Debt Ceiling

Herbalife Analyst Day And Investor Meeting - Live Webast

The market has completely forgotten about the cliff (i.e., sequester and other, if any, spending cuts), about the debt ceiling, about the drag on the economy from the payroll tax increase, about central bank currency warfare, and is now fully engrossed by the hedge fund war between Ackman (and possibly Chanos, certainly Tilson) vs Loeb (and possibly Icahn) over the valuation of Herbalife: $0 or $60. Which is why today's HLF "analyst day" investor presentation - whose sole purpose is to refute Ackman's 300+ page monster accusing HLF of being a pyramid scheme - may be the most discussed event by carbon-based traders.

Small Business Optimism Stagnates (Even Before Higher Taxes)

The release of the National Federation Of Independent Business (NFIB) Small Business Survey for December was much like the report we discussed in November.  In short - there were very few positives to be found.  The current survey was completed prior to the last minute "fiscal cliff" deal that raised taxes on small business owners and employers.  It is unlikely that higher tax rates will spur businesses to expand employment, make capital expenditures or increase production.  Furthermore, with the resolution to the upcoming debt ceiling likely resulting in few, if any, real spending cuts the worries about future economic strength will likely persist. 

Brodsky's Thompsonesque Trip Into The World Of Monetary Idiots Vs Krugman's Barbarians

In light of this evening's entertainment from Paul Krugman, we thought QBAMCO's Paul Brodsky's view of the present debt-ceiling policy-through-the-looking-glass extremely apropos. Speaking of monetary abstractionism, there has been recent talk of a fiscal gimmick called “The Trillion Dollar Coin,” in which a platinum coin valued at $1 trillion would be created by the U.S. Mint for the Treasury Department. Treasury would then rid itself of its pesky fiscal deficit in one fell swoop by simply keeping the coin on deposit at the Fed. The TDC idea is a marvel of political imagination and public ignorance. Obviously, the TDC idea is a political ploy with a targeted mission: to rid the US Treasury of its debt ceiling, which is an increasingly frequent and embarrassing public reminder of government ineptitude. Everyone knows government-led de-levering is not a serious threat. However, the irony of the scheme and its MMT (Modern Money Theory, is espoused by imaginative economists technically proficient in double-entry bookkeeping and deficient in confidence that free marketplaces can provide accurate valuations) / liberal Keynesian promoters could not be more delicious. The scheme exposes the forty year-old charade, otherwise known as the global monetary system, better than any mind-exercise we have been able to come up with.

Panic In California As Thousands Of Food Stamps Cards Suffer Brief Outage

This past weekend, as part of a system update to the CalWIN software of California's Social Services department, HP accidentally cancelled EBT cards for some 37,000 Californians. We can only imagine the resulting panic and the scramble by all these Californians who suddenly could not live within their means to print trillion, and other denomination, coins, in the shining example of their government. The OC Register reports that eighteen counties were affected in the CalFresh chaos (the 'friendly' name given to California's food stamp program - also formerly known as the Supplemental Nutrition Assistance Program or SNAP). While we worry for the strippers and liquor stores, CalWIN and Xerox (the state's primary contractor for administering CalFresh) developed a process to reactivate the cards by Tuesday morning. While this must have been a tough day or two for many, we wonder if Geithner's 'extraordinary' efforts to extend the debt ceiling deadline have perhaps gone a little too far? Finally, instead of minting coins, perhaps Hewlett Packard can remotely update its software in the Fed printers, which can then proceed to print a few cool extra trillion unsupervised, and voila: all of America's problems are gone. 

Will Obama Use An Executive Order To Enact Gun Control?

Moments ago, MSNBC showed a clip in which "gun tzar" VP Joe Biden made it clear that "the President is going to act" on the issue of gun control, and that "executive orders and executive action can be taken." Of course "can" does not mean "will" as the fallout from an executive order bypassing Congress would be rather dramatic, especially on a topic so near and dear to at least half of America, and the response, to put it mildly, would make the Piers Morgan vs Alex Jones screaming match seems like a tranquil discussion between two dignified stoics. If "can" however, does become "will", America may have far bigger issues over the next two months than the debt ceiling, kicking the sequester down another several months, or even the quadrillion yen tuna.

Weak 2013 Inaugural 10 Year Issue, As G-Fund Further Plundered To Stay Under Debt Ceiling

The last time the US held a 10 year auction was earlier than its usual time on December 12, just before the Fed announced QE4EVA. The result from that particular auction were a total jumble, where Primary Dealers took down a tiny 33.1%, and where Directs were stuffed with a near record 42.7%. That and a big, 1.7 bps tail. In this light today's 10 Year was a little more casual, with the Treasury just issuing another $21 billion in 10 year bonds, this time not premonetized unlike tomorrow's 30 year auction, although the internals were just as ugly. The When Issued was 1.855%, with the final High Yield of 1.863% tailing (84% allotted at high). The Bid to Cover was 2.83, the smallest for a reopening auction since December 2009, and well below the average for 2012 of 3.03. Indirects took down just 28.5%, the second lowest in years, and better only compared to December's 24.2%, while Directs ended up holding only 14.8% of the final allocation, a big drop from December's 42.7%, which increasingly appears to have been a year end window dressing by various credit funds to show "safe securities" on their books. Overall, an ugly 10 Year auction following another ugly 10 Year auction, even if the past week has seen the yield on the paper drop substantially from 1.97% a week ago to 1.86% today. Was that it for the great "bonds to stocks" rotation?

