Archive - Oct 2, 2013

The New Normal: a world in which the best performing "asset" in the month of September was the stock market of bankrupt Greece, while silver, that historic store of value, was on the other end, performing the worst.

We need to quit our fucking whining and take some action in our lives.

It seems the non-negotiating red-line-making President is willing to umm... negotiate. Depsite Harry Reid's fire-and-brimstone, the WSJ reports that:

*OBAMA SAID TO INVITE CONGRESSIONAL LEADERS TO MEETING TODAY (at 530pm ET)
*OBAMA SEEKING FUNDING MEASURE FOR GOVERNMENT, DEBT CEILING HIKE

McConnell, Reid, and Pelosi are also to attend. Oh to be a fly on that wall? For now, equity algos are buying first and thinking later as bonds remain more stoic.

The question of Peak Government is ultimately a question of Peak Debt: how much money can the government borrow to sustain its current spending? Can public and private debt expand at rates four or five times that of the underlying economy? If so, for how long? If we are not yet at Peak Debt, we are getting close, and that means we are also getting close to Peak Government.

Not entirely surprising but the President is not amused at the House's "piecemeal" funding bill plans:

If the President were presented with H.J. Res. 70, H.J. Res. 71, H.J. Res. 72, H.J. Res. 73, and H.R. 3230, he would veto the bills.

Back to the drawing-board of "no negotiation" it would seem.

Odd that the mainstream media is not discussing the 4% spike in precious metals this morning as vociferously as they discussed the imminent demise of gold and silver yesterday. With stocks having given back all the Shutdown gains, gold and silver prices are surging higher retracing all yesterday's losses as Treasury yields fall and the USD weakens on EUR strength. It seems, perhaps, the spike in 1 month T-Bill yields (and inversion of the USA CDS curve) is being priced into other safe-haven assets...

$1,050/oz was identified as the likely level of support if gold weakens again in the short term - especially if gold falls below support at $1,200/oz. This was a possible scenario outlined in the closing session chaired by Dr Brian Lucey of Trinity College Dublin. 

The nation's top intelligence officer, James Clapper, is worried:

• *CLAPPER: SHUTDOWN 'SERIOUSLY DAMAGES' U.S. NATIONAL SECURITY

and so is Senator Grassley:

• *GRASSLEY `CONCERNED' 70% US GOVT INTELLIGENCE STAFF FURLOUGHED

But - for those who care about personal privacy rights, there is a silver lining:

• *US GOVT SHUTDOWN HAS HIT NSA 'VERY HARD', AGENCY DIRECTOR SAYS

The president's total job approval for September inched up a point from August to 48%, his highest rating since May. But that’s still down eight points from December’s high of 56%.  Furthermore, according to the latest Rasmussen poll (of these people?), it is noteworthy that 29% "Strongly Approve" while 38% "Strongly Disapprove," leaving the spread at -9 - which while still negative, is the highest since June surging this week as the showdown over the shutdown continues. At this rate, by the time the debt-ceiling debate is over - Obama will have the entire nation begging him for a 3rd term...

UPDATE: *NASDAQ, NYSE ARCA, AMEX OPTIONS REVOKE SELF-HELP AGAINST CBOE

The stock market is trading down - therefore, options markets have broken:

• *BATS OPTIONS HAS DECLARED SELF-HELP VS CHICAGO BOARD OPTIONS
• *BATS: ROUTING TO CHICAGO BOARD OPTIONS EXCHANGE SUSPENDED
• *NASDAQ OPTIONS MARKET (NOM) HAS DECLARED SELF HELP AGAINST CBOE

Seems that options markets were not broken last night as VIX was banged into the close?

EURUSD is at 8 month highs, having broken above 1.36 for the first time since Feb 4th. This is a 100 pip ramp from the start of Draghi's press conference as he offered little or no hope for imminent policy actions to weaken what has already become an earnings-impacting strength in the region's currency. Whether this knee-jerk is algo-driven reaction to "no news is good news" or market participants actually pressing the EUR higher on a lack of policy action in order to force Draghi's liquidity-providing hand down the line is unknown, but for now, we await the Q3 earnings data from European entities to see if they justify the near-record high stock prices being atrtributed.

A week ago, we first reported that Bridgewater's Ray Dalio had finally thrown in the towel on his latest iteration of hope in the "Beautiful deleveraging", and realizing that a 3% yield is enough to grind the US economy to a halt, moved from the pro-inflation camp (someone tell David Rosenberg) back to buying bonds (i.e., deflation). This was music to Bill Gross' ears who in his latest letter, in which he notes in addition to everything else that while the Fed has to taper eventually, it doesn't actually ever have to raise rates, and writes: "The objective, Dalio writes, is to achieve a “beautiful deleveraging,” which assumes minimal defaults and an eventual return of investors’ willingness to take risk again. The beautiful deleveraging of course takes place at the expense of private market savers via financially repressed interest rates, but what the heck. Beauty is in the eye of the beholder and if the Fed’s (and Dalio’s) objective is to grow normally again, then there is likely no more beautiful or deleveraging solution than one that is accomplished via abnormally low interest rates for a long, long time." How long one may ask? "the last time the U.S. economy was this highly levered (early 1940s) it took over 25 years of 10-year Treasury rates averaging 3% less than nominal GDP to accomplish a “beautiful deleveraging.” That would place the 10-year Treasury at close to 1% and the policy rate at 25 basis points until sometime around 2035!" In the early 1940s there was also a world war, but the bottom line is clear: lots and lots of central planning for a long time.

With the BLS shutdown, and this Friday's NFP report indefinitely delayed, the only labor report this week would be the (highly inaccurate) anticipated ADP Private Payrolls data. Moments ago it came, and disappointed all those hoping that finally, after five years, the Fed's shotgun wealth creation strategy may be working when it not only missed expectations of 180K, instead printing at 166K with the bulk of jobs created in the service-providing sector, but excluding massive downard revisions (July from 198K to 161K, August from 176K to 159K), would have been the lowest print of the past 4 months. And while, finally, some 1000 manufacturing jobs were created in September, for the first time in over a year the high-paying financial sector saw an exodus of 4000 jobs. Wave goodbye to the "third half" 2013 recovery.

Leaving rates unchanged for now, all Draghi has left in his arsenal is to jawbone the EUR down (since we already know the strength of the EUR is hurting corporate earnings). Moar negative rate "possibilities", a sprinkling of "things are not quite as awesome as markets presume", and a hint or two at the need for another VLTRO? And we are sure this time, he will explain exactly how the OMT will work...

Moments ago, Italy's most popular politician flip-flopped on his threats from the past weekend to take down Italy's government, and after realizing he does not have enough support even in his own party to push for early elections and a vote of no confidence for prime minister Letta, Berlusconi announced his party will vote to support the government of the current Premier, a major turnabout that signals he was defeated in his efforts to bring down the government.