Archive - Sep 10, 2013

One reason why the US has been able to extend its true "drop dead" cash exhaustion date has been due to an increase in tax revenues due to the payroll tax cut as well as cash inflows from the GSEs (which are set to reverse and become outflows once the latest housing dead cat bounce reverses), and cash remittances from the Fed. However, the capacity under this extended "revolver" is rapidly running out, and as of August 31, 2013, approximately $108 billion in extraordinary measures remained available for use. In a report released today, the Bipartisan Policy Center has released another analysis of just when the US will hit the "X Date" or the date on which the Treasury will not have sufficient cash to pay all of its bills in full and on time. Should there be still no deal on the debt ceiling by this date, the Treasury will be forced to prioritize payments to avoid a debt default. According to this estimate, the X Date falls anywhere between November 5 to as recently as October 18, or just over a month from now (and there has been zero real discussion in Congress over the debt ceiling hike with all the excitement over Syria).

It seems the rhetoric has not backed off one little bit... as John Kerry exclaims: "...our inaction is guaranteed to bring worse circumstances...the permissiveness of not acting now will give Assad free will to act again"

*KERRY SAYS 'WHAT ASSAD HAS DONE DIRECTLY EFFECTS' U.S. SECURITY
*KERRY SAYS OBAMA'S FIRST PRIORITY IS DIPLOMACY ON SYRIA
*KERRY SAYS 'WE NEED YOU, THE CONGRESS' TO SEND MESSAGE TO SYRIA

The fear-mongery is strong with this one...

Grab your popcorn...

While Spain brims with hope, amid dismal real data, as we noted earlier, Italy - despite its PMI 'proving' things are great - just missed its GDP growth expectations for the 9th of the last 10 quarters. Add in a prinkling of Berlusconi bafflement and 'the oldest bank in the world' about to be nationalized and the risks in Italian government bonds have pushed yields above their European neighbor for the first time in 18 months. The last time this huge debt-loaded nation's risk topped Spain's was in the run up to the peak in the European crisis in Q4 2011. But, of course, we have OMT now which will save us all...

#Assad: Once Western countries stop supporting terrorists&pressure puppets like Saudi Arabia&Turkey, problem in Syria will be solved easily.

— Syrian Presidency (@Presidency_Sy) September 10, 2013

A COMEX default on delivery of precious metals and specifically of gold bullion bars remains a risk. It is of significant importance and that is why we have covered its possibility since 2011. A COMEX default would have serious ramifications not just for precious metals markets but for the wider commodity markets, for the U.S. dollar and all fiat currencies and our modern  monetary system.

No, that is not a typo, at least not according to the blog of traffic counting website Compete.com, which notes that with 7.1 million unique visitors, the website of the newspaper that broke the Edward Snowden scandal and has been covering the NSA's spying scandal has seen an unprecedented increase in traffic. Granted the Y/Y number is an aberation due to the switchover from Guardian.co.uk to an impartial dot com address, but either way, as Compete notes, just "Guardian.co.uk over the recent months also shows that the news outlet had their best month for unique visitors (UVs) in two years."

The last 2 days market reaction has been one of war-premium reversion for all asset classes. Oil has tumbled back this mnorning to around $106.50 (its pre-Kerry level) also in line with the USD which has fallen back to unchanged from that initial warmongery. European stocks remain the big winner - up 3.5% since Kerry started but today's rise in stocks lifts the S&P to +1.5% from 6/27 (so no war and we don't care about Taper). It seems, however, that the safe-havens are having the war premium sucked out and reality of a SepTaper pricing back in. 10Y Treasury yields are back above 2.96% (with 30Y bonds -2% in price from Kerry) and Gold and Silver are tumbling (-3.5% and 5.9% respectively from Kerry's initial ravings). Now, should we worry about crossing 3.00% again (and the surging cost of capital that will crimp consumer spending and corporate buyback abilities)? Or does that not matter now that war is off the table for 10 minutes?

The talking-heads remain stuck in repeat mode over European PMIs and how that means the hot-money should be buying peripheral stocks with both hands and feet; but as we discussed in detail here, relying the "rough" survey-based PMI data as an indicator of future economic strength is a mistake. With transmission mechanisms gummed up, hope is not enabled to translate into activity and overnight we got confirmation of that sad new reality from Italy (which saw its GDP miss expectations, shrinking by more than expected), and France (which saw Industrial Production miss expectations topping the worst 3 month slide in 10 months). It seems once again that faith does not triumph over reality and Europe is indeed stuck in the quagmire that unemployment rates, loan delinquencies, and credit creation would suggest. Of course, we are sure we'll be told to wait just another quarter for the hope to filter into reality... just keep waiting, and hoping.

