Archive - Oct 2013

The BPC, whose initial analysis of the US default has become the staple "go-to" analysis for Treasury cash obligations and key events in the day surrounding and following the X-Date, has released a new update on when the US runs out of money. The latest: October 22 - November 1. Which means that if it so desires, the GOP can and probably will delay a debt ceiling bargain until the last possible moment which may well be, appropriately enough, Halloween. In the meantime, the US Treasury now has about $40 billion in total cash on hand and available extraordinary measures and declining fast.

Amid the bluster of yet another press conference, equity markets chopped around jerking up and down 5 points at a time for the S&P 500. But one market, the Treasury Market, went only one way. While it is all too easy to watch the tickers and listen to the glib bloviation of any and all talking head exclaiming that there is no-way, zero-chance, totally unlikely, impossible that the US government would technically default - the Treasury-Bill market is less confident (10/17s +8.5bps to 22.5bps, 10/31s +7.5bps to 23.5bps). In fact, the T-Bill yield has now spiked massively more than during the 2011 Debt-Ceiling debate (and stocks - for now - have not).

It doesn't sound like the politicians are getting any closer...

• BOEHNER SAYS IT'S TIME TO SIT DOWN, TALK, RESOLVE DIFFERENCES
• BOEHNER SAYS ALL HE'S ASKING FOR IS NEGOTIATIONS
• BOEHNER SAYS OBAMA, REID PUTTING U.S. ON `DANGEROUS PATH'

And the already proverbial Schrodinger table:

• BOEHNER SAYS NOTHING IS ON THE TABLE, NOTHING IS OFF THE TABLE

The chart below, showing the historical change in the IMF's periodic revisions of world growth and revised for today's just released latest World Economic Outlook, shows that much taxpayer money can be saved if the monetary fund's staff was replaced with dart-throwing chimps.

While until today the only way to save the greater idiots from themselves was to halt the trading of Twitter-lookalike stock ticker TWTRQ, the decision has been made by the exchange (we assume in coordination with the company itself) to change the ticker symbol to THEGQ. There is no statement from either the exchange or the company to clarify the reasoning (for now) but given the "investing" public's interest in the company, we can only imagine the demand when the stock re-opens.

Long before Edward Snowden's whistleblowing revelations hit the world and the Obama administration's approval ratings like a ton of bricks, we ran a story in March 2012 which exposed the NSA's unprecedented domestic espionage project, codenamed Stellar Wind, and specifically the $1.4+ billion data center spy facility located in Bluffdale, Utah, which spans more than one million square feet, uses 65 megawatts of energy (enough to power a city of more than  20,000), and can store exabytes or even zettabytes of data (a zettabyte is 100 million times larger than all the printed material in the Library of Congress), consisting of every single electronic communication in the world, whether captured with a warrant or not. Yet despite all signs to the contrary, Uber-general Keith Alexander and his spy army are only human, and as the WSJ reports, the NSA's Bluffdale data center - whose interior may not be modeled for the bridge of the Starship Enterprise - has been hobbled by chronic electrical surges as a result of at least 10 electrical meltdowns in the past 13 months.

During the European crisis, we saw sovereign debt yields rising way above their domestic banking sector's yields as investors feared systemic crisis and technical flows dominated the price action amid aggressive hedging. Now, with Washington looking increasingly likely to crash upon the shores of a US Treasury technical default, for the first time on record the yield on short-term Treasury-Bills is above the yield on US interbank loans. T-Bill yields (the US government's "risk") have surpassed short-term LIBOR (US Banks' "Risk")... must be a good reason to BTFATH...

Confused as to why US equity futures are levitating once again this morning (aside from a pre-open lift to restore retail's confidence to buy some more all-time highs)? Have no fear, the JPY is here. A sudden (and entirely un-news-driven) ramp in JPY crosses has lifted the S&P to overnight highs, dragged Treasury yields higher, and pushed gold and silver prices lower as the correlated cross-asset-class algos play free in the pre-open. Only problem with all this exuberance, the 10/24/13 T-Bill yiled has exploded 6bps higher to 22.5bps this morning as it is clear short-term risk of a missed payment is rising fast.

The appalling fiscal and monetary situation in the U.S. will lead to further dollar weakness in the coming  months. This weakness will be most manifest versus gold as other fiat currencies have their own risks. 

