Archive - Aug 2011

Love him or hate him, Krugman has a point...

I'm sorry Dave, I'm afraid I can't do that...

Not one but two letters today (link to prior here) from a very digusted Ron Paul, in which he once again dissects the complete farce that is the "spending" cut bill (if by spending one means slightly lowering the angle of attack on future government expenditures well over and above the revenue slope) and also adds his thoughts on the farce that is the "Super Congress."

And like that the Congressional circus is over 269 to 161. Market reaction? ES sells off 5, then rallies 3, and now is selling off again. Next up - the Senate but that is a given. So now that we know that America is not going to file for bankruptcy tomorrow on we go to the economic collapse.

A lot has changed since the 60’s and 70’s. Can our altered mindset be explained away as coping with the machine, captured by drugged mind control or just total capitulation to the greed?

The political landscape in Europe dictates the fate of the Euro. And given the developments in Germany, we could see the beginning the end of the Euro's existence as early as September 2011. 

It is of course the case that so deeply engrained are statistics such as these in the vocabulary of both the market and the voodoo of Maynardian macro-economics that it is unrealistic to expect any practitioner to avoid any reference to them whatsoever. What is absolutely crucial, however, is (a) constantly to bear in mind that these are nothing but examples of a convenient shorthand which often conceal as much as they reveal - in the same way a mean height above sea level or an average annual temperature tells us little about the topography or climate of a region, much less about how those features may be changing – and (b) that the generation of a positive change in the metric is not an end in itself (as far too many policy jockeys and talking heads seem to believe). An amphetamine junkie getting his next fix by spending the contents of the old woman’s purse he just snatched generates more instant GDP than an engineer sitting quietly at his desk, trying to puzzle out a radical new way to create more useful output with less input, but it should be fairly obvious which man is likely to do more to improve both his own material comforts and those of the people around him.

Three weeks ago Putin called Bernanke a hooligan. Since that remark came from the (allegedly) largest oil producing country in the world, it provoked nary a peep from America's foreign department. Today, he decided to ratchet up the rhetoric, and in a speech to a Kremlin youth group told his listeners what the bulk of the rest of the world thinks of America: ""They are living beyond their means and shifting a part of the weight of their problems to the world economy," Putin told a Kremlin youth group while touring its summer camp north of Moscow. "They are living like parasites off the global economy and their monopoly of the dollar."" Russia has not made its distrust of America clear in the past, and while others (ahem China) have been jawboning about selling Treasurys even as they continue buying US one-ply paper, Russia has been actively dumping its Treasury paper to the lowest in years. The reason for the unprovoked outburst? The insanity in Congress. "Thank god," Putin said, "that they had enough common sense and responsibility to make a balanced decision." The former KGBer's solution? Other, and more deserving, reserve currencies.

Two weeks ago we presented a chart that shows the uncanny correlation between the debt ceiling and the price of gold. Now that we know the final amount of the next debt ceiling hike, somewhere in the $2.5 trillion ballpark, it allows us to extrapolate where gold will end up as a result of the debt ceiling hike which will likely be voted into law at 7pm PDT. A simple correlation rule of thumb allows us to predict that gold will be at $1,950 by the end of the year if it simply retains it close correlation to the debt ceiling. Should Bernanke announce that he will additionally need to monetize some or all of this incremental debt amount, we anticipate that gold will be well over $2,000 by the end of the year, courtesy of yet another round of accelerated dollar debasement, which also means that real gains in US stocks will be negated courtesy of the devaluation of the currency in which they are priced. The same, however, does not apply for gold, which with every passing day is priced in nothing but itself.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 01/08/11

With total Treasury cash dropping by $15 billion on Thursday, many were expecting a far uglier print as of the close of last week. Instead, total cash in the Federal Reserve Account staged a dramatic bounce on Friday, and is now back to $65 billion, following tax revenues offsetting contractual spending and another $13.7 billion coming in from the settlement of public debt issues. From here on out it is only downhill, and the cash is likely about $20 billion lower as of market close today (we will know for sure tomorrow). If the burn rate is smaller it means that Tim Geithner is dipping far more aggressively in Government retirement and Social Security trust funds than anyone could have imagined (Bruce Krasting discussed this previously). And yes, for those with a double digit IQ, the Treasury has less cash than Apple still.

Here it is...

Just a tweet from ABC's @rickklein for now. We expect Boehner to confirm this during his conference to begin shortly.

Tim Geithner has released his projection of expected borrowing needs for the final fiscal quarter of 2011 (ending on September 30). But before that, we learn that while back on May 1 the Treasury had expected to raise $142 billion in marketable debt in Q3, instead if raised $190 billion, with the difference going primarily to build up the EOQ cash balance which instead of being $95 billion, was $137 billion, obviously due to the threat of the debt ceiling breach. That threat however has not prevented the Treasury from assuming that the debt ceiling will be raised without a hitch, and it now predicts issuing $331 billion in net marketable debt issued in Q4, $74 billion less than the projection from May 1 (and further sees another $285 billion in borrowing needs in Q1 2012). In other words, if there is no debt ceiling deal, the Treasury will be $616 billion short in revenues over the next 6 months. Of course, the numbers net out the massive issuance that has to hit the market to fund the "disinvested" government retirement funds and various other mechanism that were used to prevent the Treasury from running out of cash, which amount to about $300 billion primarily in the form of short-term bills that matured and were not rolled over to make space for marketable debt issuance. In other words, gross issuance in the next quarter will be about over $660 billion. This is just a little under the total debt issued in the last 3 quarters (due to the May 16th debt ceiling breach)! And people think the Treasury can raise this money without the Fed monetizing at will? Fascinating.

How the Debt Kremlin of United Obamerican States might look after it is rubber stamped by the Supreme Court...[Kaffee Nyet!]