Archive - Oct 2013 - Story

The dollar is the world’s go-to currency. But for how much longer? Will the dollar’s status as the only true global currency be irreparably damaged by the battle in the US Congress over raising the federal government’s debt ceiling? Is the dollar’s “exorbitant privilege” as the world’s main reserve currency truly at risk? Sane governments do not default when they have a choice – especially not when they enjoy the “exorbitant privilege” of issuing the only true global currency. We are about to find out whether the US still has a sane government.

It would appear - in a similar vein to last night's White House exit - the stock market is a little disappointed that Democrats and Republicans did not come out holding hands. Instead, we get the usual maybe good, maybe bad statements:

• SENATOR ORRIN HATCH SAYS OBAMA EXPRESSED CONCERNS OVER DURATION OF HOUSE REPUBLICAN DEBT LIMIT PLAN (well that's 'bad' news for a deal), but
• *OBAMA DIDN'T REJECT MEDICAL DEVICE TAX REPEAL, HATCH SAYS (well that's good news for a deal)

For now the Dow is 30 points off its highs on this lack of news.

In what has to be the most disingenuous bullshit comment of the day, Fed's Rosengren appears to have re-written history in his lame attempt to justify the Fed's in-action at the last FOMC Meeting. His comment:

*ROSENGREN: WEAK DATA, FISCAL DISRUPTION WARRANTED TAPER DELAY

Is a total lie... 1) US Macro data had reached its highest in a year in the data preceding the decision, and 2) the government shutdown and debt-ceiling both happened well after, and only after the infamous Cruz filibuster focusing on Obamacare, which the Fed certainly had no idea was coming. If anything, the Fed's decision to not taper served as the reason why government thought it could shut down: after all stocks, pardon the Fed's balance sheet, had just hit an all time high so what really was the downside.

Unlike the usual back-slapping reacharound that G-20 meetings are, the most recent one, just ended in Washington with a rather more aggressive set of comments...

• *JAPAN'S ECONOMIC PLANS MEET 'WIDESPREAD' SKEPTISM AT G-20: ZHU
• *U.S. SHOULD HEED GLOBAL CONCERNS ON DEBT CRISIS, ZHU SAYS (or else)
• *G-20: MONETARY POLICY MUST BE CALIBRATED, COMMUNICATED WELL (stop messing up Fed!)
• *G-20 SAYS U.S. MUST TAKE `URGENT ACTION' ON FISCAL UNCERTAINTY (come on Congress!)

In other words, you guys in the US and Japan with your crazy policies and lack of credibility and screwing up "the plan."

As of the most recent data, which saw JPM's deposit holdings surge by the most ever (except of course for the inorganic "acquisition" of WaMu in Q3 2008) or $78 billion in just one quarter, while loans continued to be flat, we now knows that JPM had marginable power to chase risk higher to the tune of $552 billion, an all time record in excess deposits over loans!

Planned job cuts in the third quarter rose 25% from a year ago. With September jobs cuts up 19% from last year, it represented the fourth month in a row in which job cuts were higher than the same month last year. Despite the current trend, employers are on pace to cut roughly the same number of jobs that were cut last year. We already have declining real wages. Small businesses are geting wiped out by taxes, regulations, and Obamacare. These mega-corporations are firing thousands. Retail and restaurant sales are plunging. Consumers are scared straight and are reducing credit card debt. Government spending in states and localities is declining because they are required to balance their budgets. The Boomers are old, with no savings. They can no longer live in a delusionary credit bubble. Sounds like a reason to buy stocks.

Buy The Rumor... What Next?

It would appear, judging by the market's response and the headlines, that Obama's "unconditional surrender or default" negiotiating tactic has worked... According to AP, the Republicans look to have folded once again:

• *HOUSE REPUBLICANS SAID TO OFFER PLAN ON SHUTDOWN, DEBT LIMIT
• *REPUBLICANS SAID TO SEEK TALKS ON REDUCING U.S. SPENDING

The House Republicans are apparently waiting to hear back from the White House on this latest proposal - which amounts to - our translation - "Ok, you can have your government re-opened, and we'll let you raise the debt ceiling... as long as you really really promise to talk about spending cuts at some point in the future maybe possible please."

Yesterday it was JPMorgan's money-market funds adjusting to their fiduciary duty and following Fidelity's lead in getting out of any and all short-term non-risk-free Treasury Bills. Today, another massive money-market fund provider sells it all...

• *BLK'S MONEY FUNDS HAVE NO ASSETS IN TREASURIES TIED TO DEFAULT
• *BLACKROCK SAYS `ZERO EXPOSURE' TO DEBT MATURING IN LATE OCT.
• *BLACKROCK SAYS NO HOLDINGS IN TREASURIES MATURING IN EARLY NOV.

It seems remarkable that all three of these funds would ignore the advice of blowhard bloggers who suggested this was nothing. But, as Barack Obama himself said yesterday, "Ultimately, what matters is: What do the people who are buying Treasury bills think?" It seems only the Fed (and PIMCO) is left.

10 weeks ago we warned that the persistent "banging the close" action in FX markets warranted an investigation into market rigging and manipulation. It seems the US, Swiss, UK, and EU regulators have finally woken up:

*U.S. SAID TO OPEN CRIMINAL PROBE OF CURRENCY MARKET RIGGING
*SWISS, UK REGULATORS REVIEWING ALLEGED CURRENCY MARKET RIGGING
*EU ANTITRUST REGULATORS SAID THEY ARE PROBING CURRENCY MARKET

Of course, gold and silver remain highly efficient and "clean" markets...

Filed under "you can't make this shit up," in perhaps the most ironic thing to come out of DC, the Washington Times reports that the White House Gift Shop has gone broke. Long run by a nonprofit group that helps uniformed Secret Service officers and their families the official White House Gift Shop, lists more than $600,000 in liabilities in a pending bankruptcy petition in Washington. The bankruptcy petition, filed in June in a case that remains active, doesn’t explain why the fund went bankrupt in the first place, but court records reveal a recent history of tax troubles and litigation.

Over the last several months, “hard” economic data have been telling a much different story than “soft” economic data. On the one hand, soft surveys such as the ISM manufacturing index have pointed to robust economic growth. On the flip side, hard economic data have been disappointing. We previously pointed out Goldman's view of the "soft" surveys relatively weak ability to project growth, but as BofAML warns, even before the government shutdown cut off the flow of hard economic data, they were tracking just 1.6% qoq saar for third quarter growth. Confidence is already taking a nose-dive as the shutdown continues and BofAML warns of the potential for significant and lasting shocks to growth if things do not improve quickly.

With Gallup indicating the biggest 3-week decline in economic confidence since Lehman, it is hardly a surprise that UMich consumer confidence slumped to its lowest since January having fallen 3 months in a row. This is the 2nd monthly miss in a row - and biggest 3-month drop in 25 months -  and appears to confirm the cyclical turn we have been discussing for a few months. And remember, the exuberance of multiple expansion relies on the ever-rising confidence of the people to lift it back to nebulous heights.

It was precisely a month ago when, in "Vicious Gold Slamdown Breaks Gold Market For 20 Seconds" we observed how a furious gold sale managed to not only send the price of fold plunging but in the process it halted all gold trading on the CME for a whopping 20 seconds! Moments ago it just happened again. As part of the already noted massive gold slamdown just before 9 am Eastern, when "someone" sold an epic 2 million ounces of gold in one trade, the CME just went dark for 10 seconds, blaming it on an appropriately named "stop logic" event.