Update: OBAMA: "THIS MAY BRING MY PRESIDENCY DOWN BUT I WILL NOT YIELD ON THIS" -- REPUBLICAN AIDE; Perhaps Obama may want to put the country ahead of his own interests this one time...
So far the Moody's threat is having precisely zero impact on the debt ceiling farce, with just 8 days left until July 22. But the latest development is certain to jar both S&P and Fitch, not to mention Dagong, out of hibernation. Reuters reports that President Barack Obama abruptly ended a tense budget meeting on Wednesday with Republican leaders by walking out of the room, a Republican aide familiar with the talks said. The aide said the session, the fourth in a row,
was the most tense of the week as House of Representatives Speaker John
Boehner, the top Republican in Congress, dismissed spending cuts offered
by the White House as "gimmicks and accounting tricks." Either Congress has become the best orchestrated reality TV show in history or, and this is a big or, the market should really consider panicking soon.
Recently I compared the 2007 equity topping pattern to that of the current market. The premise being today as in 2007 the US economy is quite possibly entering economic recession. Long gone are the days of equity markets being forward looking as proven in 2007 when they peaked just two months before contraction began. A similar pattern is also playing out in the 10 year treasury. I suspect a topping market is more a function of psychology and less technicals or macro data. The money making bull is slowly dying while the bears are eager for their turn to shine. The result of this clash of views and buying power is dictated more by emotional, whipsawing action where convictions in one's position and volatile price action make coexistence difficult if not impossible.
You were involved with Harry Browne during the last great inflation in
the U.S. How does the increase in the money supply that kicked off in
2007-2008 compare in terms of scale to what went on leading up to the
inflation in the ‘70s?
Terry Coxon: The
comparison is pretty muddled. In terms of the M1 money supply – the
total of checkable deposits and hand-to-hand currency – we haven’t yet
gotten near the persistently high growth rate that occurred in the
1970s. But the growth in the monetary base has been far more rapid than
what happened in the 1970s. There is some time delay between growth in
the monetary base and growth in M1, but to make the picture really
cloudy, I'm afraid the comparison turns out not to be very useful.
Unlike in the 1970s, the Federal Reserve is now paying interest to banks
on their reserves.
BOOM: "The review of the US government's bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes. As such, there is a small but rising risk of a short-lived default. Moody's considers the probability of a default on interest payments to be low but no longer to be de minimis. An actual default, regardless of duration, would fundamentally alter Moody's assessment of the timeliness of future payments, and a Aaa rating would likely no longer be appropriate. However, because this type of default is expected to be short-lived, and the expected loss to holders of Treasury bonds would be minimal or non-existent, the rating would most likely be downgraded to somewhere in the Aa range."
The Debt Ceiling Reality Show is winding down to its dramatic conclusion on August 2. I think Fox should capitalize on the drama by gathering the American Idol judges to vote on the best performance by a political hack. We can have Ryan Seacrest announce on August 1 at 11:55 pm that the winner is – THE WALL STREET MONIED INTERESTS. The latest round of kabuki theatre performed by the corrupt lying thieves in Washington DC is being played out every night on the MSM. The volume of misinformation, lies, exaggerations, posturing, and propaganda is staggering. These vile excuses for leaders know that 80% of the American population wouldn’t know the difference between a debt ceiling and a drop ceiling. They use this ignorance to their advantage, as Obama warns that old people won’t get their social security checks and government drones won’t be paid.
Barney Frank, fresh from being caught on live TV picking his nose during Bernanke's Humphrey Hawkins presentation, had a decidedly more sour outlook on the prospects for the debt ceiling. Spoiler alert: in tried and true fashion, the drama king blamed it all on the stupidity and inexperience of republicans. Asked when there is a chance the US will be put into default: "Yes. I take the freshmen republicans and people like Michelle Bachmann
at their word. I don't think they're kidding. I think they fundamentally
misread this situation as Bernanke, a Bush appointee after all, made
clear today. I think there are people that frankly have an unreal view
of the world. They believe that this is somehow a fake and that you can
push a button and make a lot of these debts go away. I believe there are
a substantial number of Republicans who are opposed to a huge debt and a
further group of Republicans who understand why it's important to raise
the debt limit, but are afraid of losing a primary to someone." Recapping Frank's view: why deal with a problem under my tenure, when very soon there will be a congressman who will replace me and he, or more likely she, can deal with the sordid mess I created. And this is not even counting the trillions in GSE off-the-books debt of which Frank was one of the key people responsible for letting it be the catalyst that blew up the credit bubble when Fannie and Freddie were nationalized just under 3 years ago.
When we observed the 1 month Bill auction yesterday which priced at a 6 week high of 0.002% we speculated, incorrectly, that the market may be starting to get concerned about the whole debt ceiling thing (which has 8 days until the legislative D-Day of July 22), especially following the John Boehner quote just carried by AP that "there is no guarantee of a debt limit raise if no deal by August 2." And yes, the deadline by which Congress has to pass this law is 10 days prior. But anyway: as of minutes ago, this 4 week bill which saw some "weakness" yesterday is back to where it was a week ago: -0.005%. Translation: Uncle Sam will gladly take your money to take your money.
