Congressional Budget Office
The forecast for me is 12-18 inches. I'm hoping it pushes three feet.... Some odds and ends:
The most vocal justification provided for the disappointing Q4 GDP print by the mainstream was an increase in US government "austerity" resulting in a decline in the government contribution to the economic bottom line in the last quarter (or first fiscal quarter of 2013). Ironically, both total spending and total debt issuance in the past quarter increased, which means that far from being austere, the US actually spent more, not less, i.e., the opposite of austerity. And while it is true that Defense spending declined by a tiny amount in the past quarter compared to the year ago, it was more than offset by a surge in Medicare and Medicaid, as well as Social Security, or, as they are better known, welfare. And, as the CBO yesterday showed, these two components of US spending, which together account for half of all US spending and which couldn't be funded by all US revenues even if the government spent $0.00 for all other programs, which will soar in the coming years as US society ages, as more workers retire, and as more are reliant on Uncle Sam for the payment of every bill. So the next time someone say that the US has a defense spending problem and nothing else, show them this chart.
Yesterday we had our 15 minutes of fun with the CBO's latest budget forecast, which, while wrong as always, provided the mainstream media with its dose of propaganda optimism, by "forecasting" that the baseline 2013 budget deficit will be some $845 billion, well below the $1+ trillion deficit in 2012 (and quite a bit above the CBO's last year 2013 deficit forecast of $585 billion). It will be higher. And we know that not only because the CBO is a complete and utter failure when it comes to predicting the future (which as Rajoy would say would be "just as forecast, except for everything that does happen"), but because earlier today the Primary Dealers that make up the Treasury Borrowing Advisory Committee (a topic we have written extensively about in the past), released their own 2013 budget deficit forecast. The picture there is far less optimistic: the median estimate is some $929 billion, however it is the upside range that is where reality lies, and this number is, according to the likes of Goldman and JPM (who head the TBAC) as well as the 18 other Primary Dealers, as high as $1.037 trillion.
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Following today's sequester-delay-seeking, tax-hiking, close-the-loophole speech by the President, it would appear that fiscal policy debates will be balanced a little more to raising effective rates on corporates (as opposed to the 'statutory' rate so many discuss). The US has the second highest global 'statutory' tax rate but less than 10% of S&P 500 firms have paid this rate over the last decade. Somewhat shockingly, since 1975, taxes have had the largest cumulative positive impact on S&P 500 ROE as effective rates fell from 44% to 30%. They estimate each percentage point rise in effective tax rate would lower S&P 500 ROE by 22 bp and EPS by $1.50, all else equal. Closing all the loopholes would smash year-end 2013 expectations from Goldman's 1575 to around 1300 with Staples and Tech the hardest hit. With the 'market' the only policy tool left, it would seem not even the Fed could monetarily save us from this fiscally fubar action.
Everything is going to be on easy street....Chicken in every pot.
We won't spend any time discussing the accuracy of the "impartial" Congressional Budget Office: we already did that in August 2011 when we showed that back in 2001 the CBO forecast total 2011 public debt would be negative $2.4 trillion; instead the real number was positive $10.4 trillion, a delta of only $12.8 trillion. We also won't spend much time on the just released CBO headline grabbing projection that the 2013 budget deficit will be under $1 trillion, or $845 billion to be precise. Instead we will show the progression of the CBO's baseline forecasts for the period 2012 and onward. We will also note that the now-forecast 2013 budget deficit of $845 billion was supposed to be a deficit of just $585 billion one short year ago, a token 40%+ error rate, but in the immortal words of Hillary Clinton: "who cares." Of course we should note that if we apply the same forecast error to the 2013 budget, it means the real final deficit print will be $1.2 trillion - just a tad more realistic. Finally, we will certainly note that while the CBO believes 2013 may see the first sub $1 trillion deficit in 4 years, a number which will decline modestly in the coming years, the deficit then proceeds to grow and grow and grow, until we reach 2024, at which point the US deficit returns to $1 trillion once again... and never gets smaller. And this is the optimistic version.
Following our earlier discussion of the echo-boom in housing, David Stockman appeared on Yahoo's Daily Ticker with Lauren Lyster to pour come much-needed cold water 'reality' onto the hopes of an increasingly sheep-like investing public. Homebuilder stocks up 100%-plus simply reflects that "we are in a bubble once again." The former CBO Director added that "in a world of medicated money by the central bank, things aren't what they appear to be," as he explained there is "no real organic sustainable recovery."
After witnessing the fighting of undeclared never ending wars, passage of freedom destroying legislation like the Patriot Act & NDAA, approval of pork barrel spending to the tune of hundreds of billions, rule by Executive Order, using ZIRP to extract hundreds of billions from senior citizen savers and give it to criminal Wall Street banks, forcing the American people at gunpoint to replenish the Wall Street banks with $700 billion after they had committed the greatest financial fraud in history, and a continuing trampling of the U.S. Constitution, the American people continue to remain willfully ignorant of the truth. The American Dream is dead. We’ve allowed a rich, privileged, elite few to achieve hegemony over our economic and political system with their control of the media and manipulation of our financial markets. They will collapse the country because they will never be satisfied with the amount of wealth and power they’ve accumulated. Their voracious greed will be their downfall.
