Debt Ceiling

S&P Upgrades US Outlook From Negative To Stable On "Receding Fiscal Risks"

In a confirmation that the S&P is starting to get worried about the drones surrounding the McGraw Hill building resulting from the ongoing litigation with Eric Holder's Department of Injustice, not to mention a reminder that US downgrades always happen after hours, while upgrades must hit before the market opens, Standard & Poors just upgraded the Standard & Poors 500 the US outlook from Negative to Stable. On what "receding fiscal risks" did the S&P raise its assessment of the US - the fact that the US is now at its debt limit, that there is no imminent resolution to the credit issue, or the 105% and rising debt/GDP - read on to find out. And of course, the countdown until the S&P wristslap settlement with the DOJ is announced begins now, as does the upgrade watch by Buffett's controlled Moody's of the US to AAAA++++.

Guest Post: Employment - The Macro Trends

One thing is for certain -- the job market is very tight as layoffs and discharges have reached the lowest levels since the turn of the century.  While this is leading to lower initial jobless claims it is not translating into higher levels of full-time employment relative to the population. It is not surprising that with an economy that is mired at a near 2% economic growth rate that employment is "muddling" right along with it.  While the economy is indeed creating jobs, it is a function of population growth rather than a sign that the economy is on the road to recovery. What is clear is that current detachment between the financial markets and the real economy continues.

Conspicuous Contrarians, Higher Highs, And Complete Complacency

While stocks could continue to climb higher that does not mitigate the underlying risks. In fact, it is quite the opposite. It is very likely that we are creating one, or more, asset bubbles once again. However, what is missing currently is the catalyst to spark the next major correction. That catalyst is likely something that we are not even aware of at the moment. It could be a resurgence of the Eurocrisis, a banking crisis or Japan's grand experiment backfiring. It could also be the upcoming debt ceiling debate, more government spending cuts, or higher tax rates. It could even be just the onset of an economic business cycle recession from the continued drags out of Europe and now the emerging market countries. Regardless, at some point, and it is only a function of time, reality and fantasy will collide. The reversion of the current extremes will happen devastatingly fast. When this occurs the media will question how such a thing could of happened? Questions will be asked why no one saw it coming.

Things That Make You Go Hhmm... Like Our Current Bizarro World

In his recent presentation, Grant Williams picked out several mathematical equations that simply don't work: equities vs. fundamentals, the gold price vs. the price of gold, Chinese economic activity vs. the Chinese GDP number, and France vs. well ... logic. In his latest 'Things That Make You Go Hhmm' extravaganza, he extends this series of 'Bizarro' situations to Japan, US Housing, high-yield credit, the outlandish effects that comments by central bank policy makers have on markets, and the curious disconnect between insider trades and the broader market among others. There are countless more of these disconnects (the strength of the euro vs. EU economic data being a key one), which lead to a fundamental conclusion that is hard to deny: Sdnob, seitiuqe, setar tseretni, and seicnerruc will all eventually leave Bizarro World and come crashing back down to Earth (where they are known as bonds, equities, interest rates, and currencies); and when they do, they will likely do the opposite of what they're doing right now.

"Wilful Blindness" And The 3 Bullish Arguments

As the markets elevate higher on the back of the global central bank interventions it is important to keep in context the historical tendencies of the markets over time. Here we are once again with markets, driven by inflows of liquidity from Central Banks, hitting all-time highs. Of course, the chorus of justifications have come to the forefront as to why "this time is different." The current level of overbought conditions, combined with extreme complacency, in the market leave unwitting investors in danger of a more severe correction than currently anticipated. There is virtually no “bullish” argument that will withstand real scrutiny. Yield analysis is flawed because of the artificial interest rate suppression. It is the same for equity risk premium analysis. However, because the optimistic analysis supports the underlying psychological greed - all real scrutiny that would reveal evidence to contrary is dismissed. However, it is "willful blindness" that eventually leads to a dislocation in the markets. In this regard let's review the three most common arguments used to support the current market exuberance.

