U.S. Treasury Debt by Holder (1985-2006)

I created this graph by taking the data from this source and inflation adjusting it to 2006 dollars. My thinking was that it would useful to visualize who owns the publicly available U.S. treasuries, and in what proportion.

Here are few observations I feel compelled to make:

1. Publicly held debt appears high, but not at record levels. Nor does it appear to be increasing dramatically (in real terms) as of 2006. This suggests to me that concerns over U.S. treasury debt spiraling out of control may be overblown.



2. While the proportion of foreign holdings has been increasing dramatically since 2000, domestic holdings have seen a similar dramatic decrease since 1994. It seems plausible that the domestic loss of interest in treasuries is related to the strong performance of other asset classes (namely stocks and real estate) since 1994. The implication of this may be that a decrease in foreign treasury ownership won't be a disaster for U.S. interest rates as some suggest - such a treasury "bailout" might cause rates to rise initially, but this could ultimately depress prices of other assets, increase real returns on treasuries (making them more attractive), and lead to a domestic increase in treasury ownership (the "pent up demand" theory). Taking this argument one step further and putting it into the context of a multi-decade bull market in U.S. assets that may be nearing a (possibly grisly) end, leads me to believe that concerns over dramatically rising interest rates due to declining foreign inflows or petrodollar recycling are also overblown (at least over longer time frames - I think a sudden interest rate "spike" is at least a possibility, however).



3. Federal Reserve holdings have been increasing over time, but are still a small proportion of overall holdings. I don't know if this means they've been monetizing the debt, but it suggests to me that they could (by buying more treasuries) to keep interest rates low if necessary (here I'm assuming the Fed has unlimited capacity to do so). I think this is yet another factor making an economically debilitating surge in interest rates unlikely.

These are just some conjectures I came up with after briefly looking at the data. Feel free to point out any flaws in the reasoning, make counterarguments, etc. I won't get my feelings hurt.

Notes: I believe this data set might understate foreign holdings by 5% or so. Also, Fed Holdings are also contained in Domestic Holdings, which is why they don't appear to contribute to the Total Holdings.

Gasoline Prices: Thanks. Just What We Need Now...

Maybe this potential threat to the U.S. economy isn't getting quite the love it deserves because we've got enough to worry about already (housing, capex, stellar GDP growth). But gasoline prices have risen steeply in recent months, and may be poised to go higher. From the Wall Street Journal:

Steve Hargreaves at CNN/Money has another story about the chances that gasoline will hit $4 a gallon this summer. Bloomberg had a similar story earlier this week.

Hargreaves cites shrinking gasoline inventories, still-rising gas demand and shrinking refinery utilization – in plain English, refineries just aren’t making as much gasoline — as reasons gas is already nearly $3 a gallon, on average, in the U.S.

Do we really need it to be harder to get to those open houses?

Recent Rally in U.S. Stocks an Illusion?

This graph plots the value of the U.S. dollar (red/blue line) vs. the S&P 500 (green line). Notice that since the recent stock market rally began in March, the value of the dollar has fallen at almost exactly the same rate (proportionally) as the S&P 500 has risen.

In other words, investors may have gotten more dollars from this rally, but they're not much wealthier.

S&P 500 P/E Ratios

This is a graph of S&P 500 price to earnings ratios based on Robert Shiller's data. Note that monthly data points in this graph are not based on the current month's earnings because earnings follow a dramatic boom/bust cycle (see the blue line in this graph) and the P/E ratio would be heavily distored at earnings peaks and troughs. Instead it uses the average earnings from the previous 10 years. This results in a more realistic P/E ratio at any specific point in time.

Executive's Corner: S&P 500 Valuation Metrics

This graph attempts to summarize S&P 500 price and earnings trends in order to provide an efficient tool for communicating the relative value of U.S. stocks in a forceful and unambiguous manner.

The data should be self-explanatory for regular readers of this column. And we've provided the customary executive summary as a courtesy to readers on tight schedules:

Buy high while you still can.

Weighted Composite ISM Index for March 2007

The intent of this graph is to show overall economic activity in the U.S. by combining the ISM Manufacturing and ISM Services indices into a single index weighted by the size of the corresponding sector. Values above 50 indicate growth. Values below 50 indicate temporary aberrations (such as bad weather), sample errors, outdated methodologies, or reporting bias.