The Biggest EURUSD Bull, Goldman's Thomas Stolper, Throws In The Towel, Cuts His Forecast Across The BoardSubmitted by Tyler Durden on 09/14/2011 13:17 -0500
Three things are sure in life: death, taxes, and betting against the calls of Goldman's Thomas Stolper. Sure enough:
- We lower our EUR/$ forecast path slightly but keep the same upward-sloping trajectory.
- Our new EUR/$ trajectory is 1.40, 1.45 and 1.50 in 3, 6 and 12 months, from 1.45, 1.50, 1.55 previously.
- The recent increase in the Euro area’s fiscal risk premium is likely to persist.
- Very large short EUR/$ positioning is likely to last in the near future.
- But the underlying Dollar downtrend should drive EUR/$ higher over time.
- We discuss the CHF and safe-haven currencies after the SNB’s commitment to intervene.
- Our new EUR/CHF forecasts are 1.21 flat in 3, 6 and 12 months.
Folks, this is the hard truth: the US is broke and our leaders have no clue how to solve any of the structural issues our economy and markets are facing. They’ve spent TRILLIONS propping up the stock market but haven’t created new jobs nor have they improved Americans’ quality of life in the last two years.
Senate Attempt To Block Debt Ceiling Increase Fails: Debt Target Is Now $15.2 Trillion, Or Over 100% Of GDPSubmitted by Tyler Durden on 09/08/2011 20:43 -0500
Earlier today we observed that absent immediate action by the House and Senate to enact the critical $500 billion debt ceiling expansion, the US would run out of Keynesian dry powder as soon as Monday. There is no longer a need to worry. According to the Hill, an attempt to sabotage the bankruptcy of America has failed after a Senate resolution to disapprove the $500 billion debt ceiling increase proposed by Mitch McConnell was voted down 45 to 52. As a reminder, "Under the debt-ceiling agreement reached in early August, the Obama administration was authorized to immediately raise the debt ceiling by $400 billion. Another $500 billion increase was authorized this month, although that could have been blocked if both the House and Senate approved resolutions expressing disapproval." The opportunity cost of passing the bill would have been an additional 10 hours of work tomorrow for the Senatorial millionaires for whom insider trading is legal: "Earlier in the day Senate Majority Leader Harry Reid (D-Nev.) threatened to hold the Senate open for up to ten hours on Friday to "dispose" of the resolution if it moved forward." As a result of this vote, a parallel bill in Congress is now moot even though it has not been voted on. This effectively greenlights the increase of the US debt ceiling from the current $14.694 to $15.194 trillion, or roughly 101% of GDP.
For all your heartfelt, congratulatory, nay laudatory remarks vis-a-vis the TOTUS, here is the webcast that will allow you to comment as you toast the president who certainly means well, even if he still has to be acquainted with an abacus. That's ok though. "Everything will be paid for"... Somehow. Even the post office. Just hike that debt ceiling. After all who needs taxes when the Fed will soon monetize the entire deficit anyway. In the meantime, as a reminder that Dubya may be gone but not forgotten, we get this from Bloomberg: DEPT OF HOMELAND SECURITY CITES 'SPECIFIC, CREDIBLE' THREAT.
It is hard to believe that the last time the US had breached its debt ceiling was a whopping one month ago. Courtesy of much toil, tears and televized theater (not to mention fake compromises), the Obama administration managed to get an accordion-feature extension of the debt-ceiling-cum-target, whereby it is currently at $14.694 trillion, and can be extended in $500 billion increments, for a total of $1.5 trillion provided congress and senate do not vote down such an expansion. The reason we bring this up is because as the data below demonstrates, the US Treasury will breach its brand new debt ceiling... on Monday.
