This page has been archived and commenting is disabled.

On Budget Deficits, Rating Agencies And IBGYBG

Tyler Durden's picture


From Peter Tchir oF TF Market Advisors

Budget Deficits, Rating Agencies And IBGYBG

Never have so many, said so much, that's so wrong.  It seems like a combination of deficits and rating agency action have sparked a myriad of comments, many of which are just plain wrong.

First, on the deficit.  NEITHER party is reducing the existing cumulative deficit nor amount of debt outstanding.  They are NOT creating surpluses anytime in the next few years (decades)!  They are cutting the projected deficit.  Yes, we will run annual deficits, just less than the currently projected annual deficits.  The fact that S&P could figure this out, makes it clear how easy it is to see through the semantics and games politicians are playing.  Yet, most of the popular press is treating the government plans as though they were creating surpluses.  We have to stop hiding behind words.  The reality is we have a large amount of debt.  Over the next few years we have big projected deficits that will add to that debt burden.  So far, no one has proposed a plan that gives up surpluses, just less additional debt.  Lets stop fooling ourselves and address the real issue.  No more celebrations over just making the future problem less bad.

Secondly, after getting wrong what the deficit reduction really is, they get wrong the likelihood.  Talks about 2030 being balanced.  Excuse me???? In November the talking heads thought we might see tax cuts expire.  They didn't see new spending.  In December, we got both!   So within a month of mid-term elections the pundits and government couldn't get anything right.  Why do we assume things will be better 15 years from now when we can't predict a few months out very well?  Probably, the obvious reason.  IBGYBG.  I'll Be Gone, You'll Be Gone.  That is the only way to explain why we want to argue about details 10 years from now and basically ignore the immediate problem.

After being forced to read and listen to so much just plain wrong about the deficit, we are subject to the same thing on the rating agencies.  Is AAA versus AAA on negative watch materially different? NO!  From a 'probability' of default perspective it means nothing.  Is the outlook change surprising?  Not to anyone who has been watching the deficit grow, stimulus and spending being applied at every opportunity, with minimal results.  So it shoudn't be shocking, its not stating anything near term about likelihood of default.  Watching people turning red in the face arguing that we are not close to default is mildly humorous as the rating change does not imply anything that bad.

Then why is the rating action causing the market to go down?  The simplistic, and likely wrong answer, is that some entities cannot hold anything less that AAA.  That is too far away.  One question that we should be asking ourselves for about the 1000th time, is why do regulators based risk capital on the rating agencies?  They have a track record that is not particularly impressive (to say the least).  They get blamed by congress for their ratings, and then are guaranteed future existence by being made an integral part of future regulations.  Insane, yes, but not the real problem here.

Stocks have rallied from 900's to 1,300 as the smart money bet on unwavering and unlimited government support.  Tepper was spot on.  He called it for what is was.  Now, smart money may be realizing that game is over.  There was already concern about the ability to continue the QE franchise, but this adds another obstacle to including it.  There was always the hope of another round of stimulus on any economic weakness, this also just took a little hit.  Today's market reaction is a direct result of a growing realization that the fed/government put may not be there, or may be struck lower than we realized.  The pundits can continue to be wrong about their budget commentary, can scream til they are blue in the face that the rating agencies don't get it, but we have moved one more step towards that slippery slope where government support for stock prices is getting more difficult to implement.

The realization is probably helped by the timely realization that Greece is basically done.  Greece has realized its time to haircut the existing lenders, and move on with a manageable debt load and a budget that makes sense without creating too much pain for its citizens.                                         


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 04/18/2011 - 17:12 | 1181820 Sudden Debt
Sudden Debt's picture

I'll say something that might be right: we are fucked.
I repeat: you are fucked! ( I'm covered with my pm's :) )

Mon, 04/18/2011 - 17:21 | 1181861 rocker
rocker's picture

+10 Your so right again Sudden Debt.  We, (the U.S.), are Japan.  "We Are Japan", I say.

We have kept zombie banks, and financial companies, (Aig, PMI, Freddie and Fannie), alive too long.

The Morque, Godman Shafts and Shitty Bank are just that. A pile of crap that will destroy honest working people for many years.