The underlying trends seen this year have continued, but after strong follow through in Asia, a more subdued tone has been seen in Europe. The US dollar is generally softer, except against the yen and sterling. Japanese markets were closed for holiday, but the MSCI Asia-Pacific Index rose almost 0.3%, lifted by more than a 3% rally in China on speculation that there may be a sharp increase in the cap on foreign investors' ability to invest in Chinese equities. In Europe, the Dow Jones Stoxx 600 is hp about 0.4%, led by a rise in financials. Spanish stock market is at its highest level in almost a year (Feb 2012) and Italy's market is at its best August 2011, though their bond markets are seeing some profit-taking today. With a light economic calendar in North America today, Bernanke's speech in Michigan after the markets close may be the highlight. We identify six key factors shaping the investment climate.
Shooting arrows at kids who are five years old today is nothing to celebrate, even if the arrows won't hit for another decade or two.
As reported previously, when Bloomberg broke the news two days ago, it now appears that the official appointment of Jack Lew as the new SecTres will take place tomorrow. From Bloomberg: "President Obama will announce tomorrow that White House Chief of Staff Jack Lew is his pick for Treasury secretary, person familiar with the matter tells Bloomberg’s Han Nichols." In other words - goodbye Timmah: best of luck writing your new book, which in the tradition of every ex-public servant who departs the government where they kept their mouths firmly shut, we assume will be all about bashing Tim Geithner.
Bloomberg is out after hours with news that was expected by many, but which was yet to be formalized, until now: namely that following today's flurry of contntious nomination by Obama, the latest and greatest is about to be unveiled - Jack Lew, Obama's current chief of staff, is likely days away from being announced as Tim Geithner's replacement as the new Treasury Secretary of the United States. In other words, Jack will be the point person whom the people who truly run the Treasury, the Treasury Borrowing Advisory Committee, chaired by JPM's Matt Zames (who just happens to also now run the notorious JPM Chief Investment Office which uses excess deposits to gamble - yes, you really can't make this up) and Goldman's Ashok Varadhan, global head of dollar-rate products and FX trading for North America (recently buying a $16 million pad at 15 CPW) will demand action from.
They say "be careful what you wish for", and they are right. Because, in the neverending story of the American "recovery" which, sadly, never comes (although in its place we keep getting now semiannual iterations of Quantitative Easing), the one recurring theme we hear over and over and over is to wait for the great rotation out of bonds and into stocks. Well, fine. Let it come. The question is what then and what happens to the US economy when rates do, finally and so overdue (for all those sellside analysts and media who have been a broken record on the topic for the past 3 years), go up. To answer just that question, which in a country that is currently at 103% debt/GDP and which will be at 109% by the end of 2013, we have decided to ignore the CBO's farcical models and come up with our own... To answer just that question, which in a country that is currently at 103% debt/GDP and which will be at 109% by the end of 2013, we have decided to ignore the CBO's farcical models and come up with our own. The bottom line: going from just 2% to 3% interest, will result in total 2022 debt rising from $31.4 trillion to $34.1 trillion; while jumping from 2% to just the long term historical average of 5%, would push total 2022 debt to increase by a whopping $9 trillion over the 2% interest rate base case to over $40 trillion in total debt!
Friday Night Dump: CBO Admits Error, Now Expects Another $600 Billion In Deficits From Obama Tax CutsSubmitted by Tyler Durden on 01/04/2013 17:59 -0500
Two weeks ago, when we commented on the biggest farce in financial thinking at the time (promptly replaced by the even more lunatic platinum coin "idea"), namely that one of the main "spending cut" proposals of the Obama administration, one amounting to $290 billion, was the assertion that the US will save hundreds of billions because, get this, interest rates are now lower than they were before. We commented as follows: "this is where one's Excel refs out, because the interest payment on Treasurys, at least in a non-banana republic, one set to see 120 debt/GDP in 3-4 years, is a function of fiscal decisions (central-planning notwithstanding), and to make the idiotic assumption that one can control interest rates for 10 years (central-planning notwithstanding), just shows what a total farce this whole exercise has become, and also shows that nobody in the administration, or the GOP for that matter, has even modeled out the resultant budget pro forma for the proposed tax hikes and budget "savings" as that would blow up said excel model immediately." We now learn that one other entity that did not fully model out the last minute Fiscal Cliff deus ex, and especially not the recursive debt relationship in a country where half the government spending is funded by debt, is the always amusing CBO (whose epic prediction failure rate has been discussed here on numerous occasions). It appears that they just did, after the close, on Friday. The outcome? Their initial estimate of a $4.0 trillion budget increase was wrong and when one factors in the fact that this incremental spending would have to be funded by, you guessed it, debt, debt which has interest, the full impact of the Obama tax cut rises deficits by 15% to $4.6 trillion over the next decade.