In my opinion, the Swiss and Brazilian moves signaled the true beginning of the global currency wars. The depreciation race to the bottom has begun. Trade wars will be next. This is just getting started. Once FX interventions fail, governments suffering from falling exports will attempt to protect local champions via protective taxes, tariffs and the limiting of certain imports. Affected governments and industries will retaliate for their own loss of exports and so on and so forth. Welcome to the currency wars....Bottom line: now is a great time to get out of govt paper and many miles away from the large US and European banks. I am a broken record on this but you should own gold and silver miners, fertilizer companies, oil companies and water companies. Some technology stocks could make sense and reasonable exposure to Asia and Latam. Corporate bonds of companies providing any of the products listed above (gold/silver, fertilizers, oil and water) makes a ton of sense. I would avoid the large multi-nationals here as I think trade wars are coming and their cash flows from foreign operations are about to come under fire.
The embargo has been lifted and here are the headlines, which are eeriely reminiscent of the Jackson Hole speech, courtesy of Bloomberg:
- BERNANKE: POLICY MAKERS SHOULDN'T DISREGARD ECONOMY'S FRAGILITY
- BERNANKE SAYS FED HAS `A RANGE OF TOOLS' FOR MORE STIMULUS
- BERNANKE SAYS SUBSTANTIAL FISCAL TIGHTENING COULD HURT RECOVERY
- BERNANKE SAYS FED PREPARED TO USE TOOLS `AS APPROPRIATE'
- BERNANKE SAYS INFLATION `EXPECTED TO MODERATE' IN COMING Q'S
- BERNANKE SAYS FED SEES `GREATER DOWNSIDE RISKS' TO OUTLOOK
- BERNANKE: POLICY MAKERS SHOULDN'T DISREGARD ECONOMY'S FRAGILITY
- BERNANKE: U.S. FINANCES COULD `SPIRAL OUT OF CONTROL'
Aside from the ECB rate decision TBA imminently, the key economic data in this news heavy day will be Trade, jobless claims and the speech by Fed Chairman Bernanke, who received quite an earful by the GOP candidates yesterday.
In a move that will surprise exactly nobody, the Senate Budget Committee ranking member Jeff Sessions has signaled that "Republicans would oppose the jobs plan President Obama is expected to announce Thursday, saying it would only put the United States further in debt at a time when the debt is already weighing on the economy." So while nobody even knows yet just what the full presidential proposal to create "millions of jobs" looks like in its entirety, we do already know it will almost certainly not happen courtesy of a republican controlled congress. As a reminder, the US is currently supposed to be laboring under a regime of austerity (more in its latest, and vastly watered down Italian iteration than real cost cutting but still) and thus it will be rather complicated for the GOP to explain why the party is cutting with one hand and spending more with the other. As such, any hopes for a quick and decisive passage of laws to build more bridges to nowhere are about to be dashed. From The Hill: "There’s no doubt in my mind that the debt that we’ve now incurred is already weakening our economy,” Sessions said on the Senate floor. “It comes to a point that you can’t keep borrowing in a futile attempt to stimulate the economy when the increased debt itself is weakening the economy.” Cue Keynesians of all shapes and sizes kicking and screaming how more stimulus this time will be different and how one last Heroin injection is really all it takes.
An already ubercynical Art Cashin chimes in on Obama's much anticipated, and very controversial (recall the latest Boehner flap on the issue) speech tomorrow and comes out sounding even more jaded than usual. In a word: don't expect any imminent rise in Obama's already record low popularity rating as a result of this speech, which if recent history is an indication, will likely generate even further class animosity within US society, now well on its way to confirming some of the more violent teleological theories postulated by Karl Marx.