Mon, 04/18/2011 - 18:26 | 1182015 SheepDog-One
SheepDog-One's picture

The 'smart money' and punditry have gone over the edge....their first mistake was believing in their own hype, the second rule broken is 'never go full retard'. Theyre well past that now.

Mon, 04/18/2011 - 17:16 | 1181825 TruthInSunshine
TruthInSunshine's picture

BYOFFA (food, fuel & ammo):

Bloomberg Article: U.S. Is Bankrupt and We Don't Even Know It: Laurence Kotlikoff

202 Trillion Dollars in the Red, Bitchez. Even if he's wrong by 50%, or 75% for that matter, it's all the same.Europe is just as broken, and Japan is well on its way. Say hello to the looming Chinese implosion, also. Bitchez.

What's that, Jean-Claude? 

04-18 15:56: ECB's Trichet says all major nations understand imbalances must be adjusted

What's the difference between the debtor going bankrupt over $1 or $1 trillion, anyways?


(p.s. - Paul Krugman just called me and thanked me for the Bloomberg Article citing Kotlikoff, but said there is an easy solution; just print 202 trillion dollars right now and problem solved, he said. I hope he is correct. Thanks, Paul Krugman, for that cheery thought)

Mon, 04/18/2011 - 17:23 | 1181859 treemagnet
treemagnet's picture

FYI - He prefers to be referred to as "The Trichet"

Mon, 04/18/2011 - 17:23 | 1181864 TruthInSunshine
TruthInSunshine's picture

He is sooo envious of Bernanke. I don't get JCT. That's like a little leaguer idolizing Bob Uecker.

Mon, 04/18/2011 - 17:12 | 1181826 malek
malek's picture

IBGYBG. Are you already gone?

Mon, 04/18/2011 - 17:15 | 1181835 Papi_Al-Mahdi
Papi_Al-Mahdi's picture

Has anyone else had order problems with the US Mint on those America the Beautiful Quarters Silver Proofs?

They cancelled my order after several days (and the spot price went up) saying my billing address was wrong. I verified everthing was indeed correct and now they are saying need a couple days to see if a manager will approve my original order... Has anyone else had a problem with them?

Mon, 04/18/2011 - 20:08 | 1182258 magis00
magis00's picture

You are for to be very helpful Tanzania Prince trust fund account $1,000,000,000 FRN grand prize winner!

Mon, 04/18/2011 - 17:17 | 1181838 treemagnet
treemagnet's picture

Just tell the debt collector to fuck off!  Who'd a thought of Iceland as a trendsetter?  Post your best Bjork joke here.

Mon, 04/18/2011 - 17:17 | 1181840 slaughterer
slaughterer's picture

You guys are fuked.  PMs going down this week. Danger time!

Mon, 04/18/2011 - 17:23 | 1181858 redpill
redpill's picture

PMs are going down?  So suddenly the world will have a new found faith in fiat?  Based on what, exactly?

Mon, 04/18/2011 - 17:39 | 1181892 What does it al...
What does it all mean's picture

How about this?  

PMs are going to slowly trickle down in value because S&P is practically prop'ed up by the government and the only reason they "dare" to change their outlook is because the WH needs to let off some steam and channel the fact that they will *not* be able to inflate further.  (ie.  no more QE3, ready for a hike, pleasing China...)

Combined with China raising the reserves and Japan suffering from demand?  It's a fair theory, and probably more right in the medium term.

Come on, look at Gold and Silver, they look like S&P prior to President's day (Feb 11th?).. a straight line... it's time for some correction.  (Technical trading at least.)

Mon, 04/18/2011 - 17:47 | 1181920 Sudden Debt
Sudden Debt's picture

The line will keep going up on a straight line. 600 is my target. Then I might sell and let other make more profits on my silver while I retire :)

Mon, 04/18/2011 - 17:58 | 1181940 redpill
redpill's picture

I don't rule out corrections at any time in PMs, they are typically volatile.  However technical corrections are not a call to bail on one's position unless it's a paper trade in which case it's just speculation anyway.

I just don't see how they won't do QE3 in some form, however.  I don't think Obama really understands economics or necessarily cares about it, but he's going to get desperate to show some sort of improvement in the economy, and I think the call will come down to inflate into the 2012 elections to forestall the pain.  It goes hand-in-hand with Bernank's Keynesian faith system, and provides the best opportunity for them to maintain power.