If there is one thing in the past year that has received more ridicule than the Fed's horrendous monetary policy it is the IEA unprecedented decision to release 60 million in crude from the global strategic petroleum reserve. One needs to take a simple look at the price of crude just today to see what really is driving the prices in the energy complex. But that does not prevent the IEA from pursuing an obstinate insistence that its decision was justified, and defending the fact that it was nothing more than a puppet in the administration's political plot. From Dow Jones: "The International Energy Agency Wednesday rebutted criticism of its decision to release 60 million barrels of emergency oil stocks, saying the move is having the intended effect. The IEA, which represents major energy consuming countries, hit back at some analysts' "blinkered focus" on the price of oil, which has rebounded above its level prior to the stock release. More important is that the market is now more flexible and the price of light sweet crude, relative to heavier grades, has fallen after increasing sharply following the outbreak of the Libyan civil war, it said." Although the confirmation that not only the Fed redefines Einstein's definition of insanity is this: "The agency also suggested an additional supply release was possible." Great: we are confident JPM just can't wait to lock in another 10% risk free arb by buying up Light Sweet at $107 at the next SPR auction and selling it, with a 3-6 month delay of course, in the open market at $120+.
Fed Releases Latest QE Lite POMO Schedule: Brian Sack To Monetize A Paltry $14 Billion In Next 30 DaysSubmitted by Tyler Durden on 07/13/2011 - 14:13
The latest QE Lite (not QE2.5, not QE3) POMO schedule has been released. The New York Fed will purchase a measly $14 billion (so much for stealth monetization: this is about one-eighth the regular amount of monthly QE2 POMO) over 7 operations between July 15 and August 8. The biggest POMOs will occur on July 27 and August 3 when up to $3.50 billion in 10 and 7 year bonds will be monetized. The reason for the dramatic slowdown in QE Lite activity? The collapse in MBS prepayments, as we have cautioned for months. So much for stealth QE2 as others have claimed. $14 billion in flow (and remember according to the fed only Stock matters, another matter on which it is dead wrong) per month is a total joke - it is barely enough to keep Netflix at 1 million fwd P/E, and is just another reason why QE3 is coming.
Some brutal truth from the Dallas Fed's Fisher
- FISHER SAYS THERE IS `PRICE' FOR `TINKERING' MORE WITH POLICY (about $1MM per FOMC Member)
- FISHER SAYS THINGS WILL BE WORSE IF FED JUST PRINTS MORE MONEY (there is no money printing... the Chairsatan said so)
- FED'S FISHER SAYS `MONETARY POLICY HAS EXHAUSTED ITSELF (but the Chairsatan just said the Fed is prepared to confirm its madness by doing for the third time what failed twice already)
Ignore the second bullet point: according to the Fed Chairman and chartalists it is all just an asset swap. "There is no money printing" is what one hears all day long after all. Or wait, maybe someone else is confused, and perhaps Fisher is actually telling the truth. Oh well, semantics. Either way, Fisher's pink slip is in the mail.
As of August 2011, it will be three years since the global financial meltdown. In three years, the Savior State has borrowed and blown $6 trillion maintaining the Status Quo, and the Federal Reserve has printed almost $3 trillion and shoveled that vast sum into "risk assets" to keep housing on life support and the stock market rising. The Fed has also devalued and debased the dollar, stealing wealth from the citizenry and holders of U.S.-denominated debt in the process, to serve two goals: 1) spark inflation and thus avoid deflationary deleveraging of the nation's fast-growing mountain of debt, and 2) to enable servicing that debt with cheaper dollars. None of these grandiose manipulations has healed the economy or fixed the structural problems which made the meltdown inevitable.
The second auction in that brief period between the end of QE2 and start of QE3 has closed and the Treasury has just raised another $21 billion in exchange for pieces of paper promising said amount in 9 years and 10 months, yielding 2.92%, or the lowest amount in 2011. And just like in yesterday's 3 Year auction which saw a drop in Indirect interest, today's 10 Year continues the long-term trend where foreign banks recycle less and less dollars via US paper. At 42%, the Indirect Takedown was the lowest of 2011 and the worst since October 2011. Who saved the auction: once again that suspicious category - the Direct Bidders, which took down 13.9% of the full amount, the highest since January's 14.9%. The Direct Bidder hit rate was a low 29.1%, as $10 billion of competitive bids were placed in the auction. Like yesterday, the final result came surprisingly tighter to the When Issued which was at 2.935% before the close. And interestingly for those who care about such things, there was a block trade of 6,895 10-Yr Treasury Futures at 124-14 just before the pricing, and a Vol. spike of 29,565 contracts at 12:50pm: is the Fed now pulling an ECB in the TSY derivative market? Either way, regardless of what manipulation may have been involved, the entire curve has flattened substantially.