"Over the last 12-24 hours the small cracks that have appeared in financial markets over the last week have started to edge open a little bit wider. On the plus side this may start to help concentrate the minds of the politicians a bit more after another day of stalemate and lack of urgency. Our thoughts are that this will get resolved when either the market forces the issue with a big sell-off or when we get closer to an as yet unspecified hard-date as to when the US runs out of money." - DB's Jim Reid
As we have discussed previously, the "partial government shutdown" that we are experiencing right now is pretty much a non-event - especially with the un-furloughing of The Pentagon. Yeah, some national parks are shut down and some federal workers will have their checks delayed, but it is not the end of the world. In fact, only about 17% of the federal government is actually shut down at the moment. This "shutdown" could continue for many more weeks and it would not affect the global economy too much. On the other hand, if the debt ceiling deadline (approximately October 17th) passes without an agreement that would be extremely dangerous. A U.S. debt default that lasts for more than a couple of days could potentially cause a financial crash that would make 2008 look like a Sunday picnic. If a debt default were to happen before the end of this year, that would bring a tremendous amount of future economic pain into the here and now, and the consequences would likely be far greater than any of us could possibly imagine.
David Stockman, author of The Great Deformation, summarizes the last quarter century thus: What has been growing is the wealth of the rich, the remit of the state, the girth of Wall Street, the debt burden of the people, the prosperity of the beltway and the sway of the three great branches of government - that is, the warfare state, the welfare state and the central bank...
What is flailing is the vast expanse of the Main Street economy where the great majority have experienced stagnant living standards, rising job insecurity, failure to accumulate material savings, rapidly approach old age and the certainty of a Hobbesian future where, inexorably, taxes will rise and social benefits will be cut...
He calls this condition "Sundown in America".
"We debated buying a bank, which we came close to doing. It remains an option for us," Carne Ross, a board member of the Occupy Money Cooperative (an offshoot of the Occupy Wall Street movement) says. "We eventually came to this [the debit card], as the easiest way to get a financial product out there."
Source: Not The Onion.
The New Normal: a world in which the best performing "asset" in the month of September was the stock market of bankrupt Greece, while silver, that historic store of value, was on the other end, performing the worst.
If yesterday was the paradoxical government shutdown "relief rally" pushed higher by a last minute VIX smashing ramp, today reality is starting to set in and global stocks and US futures are set to open lower. The FTSE MIB remains the only European bourse to trade in positive territory in today’s session, having touched upon 2 year highs as it is expected the political tumult that threatened to cause a collapse of the Italian government will be resolved today even as the latest news indicate Berlusconi's PDL will support the Bunga godfather after all. Other European equities have failed to benefit from this as market participants remain cautious ahead of the ECB rate decision today when Draghi may or may not (most likely) announce a new LTRO.
UPDATE: Reuters reports that 20 senators from Berlusconi's party are preparing to create new party if Berlusconi does not soften stance against PM Letta - EUR and Italian Bonds are ramping.
*AS MANY AS 20 BERLUSCONI SENATORS MAY LEAVE PDL: REUTERS
As Deutsche Bank notes below in the brief but complete summary of where we go next, the various scenarios that are possible, and market reactions, the actions represent the acceleration of an end to a very fragile environment. It seems, in Italy, Sentaors resign first - and ask questions later...
With even the most compromising politicians on both sides of the aisle admitting at least a brief government shutdown is inevitable (and according to Stone McCarthy the shutdown will hardly be brief and will affect the timely release of such major economic indicators as construction spending, factory orders and the employment number on Friday), the next question arises: how have markets responded to not only shutdowns, but also debt ceiling impasse (with the memory of August 2011 still very vivid) in the past. Here is the full answer from Deutsche's Dominic Constam: "In a shutdown scenario, government agency-compiled economic data releases could be delayed, while essential services, such as Treasury auctions, interest and principal payments on Treasury securities will not be affected. Some federal workers could be furloughed. The most recent government shutdown occurred in late 1995 to early 1996, and lasted about three weeks. Payroll and retail sales data were delayed during that period."
When Bubbles Fail: Albert Edwards Explains What Happens When The Fed Can No Longer Contain The Fury Of The "99%"Submitted by Tyler Durden on 09/27/2013 10:49 -0500
"They’re at it again! US inequality is surging and the Fed has created another house price boom. Does this matter? Well I think so. But who cares what I think. Warren Buffet, Bill Gross and Stanley Druckenmiller think it matters. Clients marvel at how the US profits’ share of GDP remains so high and that labour remains so weak. Marc Faber said recently that in postponing the QE taper, we have merely climbed to a higher diving board. I go further. I see growing inequality draining the swimming pool dry. The crunch, when it comes, will be ugly"... Investors should make no mistake. The anger of the 99% will ultimately not be bought off by yet another central bank inspired housing bubble, engineered to pacify them and divert their attention as their real incomes fall and inequality continues to grow." - Albert Edwards
Goldman is on a roll: after crucifying JCP only to underwrite their disastrous following on offering (which is already down 4% from the offering price and has to be a world record in the shortest time to rape muppets), it is now Deutsche Bank's turn. To wit: "We revise our forecasts, to reflect the communicated revenue outlook, litigation provisions and dividends. We now expect a marginal loss in 3Q." More: "DBK’s warning on 3Q FICC revenue and an expectation of clarity regarding the Fed proposal “very shortly” warrants an update; we continue to rate DBK shares Sell, and see better upside potential elsewhere in the sector" and the punchline: "Following the Fed proposal’s implementation, we expect severe revenue/profit pressure, driven by a constricted ability to “export” lower funding costs across the Atlantic and operational disruption." So how many hours until DB announces a Goldman-led equity offering?
JAIN EXPECTS 3Q DEBT TRADING REV. TO DECLINE `SIGNIFICANTLY'
JAIN SAYS CB&S AFFECTED BY MARKET ENVIRONMENT
JAIN SAYS 3Q TRADING RESULTS DIDN'T BENEFIT FROM CATