Introduction
NOTE: This missive updates the material published on 9/16 ("Latest Fed Flow-of-Funds Data: A Preliminary Look at Foreign Assets").
On 9/16, the Federal Reserve released its latest "Z.1" ("Flow of Funds Accounts of the United States"), with data current through the June 2004 quarter. The numbers are subject to revision, but the data are more than adequate for the usual "big-picture" purposes.
Many investors remain concerned about the United States' large and growing trade and current-account deficits, and whether foreign investors will continue to fund them in an orderly manner. This is certainly a concern I share. With this in mind, let's look at what our friends abroad were doing with regard to our markets during this year's second quarter.
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Some Numbers
NOTE: From the Fed's "Z.1" release with regard to foreign assets and liabilities: "Revisions to the 'rest of the world sector' reflect new estimates of the balance of payments from the Department of Commerce for 1989 through 2003. ..."
* As of 6/30/04, foreign investors held a total of $8.803 trillion of US financial assets, up about $159 billion from revised holdings of $8.644 trillion as of 3/31. From 6/30/03, the increase was approximately $994 billion. (See Table 1 at the end of this section.)
* As of 6/30, foreign liabilities totaled $4.250 trillion, resulting in a net foreign claim against the US of more than $4.553 trillion. (See Table 1.)
* The dollar's exchange-rate value put in a major bottom in the spring of 1995, commencing a steep rise into early 2002. Note in Table 1 how the expansion in the growth of foreign holdings of US financial assets paralleled the dollar's rise.
* As Table 1 indicates, the United States, for the first time since World War II years, became a net debtor during 1985.
* Table 2 segregates the classes of capital-market assets that are readily salable by foreigners, or where a significant slowing in the rate of accumulation could adversely influence domestic prices. As of 6/30, these totaled $5.957 trillion, or a very healthy 67.6% of total US financial assets held by foreigners. This illustrates the sizable exposure US markets would have to any substantial net reduction in these holdings.
* As of 6/30, foreign investors held the following respective percentages of total outstandings of Treasuries, agencies, US corporate bonds and US equities: 43.1%, 11.6%, 25.2% and 12.3%. Combined holdings of Treasuries and agencies were 24.3% of total outstandings.
By comparison, going back to 12/31/94, not long before the dollar put in the major bottom mentioned above, foreigners held the following respective percentages of total outstandings of Treasuries, agencies, US corporate bonds and US equities: 18.3%, 5.7%, 13.4% and 7.0%. At that time, the combined holdings of Treasuries and agencies were 13.4% of total outstandings.
* As of 6/30, the 15 largest foreign holders of US Treasury debt had total holdings of $1.523 trillion, an increase of more than $95 billion or 6.7% from 3/31. (See Table 3.)
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The following tables break out foreign holdings of US financial assets as of the end of given periods. These are dollar values outstanding at the end of those periods. In a coming missive, I will present data breaking out the actual dollar flows from foreign sources into US financial assets during a given period, as well as into the classes of capital-market instruments shown in the second table below.
Table 1.
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FOREIGNERS' U.S. FINANCIAL
ASSETS/LIABILITIES
(Billions of Dollars, Latest Data
Released 09/16/04 Through 06/30/04)
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Total Total
Financial Financial
Assets Liabilities Difference
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2004
06/30 8803.3 4249.8 4553.5
03/31 8644.4 4159.6 4484.8
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As of
12/31
-----
2003 8228.7 4064.5 4164.2
2002 7441.1 3981.8 3459.3
2001 6965.8 3650.1 3315.7
2000 6584.9 3490.2 3094.7
=======================================
1990 1998.4 1388.8 609.6
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1985 967.4 869.7 +97.7
1984 805.3 841.6 -36.3
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1980 494.2 666.4 -172.2
1970 104.8 140.5 -35.7
1960 38.9 63.5 -24.6
1950 17.4 31.4 -14.0
=======================================
1945 16.3 14.9 1.4
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Source: "Flow of Funds Accounts
of the United States" (Federal
Reserve "Z.1" release).
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Table 2.
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FOREIGN HOLDINGS OF US FINANCIAL ASSETS
AS OF 06/30/04 (Billions of Dollars
-- Latest Data Released 09/16/04)
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% of
Total
Total US Financial Assets -----
Held by Foreign Investors 8803.3 100.0
===============================================
Credit-Market Instruments# 4245.9 48.2
------ ----
Open Market Paper 115.5
US Govt. Securities 2524.4
Treasury 1805.1
Agency 719.3
US Corporate Bonds 1606.0
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US Corporate Equities 1710.8 19.4
------ ----
Credit-Market Instr.
+ Corp. Equities 5956.7 67.6
====== ====
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Detail of US Government Securities
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Treasury 1805.1
Official 1130.9
Private 674.2
Agency 719.3
Official 199.1
Private 520.2
------
2524.4
======
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Source: "Flow of Funds Accounts of the United
States" (Federal Reserve "Z.1" release.) #For
the purpose of this analysis, the category
"Loans to US Corporate Business" has been ex-
cluded. As of 6/30/04, this category had tot-
al outstandings of $120.6 billion.
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Table 3.
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15 LARGEST FOREIGN HOLDERS
OF U.S. TREASURY DEBT AS OF
06/31/04 AND 3/31/04
(Amounts in Billions of $s)*
----------------------------------------
06/30 03/31
Country 2004 2004
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( 1) Japan 689.3 646.3
( 2) Mainland China 164.8 157.3
( 3) United Kingdom 127.6 122.7
( 4) Caribbean Bank-
ing Centers@ 89.1 67.4
( 5) Korea 60.5 60.4
( 6) Taiwan 57.7 54.8
( 7) Hong Kong 52.4 50.7
( 8) Switzerland 49.6 48.6
( 9) Germany 47.7 45.7
(10) OPEC 43.6 43.0
(11) Mexico 38.6 28.9
(12) Canada 30.6 30.7
(13) Singapore 27.0 26.7
(14) Luxembourg 26.4 27.8
(15) Israel 17.9 16.4
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Total 1522.8 1427.4
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*Estimated end-of-period foreign
holdings of US Treasury marketable
and nonmarketable bills, bonds and
notes based on Treasury Foreign
Portfolio Investment Survey bench-
marks and on monthly data reported
under the Treasury International
Capital (TIC) reporting system.
Totals comprise both official and
private holdings. Data subject to
revision. @Includes Bahamas, Ber-
muda, Cayman Islands, Netherlands
Antilles, and Panama.
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