Archive - Sep 2013

Not the End of the World

It's 12:01am, do you know where your government is?

*WHITE HOUSE BUDGET OFFICE DIRECTS AGENCIES TO BEGIN SHUTDOWN

*U.S. GOVERNMENT SHUTS DOWN FOR FIRST TIME IN 17 YEARS

The last government shutdown lasted 21 days, from December 1996 to January 1997, and cost the administration of US President Bill Clinton cost an estimated $2 billion, according to the White House’s Office of Management and Budget.

S&P Futures are 1677, 10Y yield 2.65%, WTI $101.96, Gold $1329.00 - let's see where we open tomorrow...

Full White House Statement below... and 10 ways the government shutdown could hurt America

We presume it is to sing Auld Lang Syne but with 15 minutes left until the inevitable, it can really only be ensure they get the last soundbites in before the ball drops...

Much confusion with just one hour left as Eric Cantor seeks to request a conference with the Senate. This is taking place even as the White House budget office will instruct agencies on a shutdown in under 30 minutes. And moments ago, Harry Reid said from the Senate that he would "not go to conference" until he gets a clean CR. So unless the House Republicans fold completely, as Democrats hope they will, the shutdown is assured. Live feed from Senate.

Update: Well, kiss that idea goodbye: GOVERNMENT WILL SHUT DOWN TONIGHT; HOUSE WILL NOT ATTEMPT MORE VOTES TONIGHT, WAPO REPORTS (link)

While it will be supremely ironic if stocks were to soar on the day the US government shuts down (it would be curious to see how Congress would spin that particular "market" reaction to a world without a US government), a ramp in the futures is precisely what is going on. And while there is no definite reason for this market reaction, it is being attributed to two things: first, the House Rules panel announced moments ago it would meet at 10:30 pm on a new spending Bill and are that Republicans are said to seek talks with the Senate on spending. Of course, if the GOP folds in the last moment, it would be Boehner's most epic collapse to date (in a long and illustrious series of humiliations). Which brings us to reason number two: also moments ago, John McCain pretty much threw his colleagues under the bus, saying House Republicans will not "succeed in the end" and that the House will end up sending a clean CR, just as Obama has demanded all along, which in turn has emboldened traders to assume that there is a better than negligible chance the GOP will once again bend over.

Just in case you thought the surreality of the US political debacle we are witnessing was too much, the NYPD releases a statement that stokes the fire of confusion. The New York Police Department is looking for two unidentified people who may (or may not) have parachuted on to a lower Manhattan Street. Private security guards reported seeing the skydivers land in front of the Goldman Sachs HQ at around 3am (which we could not help but note was the highs of the European session for Gold). The police noted it was unclear if they jumped from a plane or from a high-rise building (or from Bernanke's helicopter).

They came, they voted, and they killed the latest, third, Continuing Resolution amendment just passed minutes ago by the House.  What happens next: either nothing and the US government shuts down in two and a half hours, or the farce can repeat for the fourth time and when the House gets the tabled CR back from Senate, House Republicans  could hold a conference, go to Rules, and put a new Continuing Resolution on the floor later tonight. Which, however, unless it is "clean" will be voted down again.

UPDATE: Rumor of Clean CR (unfounded and denied) sparks squeeze in bonds (10Y +5bps) and ramp in stocks (ES +10!) - leaving us wondering how an equity rally will play with the press in the morning if we shutdown?

Given the Senate rhetoric following this House vote - a US government shutdown with all its fire and brimstone that we have been told to expect is nigh; For the second night in a row, Chinese PMI data disappointed with the recovery not as growthy as everyone had extrapolated from the flash data. This is the smallest rise in China's official PMI in 4 months - just 0.1 above August's at 51.1. What is the reaction of futures markets? nothing...

As almost everyone expected, the House just passed the stop-gap bill, with its individual mandate delaying amendment, which was also the third Continuing Resolution passed by the House, in a 228 to 201 vote. Surprisingly 12 Republicans voted Nay and 9 Democrats voted Aye. Off it goes now to the Senate. But, the moment it broke on the wires, Harry Reid has his response:

• *SENATE MAJORITY LEADER REID SAID SENATE WON'T PASS HOUSE PLAN
• *SENATOR REID SAYS HOUSE REPUBICANS WANT TO SHUT DOWN GOVERNMENT

So it looks like we are heading to a government shutdown tonight (and for now the S&P does not care one little bit).

Even though there is no technical link between the two main fiscal issues – the continuing resolution (CR) and the debt ceiling bill - there is a link in the minds of market participants because prompt resolution of the CR could spell a favorable outcome for the debt limit. On the other hand, a government shutdown tonight could lead the market to be more pessimistic on the chances of a debt default. As BofAML notes, the link between the two issues is fairly complex but the shutdown battle is just the beginning - and, as the suspect "the fight could get ugly."

Yesterday, over ten million people watched as the final fate of one drug dealer was revealed. But while the most complex, fictional peddler of artificial euphoria may be gone, an all too real, non-fictional and far less complicated provider of the most monetary morphine in history is still around. Heisenberg may be gone, but Heisenbernanke is still very much out there.

With just over 4 hours left until the government shutdown deadline, following the earlier tabling of the previous bill passed by the House which delayed Obamacare by one year, the House has resumed debates on the Continuing Resolution, which as reported earlier will likely include a one-year delay in the individual mandate, and a measure eliminating some of the benefits that members of Congress and certain members of the executive branch would receive under the ACA.

Followng Pope Francis' demand that the Vatican Bank review its procedures, Reuters reports that the bank is likely to close all accounts held by foreign embassies, following concerns about large cash deposits and withdrawals by the missions of Iran, Iraq and Indonesia, according to people with knowledge of the situation. The private bank IOR has around EUR7.1 billion in assets but is concerned it could be "an unwitting vehicle for money laundering and other illicit finances."

There is a considerable amount of debate in alternative economic circles as to whether a federal government shutdown would be a “good thing” or a “bad thing”. Sadly, a government shutdown is sizable threat to the American financial system, and few people seem to get it.  Perhaps because the expectation is that any shutdown would only be a short term concern.  And, this assumption might be correct.  But, if a shutdown takes place, and, if “gridlock” continues for an extended period of time, We have little doubt that the U.S economy will experience renewed crisis.  Here's why...

US companies are warning about Q3 earnings at the second highest level since 2001, with estimates well below what they were just three short months ago. Of course, the US equity markets don't care - having rallied aggressively in the face of this collapse; lubricated by multiple-expanding QE and rev. repo. As Reuters reports, companies issuing negative outlooks outnumber positive ones by 5.2-to-1, the most negative since the 6.3-to-1 ratio in the second quarter, when however the "second half recovery" (which has been once again indefinitely delayed, perhaps to the third half?) was said would take place momentarily and lead to another mythical rebound. Industrials, Materials, and Tech top the list for negative pre-announcements.