Archive - Oct 10, 2013 - Story

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Only a week ago, the consensus among most mainstream economic analysts and even some alternative analysts was that a government shutdown was not going to happen. The Republicans would fold in the shadow of President Barack Obama’s overwhelming drive for socialization, spending would continue to grow unabated, and the debt ceiling would be vaulted yet again to feed the bureaucratic machine with more fiat. Today, there is no consensus, very few people continue to be so blithely self-assured and even the mainstream is beginning to wonder if a much bigger game is afoot here.

After seven months of investigating Goldman Sachs' legal and compliance divisions, former NYFed examiner Carmen Segarra found numerous conflicts of interest and breach of client ethics (specifically related to three transactions - Solyndra, Capmark, and the El Paso / Kinder Morgan deal) that she believed warranted a downgrade of Goldman's regulatory rating. Her bosses were not happy, concerned that this action would hurt Goldman's ability to do business, and, she alleges, they urged her to change her position. She refused, and as Reuters reports, she was fired and escorted from the building. “I was just documenting what Goldman was doing,” she said. “If I was not able to push through something that obvious, the [NY Fed] certainly won’t be capable of supervising banks when even more serious issues arise.”

Hard to argue with this... just one more quarter, and everything will be fixed... Of course, when you've got Abenomics, Yellenomics, and Draghinomics on your side, what does it matter?

The U.S. Constitution leaves too many areas open to interpretation; a New Constitution of 2,300 pages (+ 200 redacted secret pages) is the solution.

UPDATE: The Day in Washington in 2 minutes added

In what can at best be described as a "fluid" situation, one in which according to initial press reports the White House and the GOP couldn't even compromise on what had actually been said, it seems that while both sides are eager to move on with the debt ceiling extension, the GOP is still hoping in trying to preserve some political capital, of which it will be left with virtually nil if it caves to every last demand by the democrats, namely "reopen the government and then we can negotiate" losing all leverage in the process. And a loss of all capital and leverage is precisely what the GOP will "achieve" according to Politico, which clarified that "House Republicans told Obama that they could reopen the federal government by early next week if the president and Senate Democrats agree to their debt-ceiling proposal" - a proposal which Obama has already said he would accept. In other words, full capitulation by Boehner appears imminent. Politico adds: "President Barack Obama and House Republicans clashed in a meeting Thursday afternoon over how soon the government can be reopened, even as the GOP offered to lift the debt limit for six weeks, according to sources familiar with the session. Aides will continue the discussion through the night to see if they could find common ground on how to move forward on the debt limit and government funding."

While the following may look like a broken scene from "Breaking Bad" (one wonders just how much methylamine was on the train) we couldn't help but see the analogy of an oncoming train (no tunnel, so no warning light this time) of inevitable default, whether in one week or later, and the USA sat square across the tracks as reserve currency status (as we discussed last night) becomes increasingly challenged.

It would appear that the two sides cannot even compromise of what was said the compromise talks.

• *REPUBLICAN RYAN SAYS OBAMA `DIDN'T SAY YES, DIDN'T SAY NO'
• *REPUBLICAN ROGERS SAYS OBAMA TOLD LAWMAKERS TO END SHUTDOWN
• *WHITE HOUSE STATEMENT SAYS PRESIDENT SEES `PROGRESS' ON DEBT
• *REPUBLICANS SAY NO FINAL DECISIONS MADE IN WHITE HOUSE MEETING
• *DEBT TALKS TO CONTINUE INTO THE NIGHT: REPUBLICAN STATEMENT

“Well, he didn’t say yes. He didn’t say no,” Ryan said. “We’re continuing to negotiate this eventing,” Ryan said.

UPDATE: S&P Futures recover most of their losses following new reports, denials, and clarifications that Obama did not in fact "reject" but that discussions are and will be ongoing during the night. Most importantly, the meeting was inconclusive, which however seems good enough for stocks which have rebounded to pre-drop levels.

S&P futures are now over 15 points off the day's highs, as it seems equity investors were hoping for a Cumbaya moment after the White House meeting today. However, as Bloomberg reports,

*BOEHNER, REPUBLICANS LEAVES OBAMA MEETING WITHOUT SPEAKING TO REPORTERS and *OBAMA REJECTS REPUBLICAN PROPOSAL FOR SHORT-TERM PLAN: NYT

It would seem that Obama's "unconditional surrender or default" position has merely placed the pressure to act back on Boehner's shoulders. Rep. Cantor:"we expect further talks tonight" keeps the dream alive.

It is unclear exactly what happened but based on Bloomberg's tick data, spot gold prices spiked over $30 after the close of the US day session. After a pillaging of a day, someone's agorithm decided that $1336 and then $1307 were the appropriate prices... triggering...

*SPOT GOLD JUMPS 1.9% TO $1,312.48/OZ, SNAPPING 3-DAY LOSS

Only soon after to correct back to the lows near where we closed the day.

Following his "yearslong scheme to shakedown contractors and reward allies," Kwame Kilpatrick - who served as Detroit Mayor from 2002 to 2008 - was this morning sentenced to 28 years in prison for corruption. Regarded by many as a key contributor to Detroit's eventual downfall, it seems Kilpatrick is somewhat repentant, stating, "the people here are suffering, they're hurting. A great deal of that hurt I accept responsibility for." Agents who pored over bank accounts and credit cards said Kilpatrick spent $840,000 beyond his salary during his time as mayor. Having resigned in 2008 over a sexting scandal, the scale of his corruption, prosecutors added, "exacerbated the crisis."

Yesterday, it was Fidelity who in conducting its fiduciary duty, announced it was getting out of any and all near-term risky Bill insturments, namely those that mature just around the time of a possible technical debt default. Today, while the stock market was soaring on hope that a Washington debt ceiling deal was imminent, it was another firm that was quietly doing the opposite, and was taking "action in light of a possible US government default), and as highlighted earlier when we showed the ongoing divergence between stocks and Bills, was quietly "boosting" liquidity (i.e. selling short-term securities) in order to avoid breaking the buck (which as we also learned yesterday had been breached by not only the Reserve fund but by 28 other heretofore unknown money market funds). The firm: JPMorgan.

For the second time in 2013, Congress folded and stocks erupted higher. The early exuberance went dead during the middle of the day as stocks scambled back to pre-shutdown levels and stayed there but as 3pm hit (and rumors of a CR-amendment to the House DL proposal), volume exploded and broad equity indices filled all gaps and pressed up through technical levels and month- and week-to-date green levels. Much was made of the close-to-close gains in the MoMo names, but closer inspection shows they actually closed below their opening squeeze levels - on a day when the NASDAQ saw its best day of the year. Precious metals were lower on the day but dumped as the 3pm move occurred. Bonds were less impressed with the 30Y (solid auction) unchanged and T-Bills selling off ignoring equity exuberance. The USD closed unchanged.

Wondering why the highest of high-beta muppetry stocks are not screaming higher with the market? Confused why these high-flyers that CNBC promoted all day as time for a bounce are actually below their opening levels? Wonder no more: Interactive Brokers just hiked the margins on the following Super-MoMo stocks once again (following a first hike on Monday and once again yesterday) and as we hope everyone understands by now, its all about the leverage.

With Janet Yellen now confirmed as Bernanke Mark 2, it is time to recall that in addition to a new Chairman, four of the Fed's voting members will also rotate. And while below is the latest preview of the voting FOMC members (previously 2011 and 2012) ranked by Reuters in terms of their dovishness and hawiskness, the reality is that the peripheral Fed presidents (here we focus on the Hawks obviously) are nothing but figureheads whose only function is to be roundly ignored if and when they dissent with the new Chairman.