Archive - Oct 2013 - Story

As it appears the can will be kicked once again, we thought it worth reflecting briefly on the possibility that this farce eventually ends in court (whether in 3 months or some time after that). While the Obama administration has ruled out the use of the 14th Amendment (and the mint-the-coin idiocy has been dismissed for its lifting-the-veil reality), Tangent Capital partners' Bob Rice explains in this brief Bloomberg TV interview his perspective on the legal, political, and market responses to going down this route. Rice goes on to discuss the 14th Amendment's implications (not great), and ends by pointing out the futility of what many are calling for..."The monetary system is a confidence game and if we get rid of the debt ceiling altogether, there is a realistic question (asked by the rest of the world) as to how much discipline we are going to have."

Time for the victory lap?

No surprise here:

• *SENATE VOTES 81-18 TO END GOVERNMENT SHUTDOWN, LIFT DEBT LIMIT

Here is the full list of "nays"... and off we go to The House...

The last few days have seen a great rotation in T-Bill markets. That rotation, as the chart below shows, has seen short-dated Bills rally as the new "deal" became closer and closer but the mid-term Bills start to crack higher in yield. Based on press reports, the short-term debt ceiling extension expected to be passed by Congress would suspend the debt ceiling until February 7. However, as Citi notes, Feb. 7 would only be a "soft" deadline since Treasury would then be able to engage in "extraordinary measures" to open up "headroom" under the debt ceiling.

Legitimate revolution takes time, patience and fortitude. Unfortunately, this is a strategic concept that is lost on many Americans today who suffer from a now common ailment of attention deficit disorder and an obsession with immediate gratification. Even some who have their hearts in the right place and who work to defend and resurrect our nation’s founding ideals seem to believe that any action to defeat corrupt oligarchy must be effective immediately, otherwise, it’s not worth the attempt. History, of course, teaches us the opposite. As things stand at this moment, though, the death of the system is not something to cheer, no matter how much we might wish it to crumble under the weight of its own criminality. The collapse of the existing system will not be the end of our troubles, only the beginning. Chaos always opens doors for evil men, and they will certainly take full advantage of the chaos triggered by shutdown, default or continued inflationary debt spending. We must make ourselves ready to resist by making ourselves separate from the monster we plan to fight. Crisis waits for no one, and on the path our nation now walks, crisis is assured.

We'll give you a hint, says Nanex: fantaseconds. Fantaseconds, everywhere. This is how High Frequency Trading (HFT) practically minted money during the financial crisis. With no regulators in sight, HFT robbed investors and other traders blind. With very little effort, Nanex has created numerous charts to illustrate the absurdity that markets functioned well during the financial meltdown. Many of the short term oscillations shown in these charts were created by HFT algos to induce a lag and create latency arbitrage opportunities. And yet the regulators could not spot a single one. Even after spending millions on MIDAS.

After eight years at the helm of "America's secret cyber army", NSA head Keith Alexander, has decided to spend more time with his family and less time with yours, and is stepping down. According to US officials, the director of the NSA and his deputy are expected to depart in coming months, in a move that almost certainly would not have happened without the involvement of America's most infamous whitsleblower currently self-exiled in Russia, Edward Snowden in a development which according to Reuters, "could give Obama a chance to reshape the eavesdropping agency." It is unclear what he would "reshape" it into: at last check the Stasi headquarters in Berlin did not have quite the capacity to house the Cray supercomputers needed to make sure that anyone and everyone caught selling stocks gets a lifetime audit guarantee from the IRS. We are confident, however, that with the surge in government-employed architects coming back to "work" from their 17 days paid vacation, someone will have an idea or two.

UPDATE: There will be two votes by the Senate on the deal by 8pm. One on cloture (requires 60 votes), and one on final passage (simple majority)... then it's on to the house...

*SENATE VOTES 83-16 TO ADVANCE ACCORD TO END U.S. SHUTDOWN (cloture)

*SENATE HAS ENOUGH VOTES TO PASS MEASURE ENDING FISCAL IMPASSE (Deal Done)

We assume there will be the normal grandstanding with every Senator wanting to get their soundbite in for saving the world... but the vote is about to occur (expected around 6pm) before sending it to the House for apparent rubber-stamping... we will see of course...

