Debt Ceiling

"Nobody Knows What The F**k Is Going On..."

Financial circles in Hong Kong are buzzing today on the new Goldman Sachs projection that gold may drop below $1,000 an ounce. The central thess: since the US economy is out of the woods, there’s no longer a need for gold as a risk hedge. But as one senior-level manager at a major investment bank noted, "Nobody knows what the f**k is going on..." However, this mentality entirely misses the point of precious metals. When the hopes and dreams of the entire global financial system rest on the lies of politicians, the whims of central bankers, and the mountains of debt they have all accumulated, things could turn on a dime... tomorrow. Gold is an insurance policy. It’s a form of money that you might never need to use. But should that need ever arise, you’ll be so much better off for owning it.

Consumer Confidence Collapses - Biggest Miss On Record

This is the first consecutive monthly drop in 14 months and the largest miss vs expectations on record. Printing at 76.8 (against an expectation of 82.0), this is the lowest in 5 months and points to the picture we have been painting of a consumer increasingly affected by rising rates and soaring gas prices amid stagnant incomes. As Citi notes below, this is the exact same pattern we have seen play out in the last 2 cycles and suggest significant downside risk to US equities. The economic outlook sub-index collapsed to its lowest since January.

 

Goldman Expects $10-15bn Taper And Fed Walking-Back From Employment Thresholds

With bonds and stocks rallying (and the USD dropping) notably in the last few days, one could be forgiven for believing the Taper is off but Goldman's baseline forecast remains for a $10bn reduction in asset purchases - probably all in Treasuries - and $15bn is possible (though recently mixed labor data may choke that a little) and a strengthening of forward-guidance. As they note, the current redction in uncertainty (or rise in complacency some might say) has the potential to offset the tightening in financial conditions, barring another major outbreak of DC strife in the run up to the debt ceiling in late October/early November. However, what is most notable is Goldman's expectation that the Fed will start walking-back its unemployment-rate threshold as it has been clearly shown not to be a good catch-all indicator of broad economic and labor market performance. So it's data-dependent - but the data is unreliable at best and false at worst.

And Now The Unions Are Angry At Obamacare: AFL-CIO To Press For Healthcare Law Changes

Moments ago The Hill reported that the Executive Council of the AFL-CIO, the largest federation of unions in the US and one of Obama's staunchest supporters, is expected to consider a resolution, "subject to fierce internal debate, that will call for changes to the Affordable Care Act (ACA) — setting up a potential floor vote this Wednesday before the convention closes." In other words, the one constituency that was supposed to be among the biggest benefactors from Obamacare is about to launch a formal criticism of Obamacare as "frustration has grown within labor as the Obama administration has failed to offer a fix to temper union worries over the law."

But at least "they passed it."

America's Next "Debt Ceiling": At Least $17.8 Trillion

The theatrics this time around will certainly be spectacular, but the end result will be the same: after much yelling, screaming, posturing and crying, the US debt ceiling will once again be raised. The next question: what will be the new and improved debt ceiling, since $16.7 trillion in total debt was hit back in May? According to the Bipartisan Policy Center, the minimum required permitted debt at December 2014 will be an increase of $1.1 trillion, or $17.8 trillion in total, or about 105% of GDP assuming current growth rates and assuming no more upward revisions to GDP which magically add $600 billion out of thin air the total number.

Small Business Is Going Nowhere

While the world is currently glued to the events surrounding Syria; the reality is that such an event has very little to do with the real economy.  The surges in expectations by business is very interesting given the actual demand that drives the real economy.  Real employment remains weak and corporate earnings are struggling given the diminishing returns of cost cutting. The recent increases in interest rates also have a very important "tightening" effect on the "Main Street" economy which will also likely suppress consumption in coming months somewhat.  Also not likely factored in to current survey's is the upcoming debt ceiling debate and the onset of the Affordable Care Act (ACA).  The ACA is a de facto increase in taxes and there is a potential for further tax hikes coming from the budget debate. The current NFIB survey suggests that the economy is still stuck in "struggle mode" and an acceleration above 2% real economic growth is currently unlikely.  The divergence between expectations and real demand will likely converge in the next couple of months so we will see businesses follow through with their optimisitic outlooks - "Overall, the Index of Optimism says the small business sector is going nowhere and that's what it feels like."