Indian Central Bank Kills "Trillion Rupee Gold Coin" Idea, Enforces More Gold Controls

in early May, several weeks before the government directly addressed the people pleading for the Indian population to "contain its passion for gold", the Reserve Bank of India issued a directive prohibiting the granting of advances (i.e., loans) against all non specifically minted gold coins sold by banks (excluding loans against gold ornaments and other jewelry).  Ironically, without imposing specific dimensional limitations, there was the risk that India may boldly go where only a bunch of financially illiterate, click-baiting media dilettantes, desperate to pitch the idiotic idea of a "trillion dollar coin" made out of platinum to bypass the debt ceiling limit (at least until the Treasury was forced to firmly crush this nonsense with a just as idiotic public statement), and arbitrage RBI directive loophole to create a massive coin, against which banks would subsequently lend out cash. Today, any hope that India may indeed be the first real source of a trillion dollar coin, one made out not of platinum but gold, were crushed, following a clarification by the central bank that there is a firm, 50 gram weight limit on all permitted "specially minted gold coins."

Goldman: "Our View Is That Tapering Is Announced At The December FOMC Meeting"

"The most notable statement made by Bernanke during the Q&A session was that the FOMC could potentially cut the pace of QE purchases "in the next few meetings," although this was predicated on a continued improvement in the outlook for the economy and confidence in the sustainability of that improvement. He also stated that the purchase pace will depend on incoming data and that the FOMC could either raise or lower the pace of purchases in the future. Our view continues to be that the December meeting and subsequent press conference is the most likely time that the Committee would announce QE tapering, although September is a possibility if the economy picks up more than we expect in coming months."

And The New US Debt Ceiling Is...

The grace period between February and mid-May, when the US spent like a drunken sailor without regard for even structural limitations, and raked up over $300 billion in debt, or said otherwise when it was without an official debt limit, is over as of this weekend as we reported, and starting Monday the clock has been reset and wound up to the amount of the debt previously incurred in the phantom period. Courtesy of today's Daily Treasury Statement we now know that the new and improved debt target ceiling, at which the US immediately finds itself is: $16,699,421,095,673.60.

The Debt Ceiling Is Back

While many may not recall that the US has been without an official debt ceiling for the past three months, or even that it has a debt target ceiling, the bonus period agreed upon in January to let the nation rake up some $400 billion in addition debt in the past few months, officially runs out tomorrow, May 19, when the debt limit will be restored to its previous level plus the debt that was incurred in the interim, which means around $16.735 trillion in total debt as of yesterday, plus the amount incurred today, excluding the debt not subject to the cap which is about $30 billion. And since no grand bargain is forthcoming in a world in which official governance is now almost universally in the hands of the world's central bankers and out of the hands of the theatrical career politicians, it means that the next deadline in the endless US debt ceiling saga will be the day when the extraordinary measures to extend the debt ceiling run out. Such a deadline will likely be hit in just over three months.


Pivotfarm's picture

Recently in the United States we’ve heard news that the IRS (Internal Revenue Service) is guilty of discriminating against conservative “non-profit” or not-for-profit entities.  Any group with the name “Patriot” or “Tea Party” in their name was immediately held as suspect and the IRS in essence dragged their feet in terms of granting them a non-profit status. 

