Debt Ceiling

Art Cashin On The Trillion Dollar Coin Alchemy

It would appear that even the venerable Art Cashin had to rub his eyes in incredulity at the recircling of the idea of the Treasury minting a "Trillion Dollar Platinum Coin" to solve the debt-ceiling 'problem'. His brief discussion on the idea is summed up perfectly in his final six words "anybody got an ebook on alchemy?"

From Myth To Reality With David Rosenberg

  • After the worst post-Christmas market performance since 1937, we had the largest surge to kick off any year in recorded history
  • The myth is that we are now seeing the clouds part to the extent that cash will be put to work. Not so fast It is very likely that much of the market advance has been short-covering and some abatement in selling activity
  • As equities now retest the cycle highs, it would be folly to believe that we will not experience recurring setbacks and heightened volatility along the way
  • The reality is that the tough choices and the tough bargaining have been left to the next Congress and are about to be sworn in
  • The myth is that the economy escaped a bullet here. The reality is that even with the proverbial "cliff" having been avoided, the impact of the legislation is going to extract at least a 11/2 percentage point bite out of GDP growth

 

E-Bay Market Sends Stocks To VWAP As Bond Yields Spike To 8 Month Highs

The short-squeeze rip extended through the middle of the day today but on considerably lower volume as we tested up to QE3 highs and sucked in just a few more traders. It seems retail sales (and outlooks) disappointing, higher taxes for 77% of us, debt ceiling and spending cuts to come, and earnings outlooks being slashed en masse was not enough to break the market's spirit... But, when the FOMC minutes hinted at the punchbowl being removed (even modestly), the bid disappeared and S&P 500 futures dropped 10 points and Treasury yields spiked (with 10Y pushing to 8 month highs). USD strength (+1% on the week) and commodity weakness (though gold and silver remain marginally higher on the week) weighed on risk assets in general but algos went quiet and ES depth-of-market plunged as correlations broke. The usual e-bay style close saw ES ramp off the lows of the day to test VWAP and end the day-session there (-4pts or so close to close) as VIX was held lower (sub-15% at 2-month lows). We said yesterday this feels fragile and sure enough today showed its brittleness - as AAPL clung to yesterday's lows staring into the gap. Now the bulls await NFP hoping for a bad print, we assume?

Geithner Out Before End Of January

We are sad to bring you the tragic news that Tim "TuboTax" Geithner, who has long made clear his plans to leave some time in early 2012, will be out before March, and in fact before the end of January as it turns out. From Bloomberg:

  • GEITHNER SAID TO PLAN DEPARTURE BEFORE DEBT CEILING RECKONING

We are also confident readers will somehow be able to overcome the unprecedented sadness at this particular rat's departure from the Titanic, metaphorically speaking of course.

Why The 2013 'Debt Ceiling' Debacle Will Be Worse Than 2011

Having passed the 'easy-do-nothing' bill that created a 5% uplift in US equities, D.C. have left the most difficult set of issues for last: entitlement reform, which Republicans have said they will insist upon in return for raising the debt limit, and tax reform, which the President has said he will insist on in return for entitlement reform. The upshot is that reaching an agreement on the next debt limit increase could be at least as difficult as the last increase in August 2011. As Goldman notes, the next debate on the debt limit will be the fifth "showdown" on fiscal policy in the last two years. Adding further angst, in the summer of 2011 politicians had started the debate some three months prior to the real deadline. This time it appears that nothing serious will happen until the 11th hour as usual, meaning far more last minute volatility. However, one new twist to this now familiar routine may come from the rating agencies, which look likely to be more active in 2013 than they have been since 2011.

New Year Euphoria Fading

The bipolar mood swing over the short-term band aid Fiscal Cliff non-solution may be over, and finally the market, which yesterday saw the official breach of the debt ceiling on the final day of 2012 on paper may be starting to look forward 58 days to that day in February, or more likely March, when the real catalyst as we have said all along- the increase of the US debt ceiling by another $2.4 trillion - has to be resolved. Futures are down a modest 5 points even as the EURUSD slide continues now that year end window dressing repatriation means European banks no longer need to show the currency on their books - at some point the EURUSD-ES correlation algos will kick in but not yet. Keep in mind that in the summer of 2011 the debt ceiling negotiations started some two months before the D-Day in early August, this time around politicians, who have learned nothing, will likely leave all debate until the very last moment once again, as the democrats assume the GOP will fold like a cheap lawn chair once again, even as the tensions at the GOP to do just the opposite hit a fever pitch. Which is why not even Goldman Sachs, as confirmed in a note by Alec Philips last night (coming shortly), cares to predict what (or when) the "debt ceiling 2013" outcome will be.