Treasury "X Date" May Hit As Soon As October 18

One reason why the US has been able to extend its true "drop dead" cash exhaustion date has been due to an increase in tax revenues due to the payroll tax cut as well as cash inflows from the GSEs (which are set to reverse and become outflows once the latest housing dead cat bounce reverses), and cash remittances from the Fed. However, the capacity under this extended "revolver" is rapidly running out, and as of August 31, 2013, approximately $108 billion in extraordinary measures remained available for use. In a report released today, the Bipartisan Policy Center has released another analysis of just when the US will hit the "X Date" or the date on which the Treasury will not have sufficient cash to pay all of its bills in full and on time. Should there be still no deal on the debt ceiling by this date, the Treasury will be forced to prioritize payments to avoid a debt default. According to this estimate, the X Date falls anywhere between November 5 to as recently as October 18, or just over a month from now (and there has been zero real discussion in Congress over the debt ceiling hike with all the excitement over Syria).

GoldCore's picture

A COMEX default on delivery of precious metals and specifically of gold bullion bars remains a risk. It is of significant importance and that is why we have covered its possibility since 2011. A COMEX default would have serious ramifications not just for precious metals markets but for the wider commodity markets, for the U.S. dollar and all fiat currencies and our modern  monetary system.

Futures Drift Sideways On Lack Of Syria, Liquidity Clarity

As macro news continues to trickle in better than expected, the latest batch being benign (if completely fake) Chinese inflation data (CPI 2.6%, Exp. 2.6%, Last 2.7%) and trade data released overnight which saw ahigher than expected trade balance ($28.5bn vs Exp. $20.0; as exports rose from 5.1% to 7.2%, and imports dipped from 10.9% to 7.0%, missing expectations), markets remain confused: is good news better or does it mean even more global liquidity will be pulled.  As a result, the release of an encouraging set of macroeconomic data from China failed to have a meaningful impact on the sentiment in Europe this morning and instead stocks traded lower, with the Spanish IBEX-35 index underperforming after Madrid lost out to Tokyo to win rights to host 2020 Olympic Games. Even though the news buoyed USD/JPY overnight, the pair faced downside pressure stemming from interest rate differential flows amid better bid USTs. The price action in the US curve was partly driven by the latest article from a prolific Fed watcher Jon Hilsenrath who said many Fed officials are undecided on whether to scale back bond purchases in September. Hilsenrath added that the Fed could wait or reduce the programme by a small amount at the upcoming meeting. Going forward, there are no major macroeconomic data releases scheduled for the second half of the session, but Fed’s Williams is due to speak.

JPMorgan Closes Precious Metals Sell Recommendation, Goes "Tactically Overweight" Commodities

One of the most underreported sentiment shifts of the past week was JPM's announcement late on Friday, that the firm quietly went long commodities - specifically base metals and copper (in addition to energy) - and the firm also closed it "sell" (i.e., underweight) in precious metals. This is not surprising: we had noted the ongoing purchasing of gold by JPM over the past two month (in part to restore its depleted gold vault inventory) when the yellow metal not only stabilized but promptly entered a bull market, returning 20% in a short period of time. And as gold was rising, JPM was advising its clients to sell. It seems JPM now has more than enough gold stashed away, and as the September shock is set to unwind, even JPM may be seeking the safety of gold, and the usual other hard asset suspects, if and when events escalate out of control, resulting in another "risk off" phase.

Mapping The 7 "Risk" Horsemen Of The Sept-ocalypse

Ahead of September, historically the worst month for stocks, Deutsche Bank notes that volatility has picked up and corporate bond issuance has slowed. There are several possible risks over the next few weeks that could trigger a further escalation in market volatility...

"Explosive" September Straight Ahead

If you thought August had more than enough events to crush the best laid vacation plans of Wall Streeters and men, you ain't seen nothing yet. Presenting "explosive" September.

Gearing Up For September

September is likely to be dominated by a number of key event risks, in addition to ongoing uncertainty around the US growth outlook, the Fed’s reaction function and heightened EM volatility. We highlight the major events and likely market implications.

Bank Of America: "We Hope None Of These Three Shocks Reaches A Crisis Level"

"In the spring, the risks to growth seemed to be fading. The economy was weathering the fiscal shock. Politicians decided to delay battles over the budget and the debt ceiling, passing a continuing resolution to fund the budget through September and postponing the debt ceiling drop-dead date to some time in the fall. Meanwhile, financial markets in Europe had settled down, the European economy showed signs of improvement, and commodity prices were stable. In their June directive the FOMC made it official: “The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall.” Unfortunately, we seem to be entering another of those periods of elevated risk. Three concerns are emerging."

- Bank of America

Pivotfarm's picture

There’s too much of a sameness about Japan and the USA today. The Land of the Rising Sun and good old Uncle Sam have been copying each other far too much and now it seems as if they are railroading on the same train to the Land of Debt.