TIC data and the USD; the market is short the Usd.

Yesterdays TIC data indicated that the US is once again a favoured destination for long term investments as 90.3 BN Usd was reported to have flowed into long term US assets. However, there was a net outflow(short term minus long term flows) of minus 31 BN USD. This should be a good explanation to the Usd weakness back in June, at least.

Another conclusion is that the USD has once again been used extensively as the worlds premier funding currency. Providing funding for global capital markets. It seems the foreign long term flows into Usd denominated securities has been used as collateral, creating a substantial outflow of shortterm funds. On top of it, US based investors have placed funds abroad, seeking higher returns.

Conclusion; The market is short USD.
This seems to match the most recent survey numbers from 7 Aug, where only 3% of investors were bullish Usd. (Back in late March, 93% were bullish,,,,,, and only 3% were bullish equities,,,,,,)


* More
- Central banks have reduced deposit holdings with commercial banks, placing those funds with the FED instead. Custody holding have increased by 45% over the year.
Conclusion; Foreign currency reserve money is standing ready to be invested into longend US bonds

The US 10 yr bond is currently around 3.50%. 3.47% is the level for the current uptrend from April. Should this break, the Jpy will get a boost, equities will not.


*Higher volatility will hurt the carry trade as well as investing into assets, triggering a demand for USD
The VIX rose almost 15% yesterday and seems to be in the process of bottoming out to test the 35% and, 40% levels.
Conclusion; If so, this will naturally weigh on all assetclasses, but with many of these heavily onesided positioningwise, there is an apparent risk of swift reversals out of carrytrades, equities, commodities etc which will make the USD soar.


*Tight credit
The US Q2 loan officers survey indicated weakness for every major category, bar prime residential mortgages. Banks tightening creditstandards and borrowers remaining cautious being the main explanations. The corporate sectors depositholdings with commercial banks have fallen to a level not seen since 2001.
From what I understand, corporate recoveries only take place when there is credit available or there is a sound cash flow position. (Rising corporate deposit holdings with commercial banks).


* New positions and position changes
- Sold half of my long Eur/Jpy put, closed my partial delta hedge
- Sold half my long Aud/Jpy put, closed my partial delta hedge
- Sold half my long Aud/Usd put, closed my partial delta hedge
- Bought SEB puts


The combined case of fundamental macro and positioning makes a compelling case to me anyway. As usual, well see. Having said that, I am very much aware of the swift and fickle nature of the markets, especially during holiday times. Prudent instruments are recommended. Options are currently attractively priced in many assetclasses and is what I currently prefer.


As ususal, good luck.




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