Archive - Oct 2013

There really is very little reason why this "government shutdown" cannot continue indefinitely because almost everything is still running.  63 percent of all federal workers are still working, and 85 percent of all government activities are still being funded during this "shutdown". It turns out that the definition of "essential personnel" has expanded so much over the years that almost everyone is considered "essential" at this point.  In fact, this shutdown is such a non-event that even referring to it as a "partial government shutdown" would really be overstating what is actually happening. In the end, this shutdown could turn out to be very good for America.  We have a government that is wildly out of control and that desperately needs to be reigned in.

One thing is now abundantly clear: 2013 is now one big scratch for bankers who were expecting that this year bonuses would finally pick up from the prior several years mediocre performance and catch up to the record days of 2009 (just after the biggest wholesale bank bailout in history). The WSJ summarizes the situation best: "I haven't seen morale this bad since the Titanic," said Richard Stein, a senior recruiter at Caldwell Partners CWL.T -3.41% who specializes in financial services. And if bankers are not happy, nobody else will be (here's looking at you dear perpetual banker bailout ATM known as US taxpayers).

The US Federal Reserve’s recent surprise announcement that it would maintain the current pace of its monetary stimulus reflects the ongoing debate about the desirability of cooperation among central banks. Discussion of central-bank cooperation has often centered on a single historical case, in which cooperation initially seemed promising, but turned out to be catastrophic. We are thus left with a paradox: While crises increase demand for central-bank cooperation to deliver the global public good of financial stability, they also dramatically increase the costs of cooperation, especially the fiscal costs associated with stability-enhancing interventions. As a result, in the wake of a crisis, the world often becomes disenchanted with the role of central banks – and central-bank cooperation is, yet again, associated with disaster.

With short-term Treasury Bills starting to price in a missed payment possibility and USA CDS surging (though still low), the debt ceiling (and implicit chance of a technical default) is nigh. As we approach yet another debt ceiling showdown (especially in light of the seeming congruence of a CR and debt ceiling debate in an entirely divided Washington), market attention will turn towards a possible US sovereign rating downgrade. In this article, we provide an outline of the likely actions by the three rating agencies (S&P, Moody’s and Fitch).

Hidden deep in the pages of JPMorgan's Living Will report just realesed by the FDIC, the WSJ has found that CEO Jamie Dimon (still Chairman of the overall JPM entity) has relinquished his position as Chairman of the banking conglomerate's major deposit-taking subsidiary. While the bank claims this is "solely to create a more uniform structure among our subsidiary boards," one can't help but feel this is driven by unrelenting pressure from the administration (and its regulators) as the deposit-taking subsidiary had its confidential management rating downgraded from a 2 to a 3 on a scale of 5, a rare score for such a large institution; and faces public enforcement actions demanding changes to alleged risk-management, anti-money-laundering and debt-collection weaknesses.

Even as the fearmongering over the debt ceiling hits proportions not seen since 2011 (when however it was the 20% drop in the market that catalyzed a resolution in the final minutes - a scenario likely to be repeated again), some banks are taking things more seriously, and being well-aware that when it comes to banks, any initial panic merely perpetuates more panic, have taken some radical steps. The FT reports that "two of the country’s 10 biggest banks said they were putting into place a “playbook” used in August 2011 when the government last came close to breaching the debt ceiling. One senior executive said his bank was delivering 20-30 per cent more cash than usual in case panicked customers tried to withdraw funds en masse. Banks are also holding daily emergency meetings to discuss other steps, including possible free overdrafts for customers reliant on social security payments from the government.

Youth unemployment around the world is dreadfully high and rising. An entire generation is now coming of age without being able to leave the nest or have any prospect of earning a decent wage in their home country. Young people in particular get the sharp end of the stick - they’re the last to be hired, the first to be fired, the first to be sent off to fight and die in foreign lands, and the first to have their benefits cut; and if they’re ever lucky enough to find meaningful employment, they can count on working their entire lives to pay down the debts of previous generations through higher and higher taxes. But when it comes time to collect... finally... those benefits won’t be there for them. Case in point: the British government has just announced a new push to eliminate benefits for young people. And this is just step 1.

Dramatic footage in this Fox News video.

"We may well have had a big, big rally in the U.S. stock market, but it's not based on reality.

I would encourage investors to know you're in a fool's paradise, be careful, and when people start singing praises, say, 'I've been to this party before, and I know know it's time to leave.'"

-Jim Rogers

Warmongering Continuing Full Speed Ahead

Stocks have fallen for 9 of the last 11 days since the Un-Taper and the S&P has falen 3.7% from its highs. Volume today was above average (as we note CBOE SPY options volume set an all-time record yesterday) and thanks to a 1% or so rally off the lows on the back of a restatement that Speaker Boehner doesn't want to see carnage, the S&P managed to scramble back above the 50DMA. A late-day collapse (what no VIX pumpathon today?) closed us below that crucial level for the first time in a month. VIX rose 1 vol to 17.6% by the close (off its highs). Treasuries rallied in general (but the 30Y ended the day unch as the curve steepened notably). The USD fell some more  (-0.65% on the week) as JPY and EUR strength didn't help but gold and silver closed unch, oil and copper down 1%.

The situation in DC is fluid, but here is the most coherent narrative so far from NBC Washington DC: "A woman opened fire near the U.S. Capitol after trying to ram her car into the White House gates Thursday afternoon; she was then shot. A U.S. Capitol Police officer was injured in the event, though it is not clear that the officer was shot. The incident began at about 2:30 p.m. at the White House gates at 15th and E streets, NBC News confirmed. The driver tried to ram the gates but failed, and then was pursued by Secret Service. She bailed out of her car near the Capitol building and began shooting, NBC News' Pete Williams reported. Some reports said that as many as 10 to 15 rounds were fired. The injured officer was airlifted to an area hospital. The U.S. Capitol building was on lockdown after the shooting, though that lockdown has now been lifted. Parts of Pennsylvania Avenue are still closed." According to Fox reports the woman was 18 years old and there also a child in the car. The child is said to be unhurt.

It would appear that the almost $1bn capital raise secondary that JCPenney successfully completed last week - inspite of the lies - has done absolutely nothing to resolve market fears as JCP 5Y CDS surges 80bps to 1280bps (equivalent), a record high (and 1Y protection at 1210bps) and the stock price falls another 3.6% to $8.40 - the lowest since 1982. Just as Goldman had warned, liquidity remains a major concern and anyone who had bought the protection made up their losses on the stock they bought from Goldman on the secondary. The credit markets imply around a 25% chance of default within the year and 70% within 5 years.

U.S. CAPITOL POLICE HAVE REPORTS OF SHOTS FIRED AT 2ND ST AND CONSTITUTION AVENUE N.E., SEVERAL INJURED

FEMALE SUSPECT REPORTED DEAD ON SCENE AT US CAPITAL: SOURCE

CAPITOL SHOOTING STARTED WHEN WOMAN TRIED TO RAM GATE AT WHITE HOUSE, THEN FLED. WAS SHOT WHILE TRYING TO HIT OFFICER. CBS.

CHILD FOUND UNHURT IN CAR OF SUSPECT, ABC TWEETS