As we noted two days ago, this story is just further proof of the complete and total mess that has been made of the Indian gold market over of the course of this year due to government intervention. The other part of the problem is that when you are dealing in physical supplies you can’t just deliver paper contracts. Somehow we don’t think that would cut it for Indians on festival days or their daughters’ weddings.

Judging by the plunge in IBM stock after hours (accounting for a major portion of the Dow Jones Non-industrial Average Index), the CFO can't pay shareholders with hopium and rumors. The reason: while IBM beat EPS modestly with a very adjusted bottom line of $3.99, beating estimates of $3.96, driven mostly by this: "IBM’s tax rate was 16.0 percent, down 8.6 points year over year" (assuming a flat tax rate Y/Y, GAAP EPS would plunge from $3.68 to $3.30), it was revenues - that ongoing 2013 horror story for the "stawk" and economic "recovery" - that was the problem, because instead of printing at $24.74 billion where it was expected, sales missed by a whopping $1 billion, or $23.72 billion. Of note: while America revenues of $10.3 billion dropped just 1%, and Europe was actually up 1%, it was the all important China and Japan, i.e. Asia-Pacific, where revenues cratered by an unprecedented 15%! So much for both Abenomics and the Chinese "recovery." And what's worse, the Emerging Market callamity of Q3 finally took a big bite: "Revenues in the BRIC countries — Brazil, Russia, India and China — were down 15 percent." Time to push the global recovery myth to the 4th half of 2013 (the third half is where the government shutdown will be squeezed).

The Russell 2000 made a new all-time record high and the S&P 500 gets close as rumor turned into almost news and expectations of a done deal by 11pm tonight. The rumor was bought on the back of JPY-carry surging once again, the "news" was sold - smacking the S&P down around 8 points to VWAP, and then the ubiquitous closing ramp lifted stock back near their highs. The kicking the can left USA CDS wider on the day, put a bid under T-Bills (though the Feb Bills underperformed), lifted gold and silver off their lows, and while the USD was sent scurrying lower (after an early surge), Treasury Bonds ripped lower in yield (10Y _8bps from its highs early on). Spot VIX was crushed back below 15% (down 20% - the most in 2013) and while the rest of the VIX term structure was bid, the Feb/Mar maturities were less exuberant.

House Speaker Boehner explains in a statement how the GOP will keep fighting the good fight...

"The House has fought with everything it has to convince the president of the United States to engage in bipartisan negotiations aimed at addressing our country's debt and providing fairness for the American people under ObamaCare.  That fight will continue...

Apparently the IRS has fallen on hard times in light of all this government shutdown and sequestration nonsense. Too bad. According to a recent report from the Treasury Department, ‘enforcement revenue’ at the IRS has fallen for the second straight year. Tax enforcement is one of the only ‘money makers’ for the US government; according to the IRS, every dollar spent on tax enforcement generates six dollars in additional tax revenue.  Unfortunately for the IRS, though, the agency’s head count has been thinning. They no longer have enough people, and enforcement revenue has been declining. Ordinarily the IRS supplements its ranks with legions of unpaid spies in the financial sector. Starting July 1, 2014, though, the Foreign Account Tax Compliance Act (FATCA) will give the IRS a new addition in its ever-growing list of unpaid spies. You.

By now the general public has long made up its mind about Obamacare, aka the ACA, either positive or negative, and as such any anecdotes about its impact on the broader economy are usually covered by layers of political and ideological bias. One place, however, where the views on the ACA should be impartial is the Federal Reserve. Which is why we were surprised to note that in the just released Beige Book, whose market-moving impact is now absolutely irrelevant as the importance of fundamentals in a time of central planning is "modest to moderate" at best, there were no less than eight instances of "Affordable Care Act."  So in order to further the discussion and debate of Obamacare's impact on the economy from a purportedly apolitical entity, here is what the latest Beige Book had to say about Obama's crowning achievement.