The 96 Charts That Have To Be Seen To Believed For 2013

In many respects, 2012 was a year of waiting: waiting for a path forward on the European debt crisis; waiting for the results of a polarizing U.S. election; waiting for the Chinese leadership transition; waiting for a resolution to the U.S. fiscal cliff issues; waiting for the Middle East to find peace; waiting for a clear path to global growth; and therefore, waiting to invest additional assets in the markets (or not, as the case may be). In this 2013 Outlook, Michael Cembalest, JPMorgan Asset Management's Chairman of Market and Investment Strategy, provides a comprehensive summary of the global factors at play, with a tone of optimism grounded in realism. Perhaps just what we need after the surreality of the last two days.

Replaying Chris Christie's Epic Anti-Boehner Meltdown

Earlier today, in what can only be summarized as an epic meltdown, NJ governor Chris Christie proceeded with an even more epic rant against House speaker John Boehner, in narrow terms, and House Republicans in broader, for killing the $60 billion Sandy Assistance bill, whose funding would have offset one full year of the just legislated tax hikes on the rich which would add $62 billion annually to the Treasury (or alternatively would have been unfundable for the next 2 months while the US struggles to pay its mandatory bills courtesy of having breached the debt ceiling). Alternatively, all Americans could just agree to accept less welfare and entitlement benefits to show their solidarity for New Jersey and fund the recovery of the Tristate area by a "shared sacrifice" instead of going the default route and demanding even more deficit spending - something that would naturally saddle the next generation with even more pain, not the current, far more entitled one - but in this country that is an absolutely ludicrous proposition. Below is a clip of the entire Christie performance which is a must see for sheer indignation entertainment value alone.

Fiscal Cliff Loose Ends

The fiscal cliff deal appears to be a done deal and markets have reacted accordingly (although President Obama is apparently awaiting a photo-op later today to sign it). However, the deal leaves a large number of loose ends that ensure high drama for the next two months on the US fiscal front. The immediate impact of all the loose ends and deadlines may be smaller than the Dec 31 fiscal cliff, but all of these loose ends are important and could lead to short-term price action. Several of them are very important for the long run USD outlook as well.

Marc To Market's picture

 

While elated that the full 3.5% US fiscal drag was avoided, many observers are understandably dissatisfied with the fiscal compromise that was struck.

 

Marianne Faithfull's song "What's the Hurry" may ironically offer some insight. She asked, "What's the panic, where's the static?" That seems to be the key. The fiscal cliff in the US was never about economics, but always about politics. The politicians had tied their own hands and lo and behold figured out a way to untie them.

 

Politicians, regardless of nationality or political persuasion, like the people they represent, are loath to make difficult decisions unless they are forced. The pressures that usually emanates from large deficits and debt is inflation and higher interest rates. These are not present in the US. Contrary to the claims of many economists, US interest rates remain low as does inflation.

 

Total Debt: $16,432,730,050,569.12; Debt To GDP: 103%

We already knew that the US crossed the debt ceiling on New Year's day. It is, however, one thing to read a Geithner press release, it is another to see America's ridiculous debt it in action. So here it is, courtesy of TreasuryDirect, in all its debt ceiling glory: $16,432,730,050,569.12, with the debt subject to the ceiling at the limit of $16.394 trillion.

And with that we can close the books on the first quarter of Fiscal 2013, in which US public debt grew by $366 billion, some $122 billion per month on average.

Moody's Warns On USAAA Rating; IMF Piles On

Moody's has stepped forward with the first warning shot across the bow that:

  • *MOODY'S: MORE MEDIUM TERM ACTIONS MAY BE NEEDED TO SUPPORT Aaa

Has contradicted itself (from September) on the debt-ceiling breach; and warns that while the deal 'mitigates' some fiscal drag, it does not remove it. To wit: the IMF piles on:

  • *IMF SAYS `MORE REMAINS TO BE DONE' ON U.S. PUBLIC FINANCES
  • *IMF SAYS U.S. DEBT CEILING SHOULD BE RAISED `EXPEDITIOUSLY'

Full statements below.

Guest Post: Game Theory And The Unfixable Fiscal Situation

The recent fiscal cliff negotiations were almost a textbook case of the game theory's Prisoner's Dilemma... resulting in the same sub-optimal outcome. All the posturing and political strutting were more about trying to obtain personal advantage over the other players, not actually fixing anything. The fiscal cliff, in fact, stopped being about the US economy a long, long time ago. The uncomfortable truth that nobody in officialdom wants to admit (save outgoing Congressman Ron Paul) is that the fiscal situation is unfixable. Meanwhile, the debt ceiling has already been breached, and the Obama administration is scurrying to seize federal pensions as a temporary fix. Seriously, how long will it be before they start seizing private pensions, IRAs, etc.? How long before mutual funds and banks are required to hold a percentage of their assets in the 'safety and security' of US Treasuries? How long until everyone is involuntarily financing Uncle Sam?