Fed Now Pre-Monetizing: Bernanke Buys $300 Million Of Treasury To Be Auctioned Off Tomorrow

There was a time when the Fed would repurchase freshly issued bonds a month, a week, or even a day after they were auctioned off by the Treasury (to avoid that whole perjury-inducing "no monetization" stigma). That's no longer the case. Moments ago the Fed concluded its most recent POMO as part of the now unsterilized QE4EVA, focusing on 2036-2042 maturities, i.e., the long-end. A quick look at the issues bought shows that the one CUSIP most put back by dealers to the Fed was the 912810QY7 30 Year. Curiously this is precisely the same CUSIP that, despite the debt ceiling being breached and all, will be auctioned off... tomorrow. Granted, it is a reopening (29 year, 10 month issue), but in a world in which nothing financial makes sense, and idiots come up with debt ceiling avoidance "schemes" that could have rolled right off a Lewis Black rant, we prefer to think of its as pre-monetization, much the same as pre-crime. That said, our hopes that Spielberg will consider putting the script of Monetization Report into a movie, with Paul Giamatti reprising the role of the man who prints the world, will likely not come true.

Obama To Appoint Jack Lew As Treasury Secretary Tomorrow, Bloomberg Reports

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.

Micro In Focus; Macro On Backburner; Debt Ceiling Showdown Looms

With Alcoa kicking off the earnings season with numbers there were in line and slightly better on the outlook (as usual), attention will largely shift to micro data and disappointing cash flows over the next two weeks, even as the countdown clock to the debt ceiling "drop dead" D-Day begins ticking with as little as 35 days left until debt ceiling extension measures are exhausted and creeping government shutdowns commence. There was little in terms of macro data from the US, even as a major datapoint out of Germany, November Industrial Production, missed expectations of a 1% rise, pushing higher by just 0.2% M/M (up from a -2.0% revised October print), once again proving that "hopes" (as shown by various confidence readings yesterday) of a boost to the European economy are wildly premature. This disappointing print comes a day ahead of the ECB conference tomorrow, when the governing council may or may not cut rates, although it is very much unlikely it will proceed with the former at a time when at least the narrative is one of improvement - pursuing even more easing will promptly dash "hopes" of a self-sustaining trough (forget improvement) for yet another quarter. Putting the German number in context, Greek Industrial Output slid 2.9% in November, down from a revised 5% rise, refuting in turn that this particular economy is anywhere near a trough.

Bank Of America On The "Trillion Dollar Tooth Fairy" Straight "From The Land Of Fiscal Make Believe"

A year ago, out of nowhere, the grotesque suggestion to "resolve" the US debt ceiling with a platinum dollar coin came, and like a bad dream, mercifully disappeared even as the debt ceiling negotiations dragged until the last minute, without this idea being remotely considered for implementation, for one simple reason: it is sheer political, monetary and financial lunacy. And yet there are those, supposedly intelligent people, who one year later, continue dragging this ridiculous farce, as a cheap parlor trick which is nothing but a transparent attempt for media trolling and exposure, which only distracts from America's unsustainable spending problem and does nothing to address the real crisis the US welfare state finds itself in. And while numerous respected people have taken the time to explain the stupidity of the trillion dollar coin, few have done so as an integral part of the statist mainstream for one simple reason - it might provide a loophole opportunity, however tiny, to perpetuate the broken American model even for a day or two, if "everyone is in on it." Luckily, that is no longer the case and as even Ethan Harris from Bank of America (a firm that would be significantly impaired if America was forced to suddenly live within its means), the whole idea is nothing more than "the latest bad idea" straight "from the land of fiscal make believe." We can only hope that this finally puts this whole farce to bed.

Gold And Silver Win As Stocks And VIX Drop For Second Day

Despite the vol-compressing efforts, the S&P 500 closed down for the second day in a row as the last 30 minutes or so saw a totally normal +/-5point roller-coaster around VWAP in its very 'human' way. The afternoon's dips and rips as VIX melted down further (now recoupled with SPX) had the feel of hedged longs unwinding both legs and for sure VWAP was the focus as Treasury yields fell and the USD rose on the day. Despite USD strength, precious metals rose into the green for the week. Risk assets in general saw correlations rise as the day progressed but the very narrow 10 point or so range that ES has traded in since the initial gap-open on Jan 2nd seems vulnerable here - and perhaps explains the urgency to compress the front-end vol to keep us up. Interestingly S&P 500 futures closed today at almost exactly the VWAP for the year (around 1452) so far. HY credit dumped into the close but overall it was a normal day of two halves - selling into the European close and buying after...

 

Deja Broke: Presenting The Treasury's Options To Continue Pretending The US Is Solvent

The debt limit was formally reached last week, and we expect the Treasury's ability to borrow to be exhausted by around March 1 (if not before) and while CDS are not flashing red, USA is at near 3-month wides. Like the previous debt limit debate in the summer of 2011, the debate seems likely to be messy, with resolution right around the deadline. That said, like the last debate we would expect the Treasury to prioritize payments if necessary, and Goldman does not believe holders of Treasury securities are at risk of missing interest or principal payments. The debt limit is only one of three upcoming fiscal issues, albeit the most important one. Congress also must address the spending cuts under sequestration, scheduled to take place March 1, and the expiration of temporary spending authority on March 27. While these are technically separate issues, it seems likely that they will be combined, perhaps into one package. This remains a 'very' recurring issue, given our government's spending habits and insistence on its solvency, as we laid out almost two years ago in great detail.

Marc To Market's picture

It is widely recognized that the agreement to mitigate the fiscal cliff neither puts the US on a sustainable fiscal path nor lifts much policy uncertainty. At the same time, minutes from the latest FOMC meeting showed that several members anticipate ending QE3+ before the end of the year, seemed to cloud the outlook. Seeking to avoid partisanship of the heated debates, we offer the following overview of the outlook for US policy, free of hyperbole.