Mon, 04/18/2011 - 18:43 | 1182069 rocker
rocker's picture

They will do QE3. It possibly won't be called that. The FED has a dual mandate.

 1. Pay their bills with cheaper dollars.  2. Inflate assets they* hold.    (*They includes CBs and Primary Dealers)

Mon, 04/18/2011 - 19:00 | 1182110 redpill
redpill's picture

Congress now creates a real problem for them.  With Pelosi and company in charge they could do direct payments to US citizens under a general aid program and monetize the offsetting expense just to keep the merry-go-round turning.  But now that's off the table, so they have to get creative.  Instead of just giving money to the bankers they are going to try to figure out how to finally dislodge the money supply and cram it into the market, and cause some wage inflation leading up to 2012.  It'll be a hell of a hangover afterward, but the election will be done by then and Ben "I can stop inflation in 15 minutes" Bernanke can go about picking up the pieces, if he doesn't finally see the writing on the wall, pull his parachute cord, and decline to serve another term.

Mon, 04/18/2011 - 20:16 | 1182266 Charles Wilson
Charles Wilson's picture

"...but the election will be done by then..."

'N what makes you think that the Bernank is gonna try to engineer any kind of Obama re-election?

I'm becoming convinced by the day that Bernanke wants to be seen as the Savior of the US in an economic World War and Bernanke believes that Obama isn't up to his part of the job.  If true , we should see the economic/monetary reversal occur so that it can do the most damage to Obama.  If Bernanke's the historian he claims to be, he knows the time to the minute when the collapse will be raging at its worse on election day.

There is no doubt that this is World War Politics.  Is Bernanke playing the biggest game of Chicken ever played on the world stage?



Mon, 04/18/2011 - 17:40 | 1181894 slaughterer
slaughterer's picture

based on the world's new-found love for all things US Treasury--and the Euro's sinking in the quicksand...

Mon, 04/18/2011 - 17:43 | 1181905 Greyzone
Greyzone's picture

I'm not saying it will but one situation I could see would unfold like this:

1. Europe gets deeper and deeper into debt troubles.

2. The Fed doesn't go with QE3.

3. Everyone is looking for a "safe" haven and the dollar/US Treasuries become the lesser evil. This is especially so because the dollar is down so far at the moment.

The above could force some gold/silver players who are playing games, as opposed to just taking delivery to hold, to have to liquidate to cover margins especially if those players are also leveraged up against stocks and stocks take a beating.

The above is just one possibility. There are lots of others where gold and silver don't blink even once. But what I think the current situation indicates is that right now is a volatile time. I also think that even if the above scenario occurs that it would be short lived and money would move elsewhere fairly quickly afterwards.

Mon, 04/18/2011 - 18:09 | 1181967 Boston
Boston's picture


I'm betting on this, and will be very quick to reverse (Treasury longs) after Risk-Off abates.

Mon, 04/18/2011 - 17:29 | 1181874 treemagnet
treemagnet's picture

Is their something you'd like to share with the group? 

Mon, 04/18/2011 - 17:43 | 1181903 slaughterer
slaughterer's picture

PM holders are fucked.  Watch the overnight action...  It will start to get ugly this week.  Would have been uglier today if not for S&P jokesters.   The Cartlel are about to play maximum gladiator games with their flying monkeys.  Turd will have monkey fangs deeply deposited in his jugular soon.     

Mon, 04/18/2011 - 17:51 | 1181922 treemagnet
treemagnet's picture

Now that you mention it, where is Turd?

Mon, 04/18/2011 - 19:16 | 1182141 narapoiddyslexia
narapoiddyslexia's picture

He might have a point about The Cartel [banksters] pulling out their knives. In the long run, though, there isn't even the slightest indication the USG plans to start producing fiscal surpluses any time in the foreseeable future, which means the dollar is toast. So what happens this week is of little concern. They have precious little time to start producing fiscal suplusses. So I'm holding onto my little hoard of silver, and my big hoard of 7.62x51.

Mon, 04/18/2011 - 17:50 | 1181925 Sudden Debt
Sudden Debt's picture

Will you promise me to come back at least once a week so I can make fun of you every week?

