Yesterday, before the House vote, Obama's pre-GOP capitulation speech was technically Day Zero. In a few moments, the president will take his victory lap tour on the road for the next three months, at which point the next season of the government shutdown/debt ceiling soap opera returns. One notable difference between yesterday and today: then, he wasn't late; now, he is.
Yellen is yet another academic with no banking or business experience what-so-ever. This makes three in a row (Greenspan, Bernanke, and now Yellen). The results speak for themselves.
While there haven't been many economic data points to highlights the so-called damage to if not the economy, then the confidence of the all important US consumer, data on consumer confidence has been trickling in, and as expected, has been sliding. However, nowhere more so than in the just released latest read in the Bloomberg Weekly Consumer confidence index, whose expectations gauge just tumbled to -31, or the lowest level since November 2011. Bloomberg reports: "Americans in October were the most pessimistic about the nation’s economic prospects in almost two years as concern mounted that continued political gridlock will hurt the expansion. The monthly Bloomberg Consumer Confidence Index expectations gauge plunged to minus 31, the lowest level since November 2011, from minus 9 in September, a report showed today. The share of people projecting the economy will worsen jumped by the most since the collapse of Lehman Brothers Holdings Inc. five years ago. The weekly measure of current conditions fell to minus 34.1 in the period ended Oct. 13, the weakest since March."
If there is anything the market has shown in the past 16 days of government shutdown, which is set to reopen this morning in grandiose fashion following last night's 10 pm'th hour vote in the House, is that it no longer needs Washington not only to function but to ramp higher. All it needs is the Fed, which in turn needs an unlimited debt issuance capacity by the US Treasury which it can monetize indefinitely, which is why the debt ceiling was always the far more pressing issue. In other words, the good news is that the can has been kicked, and now the government workers (who will need about a week to get up to speed), can resume releasing various government data showing just how much 5 years of now-open ended QE have impaired the US economy, and why as a result, even more years of unlimited QE are in stock (because in a Keynesian world, what caused the problem is obviously what will fix it). The bad news: the whole charade will be repeated in three months. More importantly, with futures no longer having the hopium bogey on the horizon, namely the always last minute debt deal, they have finally sold off on the back of a weaker USD. It is unclear if the reason for this has more to do with climbing the wall of shorters which is now gone at least until February when the soap opera returns, or what for now, has been an absolutely abysmal Q3 earnings season. Luckily, in a centrally-planned world, plunging stocks is bullish for stocks, as it means even more Fed intervention, and so on ad inf.
Since all US rating agencies (Fitch is majority French-owned) have been terrified into submission and will never again touch the rating of the US following the DOJ's witch hunt of S&P, any US rating changes on the margin will come from abroad. Like China's Dagong rating agency, which several hours ago just downgraded the US from A to A-, maintaining its negative outlook. The agency said that while a default has been averted by a last minute agreement in Congress, the fundamental situation of debt growth outpacing fiscal income and GDP remains unchanged. "Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future."
For those wondering, here is the full final roll call of the vote to extend the debt ceiling and temporarily end the government shutdown:
With A Final 285-144 Vote, Mission "Raise The Debt Ceiling" Is Accomplished: See You All Again In FebruarySubmitted by Tyler Durden on 10/16/2013 21:19 -0500
And so, in the proverbial 11th hour, or technically 10th hour and 10th minute before the midnight of the X-Date, the House gets the necessary 216 votes to pass the Senate bill to raise the debt ceiling, and in a final 285-144 tally, in which 87 Republicans voted yea to 144 GOP noes as all 198 Democrats vote yea, has agreed to restore funding. Next up: the BLS random number generator starts cranking again and informing everyone in just how sorry a state the economy finds itself, which of course is bullish for stocks because it means that the taper is indefinitely delayed, potentially until June 2014. Also next up, as the emergency Treasury measures are netted out against the new debt limit, it means that once the new Daily Treasury Statement hits, the total US Federal debt will be just at, or over $17 trillion. Rejoice.
As it appears the can will be kicked once again, we thought it worth reflecting briefly on the possibility that this farce eventually ends in court (whether in 3 months or some time after that). While the Obama administration has ruled out the use of the 14th Amendment (and the mint-the-coin idiocy has been dismissed for its lifting-the-veil reality), Tangent Capital partners' Bob Rice explains in this brief Bloomberg TV interview his perspective on the legal, political, and market responses to going down this route. Rice goes on to discuss the 14th Amendment's implications (not great), and ends by pointing out the futility of what many are calling for..."The monetary system is a confidence game and if we get rid of the debt ceiling altogether, there is a realistic question (asked by the rest of the world) as to how much discipline we are going to have."
No surprise here:
- *SENATE VOTES 81-18 TO END GOVERNMENT SHUTDOWN, LIFT DEBT LIMIT
Here is the full list of "nays"... and off we go to The House...
The last few days have seen a great rotation in T-Bill markets. That rotation, as the chart below shows, has seen short-dated Bills rally as the new "deal" became closer and closer but the mid-term Bills start to crack higher in yield. Based on press reports, the short-term debt ceiling extension expected to be passed by Congress would suspend the debt ceiling until February 7. However, as Citi notes, Feb. 7 would only be a "soft" deadline since Treasury would then be able to engage in "extraordinary measures" to open up "headroom" under the debt ceiling.
UPDATE: There will be two votes by the Senate on the deal by 8pm. One on cloture (requires 60 votes), and one on final passage (simple majority)... then it's on to the house...
*SENATE VOTES 83-16 TO ADVANCE ACCORD TO END U.S. SHUTDOWN (cloture)
*SENATE HAS ENOUGH VOTES TO PASS MEASURE ENDING FISCAL IMPASSE (Deal Done)
We assume there will be the normal grandstanding with every Senator wanting to get their soundbite in for saving the world... but the vote is about to occur (expected around 6pm) before sending it to the House for apparent rubber-stamping... we will see of course...
How Fitch has not downgraded the U.S. already is a mystery to analysts looking at the U.S. fiscal position and the lack of political will to tackle it. It seems likely that significant political pressure is being put on credit ratings agencies regarding their credit rating of the U.S.
Done deal? Let them explain...
REID SAYS HE'S GOING TO WAIT FOR MCCONNELL TO TALK ON BUDGET
REID SAYS MCCONNELL COMING TO FLOOR SOON
SENATE SAID TO HAVE DEAL ENDING SHUTDOWN, RAISING DEBT CEILING
Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell will soon announce an agreement to reopen the government and avert default on U.S. debt, Politico reports, according to several sources familiar with the talks. Here is what that "stunning reversal for the speaker" deal looks like. In short: the can has been kicked for three months, to early February.
While the debt ceiling fracas has done nothing to stymie the demand for high-beta equity lottery tickets, it has decimated the demand for the most leveraged trade an American tends to make... home purchases. While real data is few and far between, we thought that the cracking of yet another foundational pillar of the US economic "recovery" was worthwhile noting although it is squeezed to the back pages as the mainstream media focuses on rumor after rumor to juice equities ever higher. With the hedgies having turned from marginal buyer to marginal seller, it seems the demand for mortgages for home purchases has collapsed to its lowest level in 2013 - even as rates have dropped notably from the year's highs.