human rights abuses, and the "delicateness" with which it was handled during the 9/11 investigations (extended the fact that its key people were allowed to slip out of the country in the immediate aftermath, despite a nation-wide travel ban on everyone else) -- it all starts to make sense. Not in any tinfoil kind of way. But in a more banal, mundane, "Why do we keep kissing this bloodthirsty, homophobic, misogynist and utterly decrepit regime's ass, for decade after decade?" kind of way. The U.S. started releasing data on foreign ownership of Treasuries in 1974. Since then, the Treasury’s policy had been to not disclose Saudi holdings, and it grouped them instead with those of 14 other mostly OPEC nations, including Kuwait, Nigeria and the United Arab Emirates, Bloomberg reported in January. The group held $281 billion as of February, down from a record of $298.4 billion in July. For more than a hundred other countries, from China to the Vatican, the Treasury had provided a detailed monthly breakdown of how much U.S. debt each owns. The figures for March are scheduled for release at 4 p.m. New York time Monday. The special arrangement was a product of the 1973 oil shock following the Arab embargo. It’s among concessions that U.S. administrations made over the years to maintain America’s strategic relationship with the Saudi royal family and access to the kingdom’s oil reserves.

peteretep 10y ago
Kissing their ass suggests they're getting more from the relationship than America which - while certainly not impossible - seems an odd assumption to make.
ArkyBeagle 10y ago
We seem to have two impulses: - Hold up a higher standard to nations and feel somehow entitled/obligated to "enforce" it. - Attribute such deviations from those standards to "culture". I'm not sure which is worse. Nation-states sort of don't judge other nation-states in that way. The US has been ... innovative in that, and it's been no end of trouble. Why Pearl Harbor? Because the US embargoed Japan after the Rape of Nanking. And that ended well... Maybe its changed since '73 but the "access to the kingdom's oil reserves" seems hollow, since my understanding is that there is a small army of engineers and workers who rotate in and out of Saudi to maintain the fields and other infrastructure. Second, there is that Dilbert cartoon about the meaning of "fungible" w.r.t oil. The '73 embargo was at least in part a reaction to the Six-Day War in '67 so it seems typically Kissingerian to pursue a balance of power rapprochement with one of the the seats of opposition to our friendly relations with Israel. The US also ... sort of "inherited" the British Empire after WWII, and Saudi was very much a part of the actions of those within the Empire. Again, I can't recommend "A Peace To End All Peace" enoughly.

marcosdumay 10y ago

US$120G does not put their reserves bellow China, Japan, Brazil, and Russia? How is it the 3rd?

fredgrott 10y ago

Here is the interesting thing, why now? Let me give you a hint....what resource do Saudi's loose in the next 5 to 10 years? Give up? Its the next thing to reach $100 per barrel..at least in several parts of the Middle East Okay okay okay...Water, specifically the water table Saudi has relied upon for so long will be gone.

dmfdmf 10y ago
Interesting side note. In a previous life back in the 90's, I worked in the (civilian) nuclear power industry. I came across some old company reports from the 80's for selling nuclear reactors to Saudi Arabia for desalination and not electrical power generation. I asked my boss about it because he was around at the time and he said the Saudis were serious but the numbers just didn't work out. I think the main problem was fouling of the tubes used to boil off the water leaving behind all sorts of dissolved mineral and salt deposits. Chronic cleaning or replacing the tubes killed the economics.

secfirstmd 10y ago

This is yet another fascinating step in the disenagement of the US from Saudi Arabia (pity it took so long to happen). Drip by drip stories are emerging which are preparing for it. The Saudi 9/11 pages in the report. Diplomatic spats etc. It's fascinating to watch such a deal with the devil break down. The long term natural ally for US in the Middle East is Iran. It seems the Washington establishment knows this.

partiallypro 10y ago
Just because we made a deal with Iran doesn't mean they are our ally, and I'd hardly call them our "natural" ally; their regime is only marginally less bad on human rights than Saudi Arabia. Iran still funds terror groups, much like Saudi Arabia. They are just part of two different tribes and despise one another. Really the U.S. mission should be to do whatever it takes to prevent Saudi Arabia and Iran from going to war. They are already in a proxy war in several locations, Iraq and Syria being the two largest. I think that's what people in Washington know, has nothing to do with being their ally and everything to do with stopping an implosion. If Iran got a nuke, it's not likely they would give it to a terror group (from what I see) it's just incredibly likely that it will push Saudi Arabia to get one too and then we'll have quite the situation on our hands.
- avn2109 10y ago
  Before the Iranian revolution, Iran under the Shah was the USA's staunchest regional ally. And before that, the British and Russians spent centuries wrestling over influence inside Iran. There are sound geopolitical reasons to court Iranian friendship, and undoubtedly the days of Anglo-Persian cooperation will someday return. Though perhaps after regime change.
  - GFK_of_xmaspast 10y ago
    I don't see the regime in London changing anytime soon.
  - JumpCrisscross 10y ago

dharma1 10y ago

My guess is they will reduce those holdings - they have a large budget deficit they need to cover, before it bankrupts them. Defense and fuel subsidies make a large part of that deficit. For a country of 30 million people with a lot of sun, I find it crazy they produce most of their electricity with oil and are the 6th largest oil consumer in the world. Much of that is simply wasted through inefficient power plants and AC. Would do them well to use their foreign reserves (while they still have them) to cover their energy needs by building solar.

brianwawok 10y ago
Oil is $1 a barrel for them. I bet solar is 40x the price per MW.
- chillacy 10y ago
  But if it would have sold for $50 a barrel, that's $49 in lost revenue (ignoring supply/demand curves shifting). They could have used that $49/barrel to buy some solar panels and (maybe) come out energy even in however many years.
  - beagle3 10y ago
    The $50 includes transportation, storage and other costs. It's more like "use it for $1 or earn $20". Also, they are selling as much they can right now; so it's not like they are leaving money on the table.
  - brianwawok 10y ago
    But they can't sell anymore! Supply currently exceeding demand. If they put 1 million more barrels of oil a day on the public market, prices go down by Y, making the net gain of that 1 million barrels low (maybe negative, but if not at least close). So if market has demand for you to sell 10 million barrels of oil a day, but you have capacity to pump 20 million... you found a way to basically have "free" energy by burning some oil. Yes it shortens the length of your oil reserve and yes it kills the environment, but in the short term it is the best option. Most people/countries make decisions in the short term. So to me it is very logical that the middle east burns oil for electricity, nowhere near a "duh why not use solar" moment.

sehugg 10y ago

They sure bankrolled the heck out of the Iraq War, didn't they? To the tune of around $80 billion starting in 2003.

c-slice 10y ago

This calls Saudi Arabi's bluff. Just a few weeks ago they threatened to sell all their US treasuries and some speculated that they held much larger ownership in US treasuries. They claimed to hold up to $750 billion in US treasuries. http://www.nytimes.com/2016/04/16/world/middleeast/saudi-arabia-warns-ofeconomic-fallout-if-congress-passes-9-11-bill.html http://www.nytimes.com/2016/04/16/world/middleeast/saudi-ara...