Closing Ramp Sends S&P To Fresh Record Amid Cross Asset Chaos

No news is the best news. Quite a week across every asset class dominated by the last two days as USDJPY broke 100 and seemingly all hell broke loose (apart from in stocks). Spikes in Treasury yields (10Y and 30Y +15bps on the week); a surging USD (+1.3%) driven by major JPY and AUD weakness (-2.75%) and the biggest drop in EUR in 6 weeks; Gold and Silver sold off hard (-3.5%) before bouncing back this afternoon ending -1.5% on the week; crude oil plunged but the Brent Vigilantes were not so easily beaten and ripped back above $96 and higher to close the week. Bond-like stocks (Utes) were hammered as high-beta cyclicals (homebuilders) ripped and while stock indices rolled over a little they remain near highs. It's not all sunshine and ponies though... credit markets drastically underperformed (playing catch down from an exuberant few days but sending a clear message to stocks) and the VIX curve steepened rather significantly around the Labor Day horizon - a date that represents desk chatter for "tapering" and debt ceiling drama to re-appear). S&P futures exhibited a spooky 15-min cycle zig-zag pattern this afternoon - in a totally human way... and average trade size was very low (algos) - right before the late-day ramp.

Previewing The Market's "Taper" Tantrum

The reason for yesterday's late day swoon was a humorous tweet, which subsequently became a full-blown serious rumor, that the WSJ's Hilsenrath would leak the first hint that the Fed is contemplating preannouncing the "tapering" of its $85 billion in monthly purchases. Naturally, this did not happen as we explained. And yet, judging by the market's response there is substantial concern that the Fed may do just that. To be sure, it is quite likely that in addition to just rumblings out of economists, which are always wrong and thus ignored, that one of the Fed's unofficial channels may hint at some tightening in the monthly flow (if certainly not halt, and absolutely not unwind). Which makes sense: all previous instances of non-open ended QE took place for up to 6-9 months before the Fed briefly let off the accelerator to see just how big the downward response is. The problem now, however, is that even the tiniest hint that the grossly overvalued "market", which has risen only thanks to multiple expansion for the past year, would lead to a massive overshoot not only to whatever an ex-Fed "fair value" may be, but overshoot wildly as the liquidation programs kick in across a Wall Street that is more liquidity starved today than it has been in a decade. This is precisely what Scotiabank's Guy Hasselman thinks: "Few care about “right-tail” events, but should investors decide to pare risk in reaction to a hint of ‘tapering’, the overshoot to the downside may surprise many. The combination of too many sellers, too few buyers, and dreadful (and declining) liquidity means a down-side overshoot is highly likely."

Overnight Yen Tumble Sends Asia Scrambling To Retaliate

The main story overnight is without doubt the dramatic plunge in the Yen, which following the breach and trigger of USDJPY 100 stops has been a straight diagonal line to the upper right (or lower for the Yen across all currency crosses) and at last check was approaching 101.50, in turn sending the USD higher in virtually all jurisdictions. However it is not so much the Yen weakness that was surprising - a nation hell bent on doubling its monetary base in two years will do that - but the accelerating response in neighboring countries all of which are seeing Japan as the biggest economic threat suddenly and all are scrambling to respond. Sure enough, midway through the evening session, Sri Lanka cut its reverse repo and repurchase rate to 9% and 7% respectively, promptly followed by Vietnam cutting its own refinancing rate from 8% to 7%, then moving to Thailand where the finance chief Kittiratt called for a rate cut exceeding 25 bps, and more jawboning from South Korea suggesting even more rate cuts from the export-driven country are set to come as it loses trade competitiveness to Japan. Asian financial crisis 2.0 any minute now?

Boehner On 'Debt Prioritization' Vote - Live Webcast

By the end of next week, the Obama administration will no longer be able to borrow money to fund government operations because Congress has only agreed to extend the government's borrowing authority until May 19. While he has smartly expressed his preference that the most liquid bond market in the world "not default,", Speaker Boehner will take to the lectern this morning at 1045ET to discuss the upcoming "debt prioritization" bill.  As Reuters notes, House Republicans are expected to pass the bill today that would require the Obama administration to prioritize government debt payments and retirement benefits if Congress fails to reach a deal to raise the U.S. debt ceiling. The legislation is not expected to go anywhere in the Democratic-controlled Senate and the White House has said it will veto the bill, but what is essentially a tactical maneuver will allow the Republicans, who control the House, to argue they have done their best to avoid a potential U.S. credit default. We are sure the M.A.D. defense card will be played at least once...