Archive - Oct 2013

In and of itself, the government shutdown appears to be a limited market event. The indirect effect, however, is on the other main risk scenario for markets – the deal on the debt ceiling (which will need to be in place before October 17). An increase in the probability of breaching the debt ceiling would likely be destabilizing for the market. For one, the effect on growth will be far larger – our economists estimate that it would imply an immediate cut in spending equal to 4.2% of GDP (4Q average of the fiscal deficit). Second, it would raise the risk of a US sovereign default because the Treasury does not believe it has the authority to prioritize interest payments above other obligations. As such, with markets firmly focused on US fiscal matters - so where to from here?

Despite its position as a "cult" stock - capable of enduring anything (according to Cramer) - the holy grail of momentum stocks is under massive pressure today. Down 9% as we write, Tesla seems to be at the center of a quadruple whammy of retail investors realizing they have become unwitting bagholders to selling institutions, an analyst's downgrade, a major potential dilution event as the firm's convertible note becomes 'convertible' and investors sell to take profits on their bond's huge gains, and an additional factor which may have led to the acceleration in the sell-off in the last hour or so, has been the emergence of an unverified YouTube video which purports to show a burning Tesla, although the firm's investor relations promptly responded, via CNBC, saying the fire is due to the car colliding with a large metal object in the middle of the road (of which roads tend to have quite many)... and burst in flames?

15 Bankers just paid a visit to the White House, listened to President Obama, and explained what a total disaster it would be if the US debt-ceiling is breached and Treasuries technically default. While the politicians exclaimed how bad a government shutdown would be, the banks have turned the panic dial to 11 as Goldman's Lloyd Blankfein noted, bankers are “in a position to really know early what the consequences are,” and it would be catastrophic. The irony that the firm which the government is trying to fine $20 billion for selling fraudulent debt and giving bad advice is now providing the same government with advice on its own bad debt, is not lost on us as Dimon was among the visitors but it is Blankfein's warning, echoing Obama, that will get the headlines, "they shouldn't use the threat of causing the U.S. to fail on its obligation to repay debt as a cudgel."

First it was the Americans. Now it is the Russians' turn. Al Arabiya reports (and Itar-Tass confirms) that "Gunmen attacked the Russian embassy in the Libyan capital Tripoli on Wednesday, Al Arabiya correspondent reported. The sound of gunfire and rocket-propelled grenades could be heard around the embassy, the correspondent added. No further details were immediately available."  “There has been an incident in Tripoli tonight, in which there was shelling and attempts to enter the territory of the Russian Embassy in this country,” Russian Foreign Ministry spokesman Aleksandr Lukashevich told RT.

Earlier today, one of the most popular websites that use and promote the use of BitCoin, Silk Road, was shut down by the US government. As Reuters reports, U.S. law enforcement authorities raided an Internet site that served as a marketplace for illegal drugs, including heroin and cocaine, and arrested its owner, the Federal Bureau of Investigation said on Wednesday. The FBI arrested Ross William Ulbricht, known as "Dread Pirate Roberts," in San Francisco on Tuesday, according to court filings. Federal prosecutors charged Ulbricht with one count each of narcotics trafficking conspiracy, computer hacking conspiracy and money laundering conspiracy, according to a court filing. Anyone visiting the site would be greeted with the following "game over" screen.

Crashing luxury sales in China is a hard-to-swallow concept for the industry.

Clear all food and beverages now!

With mortgage applications down around 60% from their peak in April, the last best hope for sustained "recovery" in housing 'was' the cash-only bid from private equity and hedge capital in the REO-to-rent or flip-dat-house trades. As we have noted previously, that last pillar was starting to falter and as Bloomberg reports, it seems is now in full crack mode as Carlyle Group switches from marginal buyer to marginal seller in its $2.3 billion real estate funds. "Our capital was useful at the front edge of the recovery," the firm notes - implying the big gains are over as rent growth fades (as employment and income growth slows). Crucially, they add, "investors really want the new Class A properties so we’re selling into that demand." We assume that by "investors" they mean greater-fool bag-holders.

For today's quote of the day, we go to Boston Fed's president Eric Rosengren who just had the following pearl of wisdom:

• ROSENGREN: `REALITY DOESN'T ALWAYS LIVE UP TO OUR FORECASTS'

At least he didn't say it is reality that is wrong and the Fed's forecasts being fundamentally correct.

DHS Pretends It Still Has Privacy Officers ... When They've All Quit In Disgust

Five years ago today, the CEOs of the big banks visited one US president with one goal in mind: get billions in taxpayer dollars to get bailed out. Today, the same bank CEOs are once again at the White House, this time invited by a different president, "as part of the Obama Administration's ongoing efforts to mend relations with the financial services sector and woo their support for White House policy." One can assume that in addition to the trite generalities surrounding the shut government and the debt ceiling, one topic of conversation is how Wall Street can accentuate the severity of the ongoing governance crisis and most certainly includes such demands by Obama as "stop sending stocks higher when the only catalyst is my inability to create any sort of compromise."

Would Obama push his pals off a cliff to get a deal?

The New Normal: a world in which the best performing "asset" in the month of September was the stock market of bankrupt Greece, while silver, that historic store of value, was on the other end, performing the worst.

We need to quit our fucking whining and take some action in our lives.

It seems the non-negotiating red-line-making President is willing to umm... negotiate. Depsite Harry Reid's fire-and-brimstone, the WSJ reports that:

*OBAMA SAID TO INVITE CONGRESSIONAL LEADERS TO MEETING TODAY (at 530pm ET)
*OBAMA SEEKING FUNDING MEASURE FOR GOVERNMENT, DEBT CEILING HIKE

McConnell, Reid, and Pelosi are also to attend. Oh to be a fly on that wall? For now, equity algos are buying first and thinking later as bonds remain more stoic.