Mon, 04/18/2011 - 18:02 | 1181949 slaughterer
slaughterer's picture

$44.98 EOW target will not be met, sudden debt.  Cartel up to no good.  Get out and re-start position lower if you must.  The Cartel do have a plan, and it is not good for ZHers.

Mon, 04/18/2011 - 18:09 | 1181961 slaughterer
slaughterer's picture

And the PM holders think they are immune from magical bot levitation?

What makes a paper holder of SLV much different from a LULU/NFLX/CMG holder?  They think they know what they are doing. 

Mon, 04/18/2011 - 18:29 | 1182033 SheepDog-One
SheepDog-One's picture

Been hearing 'PM holders are fuked' ever since gold was $800.

Mon, 04/18/2011 - 19:04 | 1182113 redpill
redpill's picture

Will you come back and apologize when silver hits $50?

Mon, 04/18/2011 - 18:45 | 1182076 Dollar Damocles
Dollar Damocles's picture

Yes yes, please come back so we can make fun of you.  I kinda miss the other trolls who were always wrong.  It seems like every few dollars in silver another one hangs his head in shame and goes away never to return...  Where are you spaulding?  Where are you Johnny Bravo?  :(

So unfortunate that we make fun of them and they aren't around to see...

Mon, 04/18/2011 - 18:07 | 1181962 Rainman
Rainman's picture

damn....and here I was thinking only real estate could ever go down.

Mon, 04/18/2011 - 18:08 | 1181964 SamuelMaverick
SamuelMaverick's picture

If PM's go down, it will be a great buying opportunity, maybe the last dip in prices for a while. BTFD......    Yours, Maverick

Mon, 04/18/2011 - 18:22 | 1182011 SheepDog-One
SheepDog-One's picture

Youve posted this BS 10 times already today fuktard. Piss off.

Mon, 04/18/2011 - 17:18 | 1181847 ugmug
ugmug's picture

Buy on the dip.....

Jump on the crash....

Look up for falling banksters....


Mon, 04/18/2011 - 17:44 | 1181907 slaughterer
slaughterer's picture

The dip has not yet ended, dude.

Mon, 04/18/2011 - 17:49 | 1181918 treemagnet
treemagnet's picture

Hope you're right - I need a better PM's entry point.

Mon, 04/18/2011 - 17:20 | 1181853 TruthInSunshine
TruthInSunshine's picture

Global Jubilee will arrive soon?



Who would be the bagholders and the beneficiaries of such a 'biblical' event?

Mon, 04/18/2011 - 17:20 | 1181854 redpill
redpill's picture

An additional possibility is a faux-dramatic reaction by the Fed's large equity accomplices to offset the S&P news; in other words, making it appear the potential equity downside of no more QE would be worse than an S&P downgrade, even if they had the guts to make one, which they probably don't, and likely never intend to.  

So potentially we are merely witnessing grand financial theater.  S&P plays a role by raising the specter of no more QE without making an actual downgrade.  Moody's plays its cheerleading role as expected, a signal that no downgrade is really in the works.  Large equity holders play their role to knee-jerk react dramatically to the S&P non-news and try to communicate that the bottom will fall out of the stock market if they don't continue QEasing.  All in the end to raise the stakes that it doesn't matter what happens, QE must proceed, because the alternative would be worse.

But, I could be overanalyzing.


Mon, 04/18/2011 - 17:43 | 1181906 What does it al...
What does it all mean's picture

Pretty good.  Maybe all of this is to gear up QE3+, but even then... PM will have to fall a bit, inflation is too high for big boss... China.  So, maybe it is the same thing... but QE3 has to be "publicized"... and that is a observable event... if it is hidden then it is like a PPT for PMs, but I don't see that as visible (useful) as PPT for SPX...

Mon, 04/18/2011 - 17:51 | 1181931 TruthInSunshine
TruthInSunshine's picture

Rumors that Chinese rage is unprecedented as politiboro scales back subsidizes during time of real inflation rate within China of 17%+ all over the asian 'black' sites. That would mean just food+energy are consuming close to 50% of Chinese average incomes.

The Chinese are very worried about unrest.

