Archive - Oct 2013

Just out from Fed "hawk" Dick Fisher:

• FISHER: FISCAL SHENANIGANS HAVE `SWAMPED' QE TAPER PROSPECTS
• FISHER: HARD TO NOW ARGUE TO CHANGE COURSE OF MONETARY POLICY
• FISHER HAS FAVORED TAPERING FED MONTHLY BOND PURCHASES
• U.S. FED'S FISHER REPEATS BEST TO 'STAY THE COURSE' ON BOND BUYING AT OCTOBER FOMC MEETING

And therein lies the most circular argument of the New Normal.

Yesterday, when we presented the latest update of overnight General Collateral rates (and when we said it was time to close the long-GC trade at its 2013 highs), we showed that on the day when there was a likelihood the US would enter the X-Date period without a debt deal in place potentially jeopardizing the sanctity of short-term bills, GC jumped to 0.32%, the highest in all of 2013. Moments ago ICAP, via Stone mcCarthy, released the latest repo data, and we can see that while GC has dropped substantially from recent levels, at 0.20% where it was as of 8:30 am, it is still notably elevated, especially in light of the collateral shortage that developed starting in May when GC was trading in the sub 0.10% area for the bulk of the time.

"Gold is acting crappy. It looks awful on the charts and it's just not doing what it should be doing. Gold looks weak. Thank goodness I have owned it in terms of Yen. It saved me from losing 25% instead of only down about 7%. That's still an eggregious loss. Gold still looks awful. One has to suspect it is probably going to go lower again. I like steel a whole lot more than i like gold."

Yesterday, before the inevitable House denouement, we had a prophetic observation:

No matter what happens tonight, tomorrow's initial claims number will still be idiotic

— zerohedge (@zerohedge) October 16, 2013

They sure were...

A quarter after Goldman reported the highest per employee comp since the record bonus period just after the Lehman bankruptcy, when the average employee of the firm's then 31,700 workers made $431,956, the firm which once ruled the world proudly with tentacles running every important global central bank, was forced to slash employee comp by a whopping 35%, from $3.7 billion, a comp margin of 44% in Q3 2012 and roughly the same last quarter, to a tiny $2.4 billion, or a comp margin of just 35.4%, resulting in average trailing 12 month per employee (of which it had 32,600 in Q3 2013) accrued compensation of just $380,368, the lowest since Q2 2012.

On the surface Goldman's earnings, which just hit the tape at $2.88/share, and which beat expectations of $2.47 - higher than the $2.85 from a year ago - were far better than some of the worst case expectations. That is, until one actually looks at how they were derived. Sadly for Goldman's employees, the EPS beat was not due to a rise in actual revenues, which missed expectations of $7.35 billion massively, printing at $6.72 billion and down 20% from a year ago, but due a slashing in compensation expenses, which were brutalized from $3.7 billion in Q3 2013 and Q2 2013, to "only" $2.4 billion, a 35% Y/Y drop!

• Congress Vote Ends Impasse to Be Revisited in January (BBG); Congress Passes Debt, Budget Deal (WSJ)
• House GOP extracts no concessions (Politico)
• Washington becomes the biggest risk to the U.S. economy (Reuters)
• Debt Deal Seen Boosting U.S. Consumers as Holidays Approach (BBG) - only thing missing: disposable income
• Federal Employees Head Back to Work (WSJ)
• Regulator Suggested Shift for Dimon at J.P. Morgan Unit (WSJ)
• Twitter hires Google ad exec ahead of IPO (CNET)
• Teens can now post publicly, but posts are friends-only by default (WaPo)
• Germany Moves to Finalize Coalition Deal (WSJ)
• Draghi Turns Judge on EU Banks as ECB Studies Accounts (BBG)
• UK nuclear deal with China a ‘new dawn’ (FT)

Remember that persistent seller of epic and oddly periodic amounts of gold futures contracts, whose dumps have resulted in two NYMEX "stop logic" shutdowns in the past month alone, and whose daily tape bombing is now watched carefully by all (even the CFTC's Bart Chilton who can rejoice - the CFTC is now open and he can go back to "supervising" the market and stuff)? Well, he is mysteriously absent this morning, as gold (which is now back in backwardation for the second day in a row) soars by $50 from $1275 to $1320 in the matter of minutes, showing just how furious the short covering spreed in the gold space can and will be when it becomes clear just how right Dagong was. The next such instance of clarity we expect will take place in December, early January when the farce repeats itself.

If there is anything the market has shown in the past 16 days of government shutdown, which is set to reopen this morning in grandiose fashion following last night's 10 pm'th hour vote in the House, is that it no longer needs Washington not only to function but to ramp higher. All it needs is the Fed, which in turn needs an unlimited debt issuance capacity by the US Treasury which it can monetize indefinitely, which is why the debt ceiling was always the far more pressing issue. In other words, the good news is that the can has been kicked, and now the government workers (who will need about a week to get up to speed), can resume releasing various government data showing just how much 5 years of now-open ended QE have impaired the US economy, and why as a result, even more years of unlimited QE are in stock (because in a Keynesian world, what caused the problem is obviously what will fix it). The bad news: the whole charade will be repeated in three months. More importantly, with futures no longer having the hopium bogey on the horizon, namely the always last minute debt deal, they have finally sold off on the back of a weaker USD. It is unclear if the reason for this has more to do with climbing the wall of shorters which is now gone at least until February when the soap opera returns, or what for now, has been an absolutely abysmal Q3 earnings season. Luckily, in a centrally-planned world, plunging stocks is bullish for stocks, as it means even more Fed intervention, and so on ad inf.

Since all US rating agencies (Fitch is majority French-owned) have been terrified into submission and will never again touch the rating of the US following the DOJ's witch hunt of S&P, any US rating changes on the margin will come from abroad. Like China's Dagong rating agency, which several hours ago just downgraded the US from A to A-, maintaining its negative outlook. The agency said that while a default has been averted by a last minute agreement in Congress, the fundamental situation of debt growth outpacing fiscal income and GDP remains unchanged. "Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future."

How Many Constitutional Freedoms Have We Lost?

For those wondering, here is the full final roll call of the vote to extend the debt ceiling and temporarily end the government shutdown:

And so, in the proverbial 11th hour, or technically 10th hour and 10th minute before the midnight of the X-Date, the House gets the necessary 216 votes to pass the Senate bill to raise the debt ceiling, and in a final 285-144 tally, in which 87 Republicans voted yea to 144 GOP noes as all 198 Democrats vote yea, has agreed to restore funding.  Next up: the BLS random number generator starts cranking again and informing everyone in just how sorry a state the economy finds itself, which of course is bullish for stocks because it means that the taper is indefinitely delayed, potentially until June 2014. Also next up, as the emergency Treasury measures are netted out against the new debt limit, it means that once the new Daily Treasury Statement hits, the total US Federal debt will be just at, or over $17 trillion. Rejoice.

Doug Casey first met Ron Paul 30 years ago. In this wide-ranging interview, Casey discusses how the "born libertarian's" ideas have changed in that time...

Accute Wiretap Ear spotted...