We end this busy day of economic buffoonery with Goldman's scorecard for August ("the US economy has not fallen off a cliff", which we translate as a B+, and "far better than expected"), which in turn explains why Goldman, and everyone else, now assumes QE3 (yes, Op Twist is QE3; get over it) is not only a given, but why in Goldman's esteemed opinion, the Fed has at least 3 rationales for pushing for more QEasing. Incidentally, these are as follows: "First, unemployment is far above the Fed’s long-term forecast in the low 5% range; the longer high unemployment persists, the greater the risk that an erosion of skills and labor force attachment will result in permanent supply-side damage. Second, economic growth has been woeful this year and there is no convincing sign of the second-half pickup in growth that the majority of Fed officials seem to expect. The payroll report in particular will weigh heavily in the minds of many Federal Open Market Committee members. Third, there is limited prospect for near-term fiscal stimulus from a gridlocked Washington." The only thing Goldman is avoiding, of course, is the wipe out in stocks that will make QE3 a virtual certainty, as we have been predicting ever since March. Goldman is also avoiding to mention that the only outcome of more QE will be another record year of Wall Street bonuses, all at the expense of more joblessness, higher gas prices, a 120% debt/GDP ratio, and overall sovereign insolvency. Oh well - in the meantime we continue, as we have for the past 2.5 years, to buy gold... or spam for the Econ PhDs out there.
Remember when one month ago the US, to much pomp and circumstance, not to mention one downgrade, announced a grand bargain raising the debt ceiling from $14.294 trillion to something much higher, with a stop gap intermediate ceiling of $14.694 trillion, or $400 billion more. Well, as of today, or less than a month since the expansion, total US debt is at $14.697 trillion. Yep - the total debt is again over the ceiling, which means the US debt increased by $400 billion in one month. Score one for fiscal prudence. And while the total debt subject to the limit is still slightly less, at $14.652, one week of Treasury auctions and will be time for Moody's to justify again why the US is a quadruple A credit.
Even the most die-hard bear or those who simply believe QE2 did more harm than good, have to resign themselves to the fact that this Fed will enact QE3 at its earliest possible convenience. While I remain convinced that some current 5th grader will eventually be awarded a PhD in economics (not from Princeton) for their work on the folly of the QE programs, it is time to prepare for QE3. Those of us who had hoped the dissent from the August FOMC meeting was a sign that the Fed was wavering on its “print and print some more” philosophy, have seen those hopes dashed against the rocks. The doves have come out in full force. The minutes show that some members think we should have already started QE3 and now one of the dissenters has backtracked.
Italy Trims Austerity Plans, Removes Tax Hike Proposal On High Earners, To Pursue Tax Cheats InsteadSubmitted by Tyler Durden on 08/29/2011 12:39 -0500
Italy's brief flirt with Austerity, disclosed on August 12, lasted all of 2 weeks. As Reuters reports, following a 7 hour meeting between FinMin Tremonti who has been portrayed by the media as the primary reason why Italy has recently become the target of bond vigilantes, and which in turn was forced to establish some token measures of austerity, and PM Berlusconi, the most provocative measure of the "austerity" packet have been dropped, namely the solidarity tax, which would see new taxes on high earners, as well as austerity imposed on local budgets, and instead will be replaced with new 'tax evasion' avoidance schemes. Surely this massive watering down of Italian austerity will work: just ask Greece how effective the whole crack down on tax avoidance was. At least the Piazza Navona strike cam can be dropped for now... or at least until bond vigilantes strike in Rome again, and the country does the whole austerity charade again.
The second economic disappointment of the day comes from the Dallas Fed, which dropped from -2.0 to -11.4 on expectations of -9.0- this was the 4th consecutive negative print month. The report was, in a word, horrible, with just 2 of the 15 constituent indices posting an increase, and the bulk solidly in the red, led by Unfilled and New Orders which dropped 16.8 and 11.2, respectively: not good for economic growth. On the employment side there was nothing good either, with both employment and hours worked declining by -6.7 and -10.1, respectively. The only components rising were materials Inventories (must.restock.always), and CapEx, up 10.7. The most critical Production index declined by 9.7, just barely positive at 1.1, and the second lowest in 2011, with a worse number before that printing all the way back in 2009. Yet the most descriptive are the responses from the survey respondents themselves: two words "peak gloom." And why not: the ISM will print in the mid 40s and the NFP could well be negative. Which of course will send stocks soaring even higher on QE3 being priced in for the 666th time.