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.                                         

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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 :) )

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.

 

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.

TruthInSunshine's picture

BYOFFA (food, fuel & ammo):

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

www.bloomberg.com/.../u-s-is-bankrupt-and-we-don-t-even-know-commentary-by-laurence-kotlikoff.html

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)

treemagnet's picture

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

TruthInSunshine's picture

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

malek's picture

IBGYBG. Are you already gone?

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?

magis00's picture

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

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.

slaughterer's picture

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

redpill's picture

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

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.)

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 :)

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.

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)

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.

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?

 

CW

slaughterer's picture

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

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.

Boston's picture

Exactly.

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

treemagnet's picture

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

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.     

treemagnet's picture

Now that you mention it, where is Turd?

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.

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?

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.

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. 

SheepDog-One's picture

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

redpill's picture

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

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...

Rainman's picture

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

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

SheepDog-One's picture

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

ugmug's picture

Buy on the dip.....

Jump on the crash....

Look up for falling banksters....

 

slaughterer's picture

The dip has not yet ended, dude.

treemagnet's picture

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

TruthInSunshine's picture

Global Jubilee will arrive soon?

HMMMMMM....

 

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

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.

 

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...

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.

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.

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.

 

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?

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.

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.

 

slewie the pi-rat's picture

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

TruthInSunshine's picture

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

Still working on catchy acronym.

redpill's picture

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

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!