Archive - Sep 2011 - Story

Peripheral country bond yields (and CDS) continue to rise unwaveringly towards the endgame where European leaders are forced to actually do something as opposed to paper over gaping cracks with piecemeal solutions that are seen through by market participants within hours of release. Greece 5Y CDS rose 210bps to 3235bps (running equiv.) Portugal 5Y CDS rose 50bps to 1110bps. Perhaps more worryingly Germany 5Y CDS rose 3bps to 81bps as we see similar risk transfer transmissions as were evident during the US (private to public) crisis three years ago. EUR just broke through the mid-July lows of 1.3837, taking it back to mid-March lows.

Earlier today we observed that absent immediate action by the House and Senate to enact the critical $500 billion debt ceiling expansion, the US would run out of Keynesian dry powder as soon as Monday. There is no longer a need to worry. According to the Hill, an attempt to sabotage the bankruptcy of America has failed after a Senate resolution to disapprove the $500 billion debt ceiling increase proposed by Mitch McConnell was voted down 45 to 52. As a reminder, "Under the debt-ceiling agreement reached in early August, the Obama administration was authorized to immediately raise the debt ceiling by $400 billion. Another $500 billion increase was authorized this month, although that could have been blocked if both the House and Senate approved resolutions expressing disapproval." The opportunity cost of passing the bill would have been an additional 10 hours of work tomorrow for the Senatorial millionaires for whom insider trading is legal: "Earlier in the day Senate Majority Leader Harry Reid (D-Nev.) threatened to hold the Senate open for up to ten hours on Friday to "dispose" of the resolution if it moved forward." As a result of this vote, a parallel bill in Congress is now moot even though it has not been voted on. This effectively greenlights the increase of the US debt ceiling from the current $14.694 to $15.194 trillion, or roughly 101% of GDP.

No, it's not some zombie Enron coming back from the graveyard behind Chapter 7 court. Nor is it the terrorizers. It is just some downed powerlines. However for anyone dumb enough to wish to take advantage of the chaos and immigrate: sorry, the border is running on backup generators.

BOTTOM LINE: The President’s proposal is larger than expected, with spending proposals and tax cuts both somewhat greater than expected. This proposal does not imply a significant shift in the fiscal restraint in 2012, but it is consistent with our expectation that the payroll tax cut will be extended, and the fact that some of the new proposals involve additional tax cuts increases the probability that Congress will enact them.

I didn’t coin the phrase “Greater Depression,” that was Doug Casey, my partner; and I think Doug had it exactly right. I think, you know, there has been so much of a, as I’ve said, this sort of rising tide of bad policy and extreme spending and a takeover of the economy – and not just the US economy, but all of the economies by these governments, the nation-states – that things have reached the point, people tend to think that things are going to stay the same and continue as they are, but they don’t. Sooner or later, history shows over and over again, things break, systems break, and I think we are very close to that. There is never a good time to fix this kind of a problem. So politicians will always make the choice to not actually address the problem, but rather to leave it to the next person’s watch. This isn’t – this would be a horrible time, absolutely a horrible time to fix the problems that face the American economy. Slashing the deficit, slashing the debt, slashing the government spending at this point would have catastrophic consequences to the average person. There would be riots in the street; but if you don’t fix it now, when do you fix it? Okay, well, do you fix it in the next year? No. Do you fix it the year after? The government will do whatever it can to keep pushing this down the road, but they can’t push it down the road much further.

So, will this jobs bill do much? I don't see how. Employers get a tax break, but that will likely be used to increase profits, because they remain uncertain of what happens when the breaks end. No new jobs, and limited new spending. For the employees - he said an average of $1,500 next year extra in their pocket. Interesting but when he talks about cutting medicare and social security in the same speech, how much of that will be spent? I think a lot of that will go into savings to offset future needs. People making 50k a year aren't so dumb to just take this money and spend it, when they see future benefits getting stripped away. The $4,000 tax credit for hiring new employees covers about 14 weeks at minimum wage (the sort of job this economy has been able to generate). Maybe we will see a spike in layoffs ahead of that since it might be a good time to get rid of employees on the fringe, when you can get a free look at his replacement, courtesy of the government.

A glitch in the sinusoid matrix?

... Keynesianism is already having an effect after all 1.4 million customers of SDGE are currently without power. We expect the president to announce he will rebuild all the lost electricity any minute now. We also expect half the S&P will blame their missed earnings on the "Great SoCal blackout of 2011"

What the hell: this is no longer even a Banana republic. We are now officially an Onion republic. So let's party like it's an Onion republic.

Cliff notes summary from Bloomberg:

• OBAMA SEEKS TO CUT IN HALF PAYROLL TAX FOR WORKERS, SMALL FIRMS
  
• OBAMA PROPOSES $447 BILLION PACKAGE TO SPUR JOB GROWTH
  
• OBAMA PROPOSES $105 BILLION IN INFRASTRUCTURE SPENDING
  
• OBAMA BACKS USING JOBLESS AID FOR ON JOB TRAINING PROGRAMS
  
• EXTENDED UNEMPLOYMENT AID OF $62 BILLION IN OBAMA PLAN
  
• NO PLAN FOR REPATRIATING OVERSEAS PROFITS IN OBAMA PROPOSAL
  
• STATE AID IN OBAMA PLAN $35 BILLION FOR TEACHERS, POLICE FIRE
  
• OBAMA CALLS FOR MODEST ADJUSTMENTS TO MEDICARE, MEDICAID
  
• OBAMA SAYS `VAST MAJORITY' OF CEOS WILLING TO PAY MORE TAXES
  
• OBAMA CALLS FOR `REFORMING' U.S. TAX CODE 7:10
  
• INFRASTRUCTURE PLAN WOULD MODERNIZE 35,000 SCHOOLS, OBAMA SAYS

“As we know from the intelligence gathered from the OBL raid, AQ has shown an interest in important dates and anniversaries, such as 9/11. In this instance, it’s accurate that there is specific, credible but unconfirmed threat information. As we always do before important dates like the anniversary of 9/11, we will undoubtedly get more reporting in the coming days. Sometimes this reporting is credible and warrants intense focus, other times it lacks credibility and is highly unlikely to be reflective of real plots underway. Regardless, we take all threat reporting seriously, and we have taken, and will continue to take all steps necessary to mitigate any threats that arise. We continue to ask the American people to remain vigilant as we head into the weekend.”

For all your heartfelt, congratulatory, nay laudatory remarks vis-a-vis the TOTUS, here is the webcast that will allow you to comment as you toast the president who certainly means well, even if he still has to be acquainted with an abacus. That's ok though. "Everything will be paid for"... Somehow. Even the post office. Just hike that debt ceiling. After all who needs taxes when the Fed will soon monetize the entire deficit anyway. In the meantime, as a reminder that Dubya may be gone but not forgotten, we get this from Bloomberg: DEPT OF HOMELAND SECURITY CITES 'SPECIFIC, CREDIBLE' THREAT.

The latest Keynesian abortion is here, and it has a name: the American Jobs Act. We are confused why this particular abortion does not have a version number: like 6.66, or AJA "Blue Screen of Death" Vista? Or perhaps the administration thinks the nation is too hungry and stupid to remember the Tax Cut Prevention Act of 2010, which crashed and burned within 2 months of its laudatory launch in December 2010, to do, yes, precisely what the AJA will try to do... all over again.