Archive - Jul 2011

Two weeks ago Zero Hedge first presented the comparison of the Treasury cash balance to cash equivalents held by global public companies (a meme that has since propagated in a very dumbed down and unattributed fashion). Here is the update. As of last night, the US Treasury had just $51.3 billion in Federal Resere cash, and furthermore, Tim Geithner let the $5 billion in residual CMBs under the Fed's Supplementary Financing Program mature without rolling. In other words, the Treasury just burned $15 billion, or $20 billion when accounting for the CMB roll off, overnight. At this burn rate there is precisely 3 days or so of cash, although this naturally does not include the bulk payment due to SSTN discussed previously. It is now officially time to panic, although those who so wish, can put their money in not just Apple ($76.2 billion), but GE ($136.4 billion) and Microsoft ($62.4 billion) all of which have more cash than Tim Geithner. Of course, as Gartman put it, in three days everyone will have more cash than the US Treasury. Incidentally, someone may wish to inform the irrelevant data chasers that a far better comparison is that of the US Treasury not to companies that have X cash, but to those that have a $15 billion cash burn per day.

The unprecedented moves in the yield curve continue: even as the blow out in (ultra) short term liquidity persists, notably in GC and in Bills maturing just after the August 2 D-Day, the scramble to cover long-dated shorts has collapsed the 10 and the 30 Year by an epic amount in the last few days, with the 10 Year trading at 2011 lows of 2011. Why is this number relevant? Because the last time we saw it was in August 2010, a few weeks before Ben Bernanke announced QE2. In other words, history is repeating itself verbatim from last year. As to whether the move is due more to a flight to safety or a short covering crunch we will know only next week when the CFTC releases its latest COT spec short data. One thing can be ascertained, however: the Fed models that look at rate-implied deflation indicators are currently screaming bloody QE. And it will come... As soon as the stock market finally realizes that it has to tumble before it surges to new and Weimerian highs.

When Deutsche Bank's Joey perma-LaWronga finally gives up on his call that has been wrong for about 3 years now, it may be time to i) panic or ii) buy everything with three hands (thank you Fukushima). We are leaning to the former, especially after the upcoming downgrade forces the Fed to launch QE3 in about a month.

Everything about the budget debate is a fraud. The drop dead date is a fraud. The "cuts" are a fraud. The threat of economic collapse is a fraud. Forget all the "can't we just get along" rhetoric. US sovereign debt ratings will be cut sooner or later. The only way we will get a balanced budget amendment is to shut it down.

Once again, straight out of Morgan Stanley's rate deks (or what's left of it after the whole TIPS implosion).

The soap opera has resumed in Congress. Feels a little deja vu'ish? So it should. The expectation is that Congress will pass the "amended amended" Boehner Bill around 6 pm. The same as yesterday. Will it pass? Who knows. If not, expect overnight GC to surge on Monday, yields on Bills and CMB maturing after August 2 to surge, even as the 30 Year plunges to zero, making a mockery of UST curve "market efficiency." On the other hand, Obama will likely just end up invoking the 14th amendment, and then we will have a constitutional crisis to go along with all the other drama.

As we look back on the horrors of the dictatorships and autocracies of the past, one particular question consistently arises; how was it possible for the common men of these eras to NOT notice what was happening around them? How could they have stood as statues unaware or uncaring as their cultures were overrun by fascism, communism, collectivism, and elitism? Of course, we have the advantage of hindsight, and are able to research and examine the misdeeds of the past at our leisure. Unfortunately, such hindsight does not necessarily shield us from the long cast shadow of tyranny in our own day. For that, the increasingly uncommon gift of foresight is required…The prevalence of apathy and ignorance sets the stage for the slow and highly deliberate process of centralization. Once dishonest governments accomplish an atmosphere of inaction and condition a sense of frailty within the citizenry, the sky is truly the limit. However, a murderous power-monger’s day is never quite done. In my recent article ‘The Essential Rules of Liberty’ we explored the fundamentally unassailable actions and mental preparations required to ensure the continuance of a free society. In this article, let’s examine the frequently wielded tools of tyrants in their invariably insane quests for total control…

The latest headlines as they flash by:

• Carney Says Obama Would Consider ‘Couple of Days’ Extension
• Says short-term deal would give time to finish debate.
• Carney Says Treasury Could Give Update ‘This Weekend’ on Plans

It is unclear what a few day extension would achieve, aside from a rating adowngrade but it is enough to get the headline scanning robots ramping higher again.

From RBS' O'Donnell:

• NY Fed Meeting Over
• No Contingency Plan For Aug 2 Discussed
• No Decision On Next Week Treasury Auctions
• Talks Focused On 'Market Conditions'
• Primary dealers at NY Fed agreed Congress should act quickly to raise debt ceiling

Translation: Tiny Tim has absolutely no idea what he will do on Wednesday, aside from telling CTRL P-dawg to sell the gold-painted Tungsten in Fort Knox of course. At $460/ounce MTU that's not bad good: still about $100 billion $341 million based on today's market prices. Or something. In retrospect, maybe not the best idea.

This the final final version of the Boehner bill which is "supposed" to pass Congress. We haven't read it yet. We doubt anyone else will either.

This is what America has devolved to. Pretty much sums it up.

This is perfectly bullish. As is Tullet Prebon's market of 0.30 bid and 0.21 offer. The whole market has now officially ODed on crazy pills.

Just to make things a little more interesting, and better for Greece, we have learned of a shocking mass resignation by virtually all of Turkey's armed forces. According to Reuters: "The head of the Turkish armed forces General Isik Kosaner along with the heads of the ground, naval and air forces have resigned, broadcaster CNN Turk reported on Friday. The reason for their resignations was not immediately clear. Tensions between the military and the government of Prime Minister Tayyip Erdogan have been high in recent years and the Supreme Military Council was due to hold a major meeting next week."  We have also learned that the Turkish AKP government is planning to hand over its struggle against the PKK to local police forces. In essence, Turkey is now effectiely defenseless. This is the perfect time for Greece to invade Turkey, and promptly flip it to the Fourth Reich in exchange for some debt forgiveness. There you go: we can spin idiotic things like the best of CNBC too.

The final collapse of our credit expansion boom approaches. We have a choice over the next week. We could voluntarily abandon further credit expansion by voting for a Balanced Budget Amendment to the Constitution or we can raise the debt ceiling, pretend to cut spending far in the future, and allow our currency system to experience a catastrophic final collapse. We’ll take what’s behind door #2 Johnny. The vested interests in Washington DC and Wall Street only care about power and wealth. They will never abandon credit expansion. It’s their drug. They must have it. They are addicted to it. They will keep injecting it into our system until they overdose America.