Archive - Oct 2013

As we observed four hours ealier, the EURJPY-implied futures open suggested an immediate 15 points of downside. Sure enough, ES has just opened for trading some 15 points lower to start. Where it ends the overnight session, however, now that the NY Fed and BIS trading desks have both been called in for an emergency overnight session, is a different matter entirely.

With the House, as previously reported, now out of the debt ceiling negotiations, it is all up to the Senate to reach some compromise with 4 days until the midnight of the first X-Date. Unfortunately, or maybe fortunately, at least going into Monday, there is no deal, and not even a glimmer of what a potential deal may look like. Yes, Democrat leader Harry Reid did said on Sunday that he had a "productive conversation" with Senate Republican leader Mitch McConnell on efforts to reopen the U.S. government and raise the federal debt limit, Reuters reports, but that's as far as it gets. "Our discussions were substantive, and we'll continue those discussions. I'm optimistic about the prospects for a positive conclusion to the issues before this country today," Reid said in remarks on the Senate floor. He did not provide any specifics of the conversation. Democrats and Republicans remain divided over spending levels in any temporary government-funding measure.

Stock markets worldwide are faced with the same issue of declines in listings that surfaced in the U.S. a decade and a half ago. The reasons for the contagious collapse in publicly listed entities is unclear (increasing acquisitions, LBOs, filing for bankruptcy, and declines in IPO volumes) but as Bloomberg reports, "the decline in public equities is unquestionable and should be of grave concern to both investors and policy makers alike," CFA Institutes' Jason Voss noted adding - crucially, "having fewer listings may hamper asset allocation, make stocks too expensive and send improper signals to companies looking to go public."

If Congress doesn't raise the debt ceiling soon, the U.S. government won't be able to pay its debts. Here's NPR's simple (and complete) illustration to who the government owes money to — all the holders of U.S. Treasury debt, broken down by category and by how much government debt they hold. It would appear the government's ponzi self-financing may be exposed for all to see... (and is it anywonder the Chinese are complaining?)

Time is nearly up for Ben Bernanke, the chairman of the Federal Reserve who supposedly applied his scholarly knowledge of the Great Depression to steer the U.S. to safety after the financial crisis. In truth, Bernanke navigated a monetarist course that favored intensive intervention, following in the footsteps of many mainstream economists who grossly misunderstood the lessons of the Crash of 1929 and the ensuing malaise. That lesson is that when corrective crashes occur, intervention is far from the cure — it is the cause.

We assume it is a coincidence that on the day in which we demonstrate China's relentless appetite for gold, driven by what we and many others believe is the country's desire to have a call option on a gold-backed reserve currency when the time comes, just posted in China's official press agency, Xinhua, is an op-ed by writer Liu Chang in which he decries the "US fiscal failure which warrants a de-Americanized world" and flatly states that the world should consider a new reserve currency "that is to be created to replace the dominant U.S. dollar, so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil in the United States." Of course, if China were serious, and if the world were to voluntarily engage in such a (r)evolutionary reserve currency transition, then all Magic Money Tree theories that the only thing better than near infinite debt is beyond infinite debt, would promptly be relegated to the historic dust heap of idiotic theories where they belong.

In a world in which only the central banks' balance sheets matter, and everything, when stripped of its product complexity, is simply a derivation of a cheap money carry trade, as can be seen on the chart below showing the correlation between the the ES and the EURJPY which have become interchangeable then the futures open in 4 hours should be interesting following the early weakness in both EURJPY and USDJPY. Interesting because the implied 15 point ES drop in futures as of the early indications is hardly the large enough drop that is needed to once again the GOP in either the House or the Senate to scramble and get a deal done, following  the recent two-day epic surge in the market on hopes that deal concerns would no longer be an issue.

Big picture and dispassionate discussion.  

The "Million Vet March" in Washington D.C. appears to be escalating as reports of barricades being torn down, police in riot gear and snipers being deployed, and a growing crowd at The White House chanting for its shut-down suggest the people are growing restless.

Another of history’s many lessons is that governments under pressure become thieves. And today’s governments are under a lot of pressure.

China has just one thing to say to all those who engage in the now daily slamdowns of gold just around the time of the London fixing, after 8 am Eastern, which lately have gotten so vicious they have resulted in "stop logic" market halts not on one but at least two occasions, keeping the price of gold delightfully low for all those who instead of selling, are looking to buy: "thanks."

Yesterday millions of "shoppers" living on the government dole left their shopping carts in droves in checkout counters, exited countless foodstamp-accepting stores, and made Wal-Marts and other general merchandise stores into veritable ghost towns, after a power outage at Xerox Corp, made EBT usage in 17 states for most of Saturday impossible, and left tens of millions of poverty-level Americans unable to engage in one of their favorite pastimes: shop with other people's money. In short: the Walfare States of America were probably closer to a state of outright revolution than at any time before in history. And had the EBT stoppage continues into today, things would have certainly spilled out from the shopping aisle to main streets where the people's anger may have culminated in an violent expression of disgust at a state which gives with one hand and a xerox company that takes with the other.

Measurements taken at 39 sporting venues earmarked to stage the 2020 Tokyo Olympic Games have elevated levels of radioactivity according to a citizen's group. The South China Morning Post reports that the group "found caesium-137 at almost every place [they] carried out tests, and there was no caesium here before the accident at Fukushima." Tests were made at the Olympic Village, Media Center, and the highest radiation reading, 0.484 microsieverts per hour, was detected in undergrowth close to Yumenoshima Stadium - significantly higher than the level of 0.23 microsieverts per hour set by the government as the standard for decontamination work going on in the exclusion zone around the nuclear plant. In response to a request, a spokesman for Tokyo 2020 insisted: "Radiation levels in the air and water of Tokyo are safe." So all good then...

We now appear to be close to the day of reckoning that likely determines what the coming weeks/months hold.

• Do we step back from the brink, see our politicians reach an agreement and carry on? Although to be fair, in 2011 the break below supports that led to accelerated losses in the equity markets actually took place once an agreement was reached.
• Do we break lower thereby causing the negative feedback loop/concerns that feed back into the economy, kill any possibility of tapering and sees the Fed re-establish its dovish credentials (Like 1998 and 2011)
• Do bond yields push higher after an agreement thereby increasing concerns about a negative feedback loop into the economy, housing, emerging markets, Europe (Like 2011) and ultimately the equity market?

Time will tell us the answers to the above questions, but whatever happens, Citi notes it looks like the price action in the near future is at pivotal levels that need to be watched closely.

In an interesting twist of irony, one of the Congressman most instrumental in the destruction of civil liberties in these United States due to his authorship of the Patriot Act, Jim Sensenbrenner (R-Wisc.), is now leading the charge to reign in NSA abuses. His disgust with the NSA became clear back in early June when he wrote an impassioned letter to Attorney General Eric Holder criticizing the illegal NSA activity happening behind the scenes. The key point here is that Mr. Sensenbrenner strongly believes that these guys are misinterpreting the legislation he wrote to justify everything they are doing. As such, he and others are proposing legislation to make it crystal clear what is and what is not appropriate surveillance. Not only that, he is also calling for the prosecution of James Clapper the current Director of National Intelligence, who perjured himself in front of Congress earlier this year.