Archive - Aug 2011

Yes, the melodrama is back. Follow the latest developments straight out of Congress, which is now expected to be far closer to passing the bill as more republicans have voiced the support of the Compromise bill. This could be your last chance as today could well be the final day of the debt ceiling episode. At least for the current season.

In the end, everything is connected.

One thing that NEEDS to be mentioned is that this time around, bad economic news is resulting in sell-offs. For the last two years, whenever bad data came out, stocks actually rallied on the belief that the Fed would have to provide more stimulus. So the fact that stocks are now tanking on bad economic data should be a major red flag that things have changed.

Friday deja vu with not enough votes once again. Keep an eye on the The Hill's Whip Count (link) which summarizes what the mood of republicans and democrats is as we go into the vote. Unless Boehner can convince enough republicans to share his opinion, and we do get a failed vote, it would make the Tarp vote failure pale in comparison with what happens to the market...

It's not Jefferson County, yet, but it could certainly be seen as the precursor to the first domino. "The state-appointed receiver overseeing the cash-strapped Rhode Island town of Central Falls has filed for bankruptcy on the city's behalf in an effort to help it get back on its feet. Receiver Robert G. Flanders and Rhode Island Gov. Lincoln Chafee announced the step - which Flanders has described as a last resort - at a news conference at City Hall. Flanders filed the legal paperwork seeking bankruptcy protection Monday. "From the ashes of bankruptcy Central Falls will rise again," Flanders said." The biggest losers: unions. "With the city now seeking bankruptcy protection, Flanders said he plans to reduce pension benefits beginning in late August. He has asked the federal court to immediately reject collective bargaining agreements. He said the next set of pension payments will reflect at least the cuts he outlined to city retirees. In addition, he said city workers will face layoffs. Flanders called the step unavoidable, as taxes have already been raised and city services have been cut "to the bone." Expect Barack Obama to thaw Steve Rattner from carbonite explain to creditors, using a variety of four letter words, that they will be last in line of payment after every single union claim has been satisfied, with the resultant husk of a town reverse merged with GM.

First it was Zero Hedge two hours ago, now it is the turn of JP Morgan's Michael Ferolli. "The employment index plunged a huge 6.4 points to 53.5, a print which adds a little downside risk to our already-below-consensus outlook for only 45,000 job growth in this Friday's July employment report." As a reminder, consensus is 90,000 or thereabouts. A negative print this Friday will bring QE3 within weeks. Which, of course, is the plan to go alongside the $2.5 trillion in debt coming to the market.

Headline flashing now openly warning that the BOJ is preparing to intervene:

• JAPAN PREPARES FOR CURRENCY INTERVENTION, NIKKEI SAYS
  
• COORDINATED INTERVENTION MAY FOLLOW JAPAN ACTION: NIKKEI

We call complete bullshit on this. Never do central banks preanounce when they intervene. Never. This is merely more posturing by the toothless and completely powerless BOJ which now has resorted to spreading rumors in order to get the USDJPY higher. Ref: Philipp Hildebrand who has been crouched in a fetal position for the past 6 months in a continuous PTSD daze.

Everyone appears to be confounded by the Dax futures flash crash as noted previously. Here is Goldman's Mark Bellak responding to client inquiries, confirming that even GS has no clue what just happened.

"No plan under serious consideration cuts spending in the way you and I think about it.  Instead, the "cuts" being discussed are illusory, and are not cuts from current amounts being spent, but cuts in projected spending increases.  This is akin to a family "saving" $100,000 in expenses by deciding not to buy a Lamborghini, and instead getting a fully loaded Mercedes, when really their budget dictates that they need to stick with their perfectly serviceable Honda.  But this is the type of math Washington uses to mask the incriminating truth about their unrepentant plundering of the American people.  The truth is that frightening rhetoric about default and full faith and credit of the United States is being carelessly thrown around to ram through a bigger budget than ever, in spite of stagnant revenues.  If your family's income did not change year over year, would it be wise financial management to accelerate spending so you would feel richer?  That is what our government is doing, with one side merely suggesting a different list of purchases than the other."

Kicking the can down the road ... while they trample on the Constitution ...

It was only a week ago that S&P said anything under $4 trillion in deficit cuts would be an automatic downgrade for the US. So according to the CBO's just released score of the bipartisan budget, the S&P will have to cut its rating of the US in half, since the total budget cuts will be just over 50% of what S&P demanded previously. And here's the funny part: of the $917 billion in known cuts (the other $1.2 billion is factored but not even the CBO has any clue what it will look like), a whopping 2% in cuts will take places before the Obama election. 2%! This whole charade is there only to make sure the president is reelected. Oh, and of course to make sure S&P does not downgrade the US. Which is where we get back to the fun. THE FUN. Because as it turns out, that whole $4 trillion thing.... S&P was only kidding. "It appears that the perception Standard & Poor's seemed to harbour, that the U.S. needed to find a $4trn sized package in order to keep its triple A rating, is unfounded. Two credit research reports published today point to the testimony given by S&P president Deven Sharma to the Congressional House Financial Services subcommittee on Wednesday, where he seems to believe his firm has been misquoted in media reports." There you go: to S&P $2.1 trillion (of which $1.2 trillion may never even materialize) will end up being just as good, if not better than $4 trillion. And that, ladies and gentlemen, is how a rating agency regains credibility and stuff.

Think it's all just a US debt ceiling issue? Think again. The DAX futures just flash crashed. And judging by the broad HFT stop happening all around, this is coming to the US any second. After all, gotta make sure Congress does as they are instructed.

A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.

Remember all those idiots who claimed that Fukushima is contained, or better yet, the drama is exaggerated? Perhaps it is time to exile them all, starting with that moron from MIT, to Fukushima where the radiation measured at the base of the main ventilation stack just hit an all time high 10 sieverts/hour. The truth likely is much uglier: this is simply the highest reading the devices are able to record. In other words, there does not exist a device that can capture the true extent of the catastrophe at Fukushima!