Mon, 04/18/2011 - 18:08 | 1181965 redpill
redpill's picture

It also makes Asian demand for PMs nearly insatiable as a hedge against what is increasingly seen as an uncontrollable inflationary environment.

Mon, 04/18/2011 - 17:23 | 1181857 css1971
css1971's picture

Not that I consider myself smart money, I'm just here to protect my pension from the complete muppets who run most of the pension funds. (No really, who pays these idiots? And why?) I'm pretty much out till the end of June.

Still got some PMs, but sorry gold bugs, they are also getting chucked overboard the moment the Fed says "tightening". Or rather, "no more OMO", which is the same thing.


Mon, 04/18/2011 - 17:31 | 1181877 slewie the pi-rat
slewie the pi-rat's picture

gold is still moving to stronger hands, as is silver.  you're certainly free to sell yours to the banksters for greenstamps any time or price you choose.

if you measure wealth in ounces, you would make a different decision, perhaps regarding some "word" from the FED. 

don't be a muppet, ok?

Mon, 04/18/2011 - 17:39 | 1181899 Encroaching Darkness
Encroaching Darkness's picture

If CSS1971 sells his gold the first time the FED says no more POMO or QE or whatever, I might be in the market....

As you noticed, wealth moves from weaker hands to stronger ones as circumstances degrade. This explains why most folks don't retire rich, or early.

I keep some cash to pay present bills and obligations, but the savings are in PM's, which Ben&Timmy can't degrade at Obama's command.

Mon, 04/18/2011 - 18:36 | 1182031 css1971
css1971's picture

Don't get me wrong.

I expect a substantial "dip" in everything, @ or near June as the realisation hits that up is no longer a sure thing.

I'll reallocate to PMs when the smoke clears unless the BOE (or FED) kicks up the base rate a few percent and deliberately causes a recession.


Mon, 04/18/2011 - 17:21 | 1181860 slewie the pi-rat
slewie the pi-rat's picture

good thing holders of US debt are still happy as pigs in shit, eh?

Mon, 04/18/2011 - 17:33 | 1181880 TruthInSunshine
TruthInSunshine's picture

PIIGS+UK+RestOfEurope+US+Japan in shit.

Still working on catchy acronym.

Mon, 04/18/2011 - 17:37 | 1181887 redpill
redpill's picture

Might be easier to come up with an acronym that describes who they aren't.

Mon, 04/18/2011 - 17:39 | 1181891 slewie the pi-rat
slewie the pi-rat's picture

well, TIS, you start with:  PIIGS+UK+RestOfEurope  which = PURE, so how about puro shitto?

what's that smell?  puro shitto!

Mon, 04/18/2011 - 17:40 | 1181902 TruthInSunshine
TruthInSunshine's picture

And perro, phonetically similar to puro, is Spanish for dog.

Perro shitto.

Make it so!

Mon, 04/18/2011 - 17:46 | 1181917 slewie the pi-rat
slewie the pi-rat's picture

book em, dano! 

perro shitto!

sounds like discount bottled water! 

Mon, 04/18/2011 - 17:34 | 1181886 buzzsaw99
buzzsaw99's picture

Give S&P a $50 payoff and they'll stamp anything AAA.

S&P = joke.

Mon, 04/18/2011 - 17:35 | 1181890 Dapper Dan
Dapper Dan's picture

Last Friday April 15,  6 banks were closed.

The FDIC took a hit of $587,000,000 usd. 

Over half a billion dollars in one day!

 How long can this go on? I estimate no more than 6 months.

And I am unanimous in that.

Mon, 04/18/2011 - 17:39 | 1181896 digalert
digalert's picture

Oh how I miss the days when the markets opened determined to dive deep. Halted and reversed by the quick action of the PPT, which stood by valiantly till the market closed insuring a positive close.

Mon, 04/18/2011 - 17:50 | 1181928 Greyzone
Greyzone's picture

Maybe they want the market down a bit, say 1000 points or so. So you wait til the Eurozone debt crisis starts to ripen again (now), get a ratings agency to issue a dire but toothless warning (S&P), throw a hint of no-QE3 out there, and watch the children run home to Poppa Ben, which in the process moves the dollar up a bit but really strengthens the Treasury market, since that's what the "independent" Fed really cares about anyway.

