China holds 30% more of U.S. Treasury debt than previously estimated according to revised numbers issued this past week. Apparently this was discovered in an annual survey of bondholders that allows the Treasury to obtain a more accurate accounting of its bondholders. According to the Associated Press the actual amount of securities held by China is $1.16 trillion, making them by far the largest U.S. debt holder. Japan is in second place. Interestingly the amount of debt previously held by Britain was reduced in half. It turns out that when China buys bonds through London exchanges, sometimes they were attributed to Britain. Sure makes you feel comfortable that the Treasury has everything under control.
In more disheartening news, the U.S. dollar, which has traditionally been seen as a "safe haven" investment in times of global instability has clearly lost its status as demonstrated by its performance in the last month. The Wall Street Journal reports that the dollar has lost value every day since January 24, the beginning of the unrest in Egypt, compared to all of the G-10 currencies. The franc and yen, and even the euro, have fared better during the Mid East unrest. There are several reasons for this reaction but primarily a fear of inflation in the U.S. due to its reliance on foreign oil. The quantitative easing program is also seen as the U.S. merely printing dollar bills rather than dealing with its debt problem. According to BCA Research, global investors are finding gold to be the new safe haven. Gold was up 5.7% in February.
But despite the drop in the value of the dollar, the Dow ended February on a positive note with a 2.81% gain for the month. According to the Wall Street Journal, this was a strong sign since during the same time period oil prices touched $100 per barrel but gradually fell slightly. The Institute for Supply Management, a Chicago business barometer showed U.S. economic activity accelerated in to its highest reading in 22 1/2 years in February, despite the fact that the employment index for the same barometer fell.
Bloomberg reports that Vanguard has surpassed Fidelity as the largest mutual fund company, primarily due to its distribution through registered investment advisors or RIAs. RIAs, unlike brokers, are legally bound to invest in the best interests of the clients. Spectrem Group's research has seen the percentage of wealthy households turning to RIAs increase substantially in the past decade. RIAs generally charge 1-2% of client assets in fees. They are not allowed to take commissions from any of the types of assets or funds they sell. For that reason, Vanguard, which does not pay commissions, has been very successful with this advisor type. Vanguard currently has $1.6 trillion in assets. At year end 2010 it had $1.45 trillion up from $545 billion in 2000. Both Vanguard and Fidelity are identified in Spectrem Group research consistently as "firm that I am most likely to do business with in the future".
And in the "gee, what a surprise" category, a recent Government Office Accounting report (GAO) examined by the Wall Street Journal identified billions of dollars of bloat in the U.S. government. The report found there were a significant number of redundant and ineffective programs causing much waste in government spending. For example:
-15 agencies oversee food safety
-20 agencies exist for the homeless
-80 agencies exist for economic development
-another 80 agencies help to provide transportation to the disabled
-47 agencies assist with job training
-56 agencies are focused on helping individuals to understand their finances
-and the list goes on.
The GAO study was required due to an amendment to last year's bill that raised the debt ceiling and federal borrowing limit. Much thanks goes to Congressman Tom Cobern (R, Oklahoma) for sponsoring the amendment and forcing the audit.