Goldman, which is the hedge fund best known for originating prop order flow in the opposite direction of what its sellside "research" team tells its clients to do (see Tom Stolper), has never been clearer on gold: "Gold is slam dunk sell for next year because the U.S. economy will extend its recovery after lawmakers resolve stalemates over the nation’s budget and debt ceiling, Goldman Sachs Group Inc.’s Jeffrey Currie said." How the economy will expand, especially with the Fed supposedly tapering (even though everyone saw what happened to markets and the economy at the mere mention of "tapering" the last time around) and eventually ending QE - the only driver of upside market momentum in the past 5 years - was not discussed. What was, however, clear is that Goldman will continue buying all the gold its clients have to sell until the bailed out hedge fund's price target of $1,050/ounce is hit.

• Hilsenrath: Tense Negotiations Inside the Fed Produced Muddled Signals to Markets (WSJ)
• Biggest US Foreign Creditors Show Concern on Default Risk (BBG)
• Shutdown Costs at $1.6 Billion With $160 Million Each Day (BBG)
• What default? Republicans downplay impact of U.S. debt limit (Reuters)
• Top Bankers Warn on U.S. Debt Proposal (WSJ)
• India to stick with austerity despite looming election (Reuters)
• Japan's Current-Account Surplus Plunges (WSJ)
• Amazon Wins Ruling for $600 Million CIA Cloud Contract (BBG)
• German Factory Orders Unexpectedly Fall on Weak Recovery (BBG)
• Britain's Higgs, Belgium's Englert win 2013 physics Nobel prize (Reuters)
• Supreme Owner Made a Billionaire Feeding U.S. War Machine (BBG)

Markets are so obsessed by developments with the US debt ceiling, that absolutely nobody noticed that the Japanese Current Account (JPY152Bn, Exp. JPY520bn), Industrial Outuput in Spain (-2.0%, Exp. -1.6%), Factory Orders in Germany (-0.3%, Exp. +1.2%), Trade Balance in Germany (€13.1bn, Exp. €15.0 bn) and that the Jan-Aug tax revenue in Greece below expectations by 5.7%, all missed horribly, and that for all the talk of a European recovery (which was merely driven by a brief surge in Chinese credit spending making its way into the European pipeline) is once again fully and entirely premature. But with Congress on everyone's mind, even increasingly China and Japan, who cares about fundamentals: after all there is a Federal Reserve to mask the fact that nothing but liquidity injections matters. Even if that means a complete collapse in the actual economy as those separated from the Fed by one or more layers of banks, crash and burn.

The euro system has many peculiarities as we have shown extensively on our blog. To a large extent the system can be analyzed as a “tragedy of the commons” problem. As is well known in economics, when a shared resource can be exploited in full by individuals with no exclusive property right, the resource will be overexploited.

The euro is a shared resource. Every national central bank can exploit it to the fullest while the cost will be shared by every member state.

The incentive in such a system is obviously rigged to its disfavor and it will eventually break down.

"You don't need me to tell you that the developed countries, the US, Europe, Japan, are insolvent.... I don't want to paint  a picture of clarity about the workout of this thing. Because once a society, a financial system gets in a position of the central bank being trapped, and being unwilling or frightened of stopping this merry go round, things get very dicey. They may move to stopping the money printing, markets collapse, then they panic, go the other way... We are in a period where confidence should be jostled and it could be lost at any time for a variety of reasons, how this works out nobody knows.... There is one right thing to do right now: after five years of 0% interest rates, after $3.5 trillion here and several trillion sprinkled around the globe, this Fed chairman, the next Fed chairman, should say: "We've done enough. It is up to the president and Congress to remove the impediments for growth and provide the catalysts for growth, and help this country grow. The country is capable of growing at a far faster rate than it has been. And I think that the Fed, which is the only central bank which has a dual mandate, has embraced this dual mandate in a very harmful way because they actually revel in the role of being Atlas, holding up the world by themselves."

"Steve Jobs was really a pretty terrible man... and I just don't believe bad guys do well in the long run," is the subtle way the billionaire fund managed describes the ex Apple CEO before shifting his view to the broader market. A spell-bound Maria Bartiromo was looking for any silver lining when Julian Robertson responded ominously, "we're in the middle of a kind of bubble market," and when they "prick the bubble, there will probably be a pretty bad reaction." With views on The Fed's easy-money, Twitter, and market frothiness, Robertson is a breath of truthy fresh air that we suspect will not be back on the money-honey's show anytime soon...