This creates the illusion of stronger demand for Treasuries, plus reinforces the mythical faith in the strength of the dollar. What this does is buys more time, possibly of several months, until people start to again suspect that there's no there there.

Mon, 04/18/2011 - 17:45 | 1181909 disabledvet
disabledvet's picture

to quote Bill Clinton "it's the economy, stupid."  Is it recovering or not?  "Debt" per se and certainly relative to the USA "is a question for philosphers" and apparently philistines now.  For me "never fear the recovery" tho it may "bear watching."  the lunacy of S&P's of course is "the recovery is faltering so we need a debt downgrade."  Huh?  These "debt ghouls" need some consistency vis a vis QE first because right now it's "fear this, no fear this! no fear this!"  yeah, okay.  i do fear inflation because "i'm not paid in company stock" but in cash--the value of which only moves in one direction and that is down.  compensate me for my risk of actually having a job and being paid for it i say.  in the meantime "keep driving up those interest rates abroad" and i might finally be able to retire.

Mon, 04/18/2011 - 17:45 | 1181913 Rick64
Rick64's picture

I'm shocked it took so long to downgrade.

Mon, 04/18/2011 - 17:52 | 1181924 buzzsaw99
buzzsaw99's picture

My guess is a bank or fund paid them to downgrade. S&P doesn't do jack without a bribe.

Mon, 04/18/2011 - 20:41 | 1182346 Rick64
Rick64's picture

Wouldn't be surprised, it worked well last time.

Mon, 04/18/2011 - 17:47 | 1181915 xamax
xamax's picture

YBGIBG: that's a very smart one, but sadly reality and not only in the US.

I only wonder how long it can take until this house of cards will explode. And what will come next: Hyperinflation, WW3 ??

Mon, 04/18/2011 - 18:00 | 1181942 Bob
Bob's picture

Tyler, it seems to me you have a near term obligation to issue an Editorial Opinion on this looming deficit crisis.  I'm especially interested in your position on austerity in a certain-default environment. 

Bitches at S&P said their piece even. 

Mon, 04/18/2011 - 18:01 | 1181948 Traianus Augustus
Traianus Augustus's picture

Don't underestimate Timmy!  The world will end if he doesn't get his increase...he said so.  Bennie is on board with a little market scare to make sure all those govt types get in line with the plan.

Mon, 04/18/2011 - 18:19 | 1181990 slewie the pi-rat
slewie the pi-rat's picture

okayyyy!  this triggers the zeroHedge automatic volunteers of america put = automatic shut-down of all "non-essential" Federal Goobermint! 


Mon, 04/18/2011 - 18:22 | 1182004 SheepDog-One
SheepDog-One's picture

Exactly right, never believe your OWN hype, and never go full retard.

Mon, 04/18/2011 - 18:38 | 1182045 slewie the pi-rat
slewie the pi-rat's picture

everyone is auction-to-auction
full retard is in full bloom
let the auctions continue
who could stop them now

Mon, 04/18/2011 - 19:30 | 1182163 Kayman
Kayman's picture


 slewie the pi-rat

everyone is auction-to-auction,
full retard is in full bloom,

bang the walls, and hold your balls,

Until Bernanke leaves the room.

Thanks for the lead-in. This economy rises or falls on the Fed and so-far all that Bernanke has done is to lead us back to the fall of 08; except private debt is now public and manageable is no longer manageable.

Mon, 04/18/2011 - 19:02 | 1182109 AldoHux_IV
AldoHux_IV's picture

Bondholders = slavemasters

Mon, 04/18/2011 - 19:59 | 1182227 Übermensch
Übermensch's picture


Why So Serious? Its all just digits on a screen.


Mon, 04/18/2011 - 20:14 | 1182274 Charles Wilson
Charles Wilson's picture


"I buy gold, you buy gold."


Tue, 04/19/2011 - 08:06 | 1183303 sbenard
sbenard's picture

Good article. I think there may also be an element of "find a greater fool" to buy when we all run for the exits. Everyone is counting on being the first one out the emergency exit door. Unfortunately, that door isn't wide enough for all of us to run out simultaneously. There is going to be blood in them thar Wall Streets!

We're toast. Plan and prepare accordingly!

Do NOT follow this link or you will be banned from the site!