Debt Ceiling

Macro Polo

The absence of meaningful negative market responses to debt ceiling dramas, Japanese inflation targeting, trillion dollar coins, and other odd and dubious politically-oriented market meddling seems to be sending reflexive signals back to capitals: all clear, continue self-destructing. The markets seem not to care, knowing that central banks have their back. Money creation can suspend nominal economic contraction and ensure rising financial markets until something, (anything!), might stir the public’s imagination again and animal spirits. But while money can suspend animation, it is not and cannot replace real economic functioning. In fact, ongoing money creation is locking-in negative real economic growth and real returns in most financial assets. We think the best strategy for discretionary investors is to stay focused on the growing monetary mountain across the valley, and to not look down. This piece seeks to place the current investment environment in economic, political and social perspective.

36 South: "Let's Legalize Cocaine"

Think about it – a substance which makes one feel good, promotes a feeling of well-being and confidence…..what is the problem with that? The problem, as I explained to all my teenagers, is not that drugs are inherently bad per se, it is the medium to long term consequences of drug use that inevitably leave one worse off and forces one to make decisions one would not normally make e.g. selling your mother’s wedding ring for drug money. Like the good pseudo-parents they are, the governments have (probably correctly) stepped in and outlawed drugs and their use. But there are other substances which also make one feel good, promote a feeling of well-being and confidence but is just as dangerous. With this substance the government does NOT limit use but promotes it! It is in fact the grower and distributor! What is this stuff? Hint …. Comes in two flavours: money (present money) and credit (future money).

Treasury, Fed Kill Trollin' Dollar Coin

And just like that the most surreal two weeks of sheer monetary idiocy is over, with the Treasury and the Fed both formally announcing the death of the trillion trollin' dollar platinum  coin idea, which was nothing but a cheap charlatan trick devised by page view-desperate media outlets to dumb down their already confused audience and distract from the fact that the US is, sadly, once again on the verge of bankruptcy.

Greece Is The US, Following Vote To Hike Taxes On The Rich

It's been a while since the Syntagma square riotcam was broadcasting live from Athens. After all, despite the ongoing collapse in its economy, where only 3.7 million people have jobs compared to 4.7 million who are unemployed or inactive, the general sentiment was that "austerity" measures have been put on hiatus, and no more tax, pension, or benefits cuts are on the table. That changed last night when Greece was the latest country to become the US, following a tax hike on its highest earners. However, unlike the US, this increase in "rich" taxes is being offset by at least some spending cuts such as tighter control of the budgets of ministries and state utilities, and the reduction of parliamentary employees’ wages in line with cuts to the wages of other civil servants. In other words, it is almost time for the Syntagma square daily pay-per-view daily webcast. The good news, at least for Greece, is that it does not have a debt ceiling to worry about. Then again, when all your debt is zero coupon perpetuals in the hands of the ECB and other "official" institutions, the balance sheet is the last thing you have to worry about. It's the income statement, one where not even all the one-time charges or loan loss reserve releases in the world will do any difference, that suddenly matters far more.

White House Petition To Publicly Assay And Validate The US Treasury's 8,100 Tons Of Gold

In the past few weeks there has been a veritable explosion of White House petitions ranging from the bizarre to the surreal to the outright absurd, including such demands as Texas (and other southern states) seceding, deporting Piers Morgan, not deporting Piers Morgan, creating a Joe Biden sitcom, and even making a total mockery out of the US, and global, monetary system and evading the debt ceiling using a cheap, platinum coin-based parlor trick. All of these are, for lack of a better word, a la carte distractions launched by bored American citizens, meant to evade the menial drudgery of everyday life, and, generally, reality. In short: entertainment. And, logically, virtually none have so far contained actual, actionable provisions, that stood to benefit all Americans, instead of just one half of the ideological or party split. At least not until a new petition appeared two days ago, one demanding that the administration do something that has never been done on the public record: perform an assayed public audit of all the 8,100 tons of gold owned by the US Treasury. And not just any audit, but one including "professional auditors outside of the Mint, Treasury, GAO, Inspector General and Federal Reserve system."

Trillion Dollar Platinum Coin Is "Not The Solution" - PIMCO's Gross

PIMCO founder and co chief investment officer Bill Gross gives no credence to the trillion dollar platinum coin scheme. "We feel that such an action would not only jeopardise the U.S. Fed and Treasury standing with Congress but with creditor nations internationally - particularly the Russians and Chinese." It appears to be a bit of a stunt by and may be a convenient distraction away from the substantive issue of how the U.S. manages to address its massive budget deficits, national debt and unfunded liabilities of between $50 trillion and $100 trillion. It may also be designed to create the false impression that there are easy solutions to the intractable US debt crisis - thereby lulling investors and savers into a false sense of security ... again. Gross said that subject to the debt ceiling, the Fed is buying everything that Treasury can issue. He warns that we have this "conglomeration of monetary and fiscal policy" as not just the US is doing this but Japan and the Eurozone is doing this also. Gross has recently criticised the Fed's 'government financing scheme.'  He has in recent months been warning of the medium term risk of inflation due to money creation and recently warned of 'inflationary dragons.'

A Record $220 Billion "Deposit" Injection To Kick Start To The 2013 Market

When people talk about "cash in the bank", or "money on the sidelines", the conventional wisdom reverts to an image of inert capital, used by banks to fund loans (as has been the case under fractional reserve banking since time immemorial) sitting in a bank vault or numbered account either physically or electronically, and collecting interest, well, collecting interest in the Old Normal (not the New ZIRPy one, where instead of discussing why it is not collecting interest the progressive intelligentsia would rather debate such trolling idiocies as trillion dollar coins, quadrillion euro Swiss cheeses, and quintillion yen tuna). There is one problem, however, with this conventional wisdom: it is dead wrong.  Tracking deposit flow data is so critical, as it provides hints of major inflection points, such as when there is a massive build up of deposits via reserves (either real, from saving clients, or synthetic, via the reserve pathway) which can then be used as investments in the market. And of all major inflection points, perhaps none is more critical than the just released data from today's H.6 statement, which showed that in the trailing 4 week period ended December 31, a record $220 billion was put into savings accounts (obviously a blatant misnomer in a time when there is no interest available on any savings). This is the biggest 4-week total amount injected into US savings accounts ever, greater than in the aftermath of Lehman, greater than during the first debt ceiling crisis, greater than any other time in US history.

Goldman On The Debt Ceiling: "It's Different This Time"

As Obi-Wan Kenobi might have said "This is not the debt ceiling debacle you are looking for." That is the seeming 180-degree shift that Goldman appears to have taken with its latest missive on the pending 'discussions'. Their reasoning that this time is different is based on the fact that, in contrast to now, the S&P 500 seemed immune to 'cliff' risks and traded in the 1300 range for the first half of 2011, even as the macro backdrop began to sharply deteriorate. Their models suggest it was clear that risk sentiment was buoying the market even as macro fundamentals were deteriorating. Goldman's view is that the swift market 20% sell-off was in part a reflection of a levitating market reconnecting to still-deteriorating macro fundamentals, possibly catalyzed by the political debate. This time around, they claim, the macro backdrop is, at least for now, stable and far better then in 2011, which perhaps, will allow the market to better absorb the upcoming debt ceiling debate. Unless, this happens...

Two People Shot In California High School

With gun tzar Joe Biden expected to propose his "gun recommendations" to Obama by next Tuesday, a proposal which will certainly involve some additional measure of gun control, the last thing the nation needed was more gas being poured into the fire today. Yet that is precisely what it got following news that two people had been shot, one of which reportedly a student, at Taft Union High School in the San Joaquin Valley in California earlier. From AP: "A student was shot and wounded at a San Joaquin Valley high school Thursday and a suspect was taken into custody, officials said. The shooting occurred about 9 a.m. at Taft Union High School, an oil and agricultural community about 120 miles northwest of Los Angeles. The student who was shot was flown to a hospital in Bakersfield, said Ray Pruitt, spokesman for the Kern County Sheriff’s Department. There was no immediate word on the victim’s condition. “We have a suspect in custody,” Pruitt said, adding that the person was believed to be a student. Pruitt said it’s believed a shotgun was used in the attack. KERO-TV Bakersfield reported that the station received phone calls from people inside the school who hid in closets."

Phoenix Capital Research's picture

The fiscal cliff situation has made it clear that when it comes to issues such as cutting the deficit and debt, US politicians are totally clueless. Remember, Congress hasn't passed a budget in four years, which incidentally goes a long ways towards explaining why we're about to breach the debt ceiling again.

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.