Debt Ceiling

Goldman Capitulates, Cuts S&P 500 Earnings Forecast And Price Target; Sees Market At 2,000 By Year End

With three months left in the year, we were wondering how long it would take before Goldman's equity strategist would throw in the towel on his increasingly improbable (unless of course the Fed launches QE4, NIRP and/or helicopter money in the coming months) year-end S&P500 price target of 2100. The answer: not very long, as this is precisely what Goldman did overnight, when it cut both its 2015 and 2016 EPS forecasts (to $109 and $120 from $114 and $126), with a corresponding cut in Goldman's 2015 year-end price target from 2100 to 2,000, rising to a nice round 2,100 the year following.

Boehner Is Out: What This Means For Government Shutdown Odds And The Debt-Ceiling Fight

In the aftermath of John Boehner's surprising resignation announcement, the punditry has been scrambling to opine what this departure means for the odds of a government shut down, some saying the likelihood has increased, while others, such as Goldman, confident shutdown odds are materially reduced. The truth is likely in the middle, and while the odds of a government shutdown next week are reduced as a Continuing Resolution now appears more feasible, the probability of a broader shutdown in December once the CR expires, have materially risen.

Divine Intervention? House Speaker Boehner Resigns From Congress Amid "Conservative Coup"

The combination of another debt limit fight, the defunding of Planned Parenthood, and prospect of another government shutdown tearing his party apart, the GOP just suffered its latest major blow, when news hit that House speaker John Boehner, just 24 hours after getting a visit by none other than the Pope, is folding one last time: according to the NYT, "Speaker John A. Boehner will resign from Congress and give up his House seat at the end of October."

"Time's Up" - Government Shutdown Odds Spike To 75%

Two weeks ago, when no one was talking about the possibility of a government shutdown, we warned it was coming. Today, as Politico reports, with very little time left to reach a deal, budget experts project a 75% chance of a shutdown. No matter how immaterial in terms of their economic impacts, government shutdowns create uncertainty and thus influence Fed decisions and as SocGen notes, with the odds of an October liftoff low, a government shutdown could lower them further. Although funding issues should be resolved by the December FOMC meeting, there is a small chance that the fiscal standoff extends into the end of the year (i.e. due to a temporary continuing resolution), creating another deterrent for the Fed.

Janet Yellen's "Fedspeak" Translated

For those of you who don’t want to take the time reading through the ponderous 7000-word transcript of yesterday’s FOMC press conference, we bring you the shorter Janet Yellen, translated from Fedspeak into plain English. Enjoy!

Yellen Responds To Allegations The Fed Is Responsible For America's Record Wealth Gap

"There have been a number of studies that have been done recently that have tried to take account of many different ways in which monetary policy acting through different parts of the transmission mechanism affect inequality, and there's a lot of guesswork involved, and different analyses can come up with different things. But a pretty recent paper that's quite comprehensive concludes that the -- that Fed policy has not exacerbated income inequality."

Is This The True State Of The US Labor Market?

Despite all the confidence-inspiring propaganda from any and every mainstream talking-head, CEOs are cautious about the U.S. economy’s near-term prospects and are trimming business plans for hiring and capital investment over the next six months. According to The Business Roundtable, the CEO Economic Outlook Index tumbled 7.2 pts, from 81.3 in Q2 to 74.1 in Q3 with the disparity between CEO's employment perspective and the BLS 'augmented reality' having never been higher.

It All Comes Down To This

The real risk for the Federal Reserve is keeping interest rates at zero and the deflationary feedback from the collapse in commodity prices, and the Chinese economy trips the U.S. into a recession. Given that "QE" programs have no real effect on boosting economic growth, the Fed would be left with virtually no "effective" monetary policy tools with which to stabilize the economy. For the Fed, this is the worse possible outcome.

Weekend Reading: Rooting For The Bull?

This past week has seen a continuation of market volatility unlike anything witnessed over the last several years. Of course, this volatility all coincides at a time where market participants are struggling with a global economic slowdown, pressures from China, collapsing oil prices, a lack of liquidity from the Federal Reserve and the threat of rising interest rates.  It is a brew of ingredients that would have already likely toppled previous bull markets, and it is only by a hairsbreadth the current one continues to breathe.

Fed Hike - Now Or Never

While Fisher, among others, believes that the recent fall in inflation is solely due to collapsing energy and crop prices, the issue of weakening economic data on a global scale, particularly that of China, may suggest much less transient nature. As we stated previously, we think the Fed realizes that we are likely closer to the next recession than not. While raising interest rates may accelerate the pace to the next recession, it is better than being caught with rates at zero when it does occur.

Is The Correction Over?

The question on everyone's mind now is simply whether the correction is over, or is there more to come? The sharp "reflexive" rally that will occur this week is likely the opportunity to review portfolio holdings and make adjustments before the next decline. History clearly suggests that reflexive rallies are prone to failing and a retest of lows is common.

German Production Is A Facade Built On Bad Loans...

Similar to the US banks who funded home owners that shouldn’t have received mortgages and made a fortune doing so – at least initially, the Germans funded the periphery nations in an effort to drive output growth domestically. However, financing a large portion of ones’ customer purchases is a high risk endeavour. And the Germans are in the midst of this hard lesson.

The Fed’s Fatal Flaw: Gold And The Predictable Endgame

When and what will break the chains on gold by those seemingly omnipotent forces that so assuredly keep its price in check? In essence, the belief is (and I expect for most honest and impartial analysts this is true) that because there is potentially significant downside risk to a global monetary system built upon a currency to which gold represents the proverbial kryptonite (we’ll discuss why), there are checks in place within the system, to ensure that kryptonite doesn’t become too potent. The architects of the existing system would have been foolish not to implement checks on gold.