In what has become an unspoken tradition for the Dow Jones, which maintains its upward bias by kicking out underperformers and replacing them with the investor darlings du jour, we just learned that as part of its next three-for-three rebalancing, the first since 2004, the DJIA will kick out such recent losers as Alcoa, Hewlett Packard and Bank of America, and will be replaced with Goldman, Nike and Visa:

• ALCOA, BANK OF AMERICA, HEWLETT-PACKARD TO LEAVE DJIA
• GOLDMAN SACHS, VISA, NIKE TO JOIN DJ INDUSTRIAL AVERAGE
• CHANGES WERE PROMPTED BY THE LOW STOCK PRICE OF THE THREE COMPANIES SLATED FOR REMOVAL

What, no inclusion of Apple, Tesla or Netflix? Also, for those keeping track, there are now 10 "industrials" in the 30 company index that make, well, nothing. And how soon until the entire DJIA becomes one daily rebalanced ETF, which has as constituents only stocks that have traded up 5% or higher on the prior trading day?

Any potential goodwill from Plan B, namely that the Syrian attack may be delayed, if not cancelled, may have been put in doubt following the latest statement from Obama's spokesman Carney who said in a MSNBC interview that:

• OBAMA WILL BE SEEKING SUPPORT FOR SYRIA STRIKE TONIGHT: CARNEY

That said, Plan C also gives Obama the "out" of reconciliation, and making it seem that it will have been Obama, the great Pacifier, who managed to talk back hostilities from the edge of World War III:

• CARNEY SAYS `INTENSE' TALKS WITH ALLIES CONTINUE ON SYRIA
• CARNEY SAYS THERE'S `SOME POTENTIAL PROGRESS' IN DIPLOMACY
• CARNEY SAYS RUSSIA PLAN `POTENTIAL DIPLOMATIC BREAKTHROUGH'

In short: the chaos continues as Obama scrambles for a political solution that does not make it seem like the latest attempt to punish Syria would have crashed and burned not only in Congress but on the international arena as well.

In the aftermath of the JPM CIO prop trading blunder, the firm disclosed that the capital used for risky bets such as attempting to corner the IG or HY markets was the result of excess deposits over loans, which at that time stood at $423 billion, resulting in $323 billion in CIO invested and non Marked-to-Market "Available for Sale" securities. Following yesterday's CFO update on the state of the mortgage market, which we recapped here, and which warned how the recent spike in rates would impact the firm's balance sheet, the firm also provided an updated snapshot of its balance sheet as of June 30, broken down by core capital components. We now know that in the one year period since the London Whale blunder, the firm's available "dry powder" which can be invested in any type of AFS security, or in stocks, or bonds, or any other risk asset for that matter, has now risen to a record $497 billion, the result of a record $1203 billion in deposits offset by just $706 billion in loans, or what we assume is a record low 60% loan-to-deposit ratio.

Subsistence farming never worked because being self-sufficient was firstly nigh-on impossible and secondly limited as well as being dependent on the climate. 

All the latest news, some of which outright conflicting, in the rapidly changing Syrian melodrama:

• Syria accepts Russian proposal to put Chemical weapons under international control - Interfax quoting Syria's foreign minister Muallem
• France to Introduce Resolution Aimed at Dismantling Syria's Chemical Arsenal
• France to push Russian proposal on Syrian chemical weapons at U.N. Security Council
• President Obama said on ABC News a U.S. attack “absolutely” would be put on hold if Syria followed through on Russian bid to get Syria to surrender chemical weapons
• Majority in House now don’t favor Syria military strike
• Russia urges Syria to give up its chemical weapons stockpile
• Obama questions whether Syrian President al-Assad would yield control of weapons

• Obama Shrinking Second-Term Hastened by Syria Opposition (BBG)
• Obama says Russian proposal on Syria a potential 'breakthrough' (Reuters)
• Poll Finds Support Fading for Syria Attack (WSJ)
• France to Introduce Resolution Aimed at Dismantling Syria's Chemical Arsenal (WSJ)
• Apple to Unveil IPhones Seeking End to Year of Struggles (BBG)
• Verizon Plans Largest Debt Sale Ever: Proceeds From Deal, Expected to Raise $20 Billion, Would Fund Venture Buyout (WSJ)
• Shipping Rates Seen at 2010 High on Record Ore to China (BBG)
• Ads coming to Twitter: Twitter makes its largest acquisition, a mobile ad company (FT)
• Houses on fire as fighting erupts in southern Philippines (Reuters)
• Banks Seen at Risk Five Years After Lehman Collapse (BBG)