Debt Ceiling

What If We Go Past The "X" Date?

What if the Treasury were to go over the X date (date beyond which the Treasury cannot honor all its payments) without the debt ceiling being raised? As BofAML notes, the Treasury estimates the X date to be October 17, though they believe that the Treasury may have enough cash and incoming tax receipts to last a few more days. In either case, the date is not too far out. Market concerns over possible postponed payment have been rising as indicated by the performance of October and November bills. What are the options of for the Treasury?

Shut Down Round Up: The Latest In Dysfunctional Government News

It may "not be some damn game", but this sure is some damn summary of all the latest news and developments.  Via Bloomberg:

Goldman's 3 Debt-Ceiling Debacle Scenarios

The most likely outcome of the current fiscal dispute, in Goldman's opinion, is an agreement that combines an increase in the debt limit and a "continuing resolution" that reopens the federal government. Unlike the November T-Bill market traders, Goldman expects this to pass; but no earlier than the end of next week (i.e., October 11-12) and more likely sometime around the Treasury's projected deadline of October 17. Other outcomes are possible, but Goldman believes they have lower probabilities.

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One of the biggest laughs of the conference came when Smith presented the slide, ‘Emperor … With No Clothes’  which compared how the value of the Roman denarius, silver coin and the U.S. paper dollar have fared during periods of currency debasement. 

The chart shows the silver denarius since Nero and the dollar since Nixon and looked at the level of debasement during the reign of each Roman Emperor and the term of each Presidency.

A Debt Ceiling Fight Stretching Into November? Bond Traders Increasingly Say Yes

Until yesterday, all the action in T-Bills - that was creating anxiety in the credit markets - was focused on the end-of-October bills. But now, despite the Boehner restatement of his desire not to end-the-world yesterday that realistically said nothing new, the mid-November Bills are starting to blow higher in yield. It seems confidence in a short-term solution to the shutdown/CR/Debt-Ceiling debacle is not expected. The 11/14/13 bill is up 8.5bps to 13.5bps this morning...

Someone Is Getting Nervous-est

Another day, another shut government and 1-month T-Bills have surged another 6bps to 18.5bps. Those who read our suggestion from Sept 26 to hedge the political stupidity and debt ceiling debate and put on the 1M1Y flattener have seen the fastest plunge and inversion (to negative!) in the curve since early 2009. Despite the relative calm in repo markets, which is likely due to expectations that any technical default will be for a minim al length, the short-term bills most likely to be affected (the 10/31/13 T-Bills) are seeing the largest daily deterioration yet as traders exit and price in the possibility of missed payment. 1Y USA CDS has spiked by a massive 26bps to 65bps, higher than during the Lehman crisis and second only to Summer 2011.

No Farm Payrolls

With the government shutdown stretching into an improbable 4th day (and with every additional day added on, the likelihood that the impasse continues even longer and hit the debt ceiling X-Date of October 17 becomes greater), today's monthly Non-Farm Payroll data has quickly become No-Farm Payroll. However, just like on day when Europe is closed we still get a ramp into the European close, expect at least several vacuum tube algos to jump the gun at 8:29:59:999 and try to generate some upward momentum ignition in stocks and downward momentum in gold. In addition to no economic data released in the US, President Obama announced last night he has cancelled his trip to Bali, Indonesia, to attend the APEC conference and instead to focus on budget negotiations back at home - which is ironic because his latest story is that he will not negotiate, so why not just not negotiate from Asia? Ah, the optics of shutdown.

What Will Happen To The US Credit Rating?

With short-term Treasury Bills starting to price in a missed payment possibility and USA CDS surging (though still low), the debt ceiling (and implicit chance of a technical default) is nigh. As we approach yet another debt ceiling showdown (especially in light of the seeming congruence of a CR and debt ceiling debate in an entirely divided Washington), market attention will turn towards a possible US sovereign rating downgrade. In this article, we provide an outline of the likely actions by the three rating agencies (S&P, Moody’s and Fitch).

US Banks Stuffing ATMs With 20-30% More Cash In Case Of Panicked Withdrawals

Even as the fearmongering over the debt ceiling hits proportions not seen since 2011 (when however it was the 20% drop in the market that catalyzed a resolution in the final minutes - a scenario likely to be repeated again), some banks are taking things more seriously, and being well-aware that when it comes to banks, any initial panic merely perpetuates more panic, have taken some radical steps. The FT reports that "two of the country’s 10 biggest banks said they were putting into place a “playbook” used in August 2011 when the government last came close to breaching the debt ceiling. One senior executive said his bank was delivering 20-30 per cent more cash than usual in case panicked customers tried to withdraw funds en masse. Banks are also holding daily emergency meetings to discuss other steps, including possible free overdrafts for customers reliant on social security payments from the government.

The Shutdown Political Game: Inflict Maximum Pain To Score Cheap Points

If 4% of voters broke away from dysfunction and voted for independents, that "vital few" would influence 64% of all voters. Next election, join the 4% who will eventually influence the 64%. Voting for incumbents is like not voting at all: either way, you're throwing away your vote.

Stocks Jump On NYT Rumor Of Boehner Debt Ceiling Deal

Update: Boehner spox says Boehner "has always said the US will not default on its debt but cuts and reforms" also needed. In other words, nothing new in what appears to be a planted NYT piece designed to reduce Boehner's leverage.

Take the following report from the New York Times with an epic grain of salt, although for the time being, the following unsourced post in the NYT has pushed stocks off their lows. "With a budget deal still elusive and a deadline approaching on raising the debt ceiling, Speaker John A. Boehner has told colleagues that he is determined to prevent a federal default and is willing to pass a measure through a combination of Republican and Democratic votes, according to one House Republican"... Would the anonymous lawmaker happen to be Peter King, one wonders?

Guest Post: The 3 Rising Risks To The Markets

While the recent Federal Reserve inaction is bullish for stocks in the short term there are plenty of reasons to remain somewhat cautious.  Stocks are overvalued, rates are rising, earnings are deteriorating and despite signs of short term economic improvements the data trends remain within negative downtrends.   Investors, however, have disregarded fundamentals as irrelevant as long as the Federal Reserve remains committed to its accommodative policies.  The problem is that no one really knows how this will turn out and the current assumptions are based upon past performance. Complacency is not an option; it is critically important to understand that market reversions do not occur without a catalyst.  Whether it is the onset of an economic recession, a natural disaster or a financial crisis - there is always something that sparks the initial selloff that leads to a full blown market panic.  With this idea in mind here are 3 rising risks that investors should be paying attention to.