Archive - Oct 15, 2013

The future of the US economy with Chairman Yellen at the helm is grim indeed, which provides all the more reason to end our system of central economic planning by getting rid of the Federal Reserve entirely. Ripping off the bandage may hurt some in the short run, but in the long term everyone will be better off. Anyway, most of this pain will be borne by the politicians, big banks, and other special interests who profit from the current system. Ending this current system of crony capitalism and moving to sound money and free markets is the only way to return to economic prosperity and a vibrant middle class.

Harry Reid on Monday, or when he was long stocks: SENATE'S REID SAYS `TREMENDOUS PROGRESS' MADE ON DEBT ACCORD; REID SAYS HE'S `VERY OPTIMISTIC' AGREEMENT WILL BE REACHED

Harry Reid on Tuesday, when he apparently sold and went short: REID ANNOUNCED TO SENATORS THERE'S `NO DEAL': COONS;REID TOLD SENATORS MCCONNELL `STEPPED AWAY' FROM DEAL: COONS

It would appear the sad reality priced into T-Bills and USA CDS is starting to creep into stocks...

U.S. SENATE FISCAL NEGOTIATIONS SUSPENDED UNTIL HOUSE REPUBLICANS WORK OUT PLAN TO PROCEED ON DEBT LIMIT, GOVT FUNDING-SEN. DURBIN

SEN. FEINSTEIN SAYS `IT'S ALL FALLEN APART' ON BUDGET TALKS

Bills are being sold (bonds now snapping lower in yield), the USD and stocks are offered (at lows of the day) and gold and silver are well bid (at highs of day).

As was widely reported last week in both the alternative media and the mainstream presstitute media, former senior bank examiner at the New York Federal Reserve, Carmen Segarra, has filed a lawsuit against her former employer accusing them of wrongful termination after she determined that Goldman Sachs had insufficient conflict-of-interest policies. As usual, anything that threatens to shed some light on the criminality at the most powerful institutions in America is immediately labeled “top secret” or “classified” and hidden from the public. Just as you would expect in a Banana Republic.

And a surprise encore guest lecture...

If we look at the foundations of retirement--Social Security, stocks, bonds and real estate--it seems we may have reached Peak Retirement.

Time runs out on Italian and Spanish banks. But the truth is fatal.

I like Professor Shiller and respect his work. Really, I do, but... Massive bubbles, the sort of the proportion of the 2008 crisis, are nigh impossible to miss if you can add single digits successfully and are able to keep your eyes open for a few minutes at a time. Yes, I truly do feel its that simple. I saw the property bubble over a year in advance, cashed out and came back in shorting - all for a very profitable round trip. Was I a genius soothsayer? Well, maybe in my own mind, but the reality of the situation is I was simply paying attention. Let's recap:

Understanding the complexities of the sovereign CDS market is tricky... so we are constantly bemused by the mainstream media's constant comment on it as if they have a clue. The fact is that the USA CDS market is indicating a higher risk of imminent technical default now than in 2011. As we explained in painful detail previously, you cannot compare a 71bps (+8 today) 1Y USA CDS spread to a 1200bps JCPenney CDS spread - they are apples and unicorns. Having got that off our chest, the fact that the cost of 1Y protection is at 2011 extremes (implying around a 6.5% probaility fo default) and has been higher (inverted) relative to 5Y now for 3 weeks is a clear indication that investor anxiety is very high this time (just look at T-Bills!).

Reid has told us the US will be downgraded as soon as tonight (Red FD?); Pelosi says this is all Bush's debt anyway; and now Rubio is ranting... never a dull moment on the Senate Floor...

So much for all the "priced in" hope. At this point a delay past October 17 looks inevitable. But it's ok - despite what all the fearmongers have been saying, the world will not end on October 18, or 19, or later  (which as we said earlier would only embolden the GOP to demand much more, until such time as the market really does crash), because as Goldman admits: 'missing the deadline by a few days would probably be manageable." In short, it seems that no deal by October 17 is now a, well, done deal.

As equities continue to press back towards all-time highs, the Treasury Bill market is growing increasingly uncomrtable that these "people" in DC will find a solution before the 10/17/13 bill matures (10/17/13 Bill +15 at 35bps now!). Dec VIX is continuing to diverge higher against stock exuberance as at least someone is hedging. Following the dismal tail in the 3- and 6-month bill auctions, it seems the US equity market's dissonance is remarkable... It's not just the short-dated Bills, Feb Bills are now 8-9bps higher in yield (triple the levels they started the day at!)

Just as we predicted.

• WHITE HOUSE SAYS LATEST FISCAL PROPOSAL FROM HOUSE REPUBLICANS IS "PARTISAN ATTEMPT TO APPEASE A SMALL GROUP OF TEA PARTY REPUBLICANS
• WHITE HOUSE SAYS DEMOCRATS, REPUBLICANS IN SENATE HAVE BEEN WORKING IN GOOD FAITH ON FISCAL IMPASSE, AND TIME FOR HOUSE TO DO SAME
• WHITE HOUSE REJECTS HOUSE GOP PROPOSAL TO RAISE DEBT LIMIT AND REOPEN GOVERNMENT

Between Boehner's "Senate bill is hand grenade" and Van Hollen's "House Bill is reckless" comments, how anyone can argue we are getting closer to deal is beyond us... Obama is at least consistent - "unconditional surrender of default" remains the only play for now...