Archive - Oct 6, 2013

When, according to Google trends, Americans are suddenly more interested in the "Government Shutdown" than perrential sources of distraction such as "Miley", "Kardashian" and "Bieber", it may be time to panic.

While we documented (and predicted) the surge in October 31 T-Bill yields, now that the market is increasingly pricing in the probability of a (supposedly brief) technical default of short-term US debt around October 17, aka the "X-Date", a more disturbing development has been the rapid rise in November 14 Bills, as increasingly more traders become concerned not only about a failure to successfully negotiate away the debt ceiling, but the possibility of a protracted debt ceiling fight continuing well into November. So just what are the US government's key obligations in the immediate aftermath of the X-Date? Here, once again, is a breakdown of key events and cash "deliverables."

There isn't anybody out there...

Argues that despite the growth the of the state in response to the crisis, what characterizes the current investment climate is the weakness of the state.  This asssessment is not limited to the US, where the federal government remains partially closed.   

There used to be a time when US manufacturing set the pace for the entire world, and was the leading indicator for growth in developed and emerging economies around the globe. Unfortunately, in the days of the New Normal, this indicator has lost its potency, and has been replaced by the only variable that currently matters: which central bank is injecting the most credit money into a fungible, globalized marketplace (where for some reason analysts continue to confuse the economy with the centrally-planned market). Still, what the US does has reverberations around the world. Which is why the following chart showing MarkIt manufacturing index (PMI) data for the world's countries may be troubling. Despite hitting a global two year high of 51.8 in September, the key US subcomponent has been on a downward slope since the start of 2013.

STEPHANOPOULOS: So are you saying that if he continues to refuse to negotiate, the country is going to default?

BOEHNER: That's the path we're on.
...
STEPHANOPOULOS: So bottom line, you're saying this is your absolute position. If the president continues to refuse to negotiate over the debt limit, if Democrats refuse to continue to negotiate over the government shutdown, the government is going to remain closed and the United States is going to default?; BOEHNER: The president -- the president, his refusal to talk, is resulting in a possible default on our debt.

Same political disfunction. Same blue team indifference to soaring government debt. Same hypocrisy from those on the red team who helped set debt on its upward trajectory. Same lack of any serious effort to tackle the most important issue – the unsustainable paths of our major entitlement programs. But there is one difference.

The US government's foreign policy appears to be most effective when it is shut down. First, we learned that the CIA has accelerated its training and weapons supply of Syria's Al-Qaeda insurgents only after the funding for the non-critical government functions was halted. Then, overnight, John Kerry showed that while he gives to Al-Qaeda with one hand he takes from it with two following two U.S. raids in Libya and Somalia that captured an Islamist wanted for bombing its Nairobi embassy 15 years ago. These actions "show Washington's determination to hunt down al Qaeda leaders around the globe" Secretary of State John Kerry said on Sunday. So in 15 years the then secretary of state will be proud to announce that Al-Qaeda leaders operating in and around Syria, armed with US weapons, have also been captured. And so the wheel will keep on turning.

We identify the six investment themes that look likely to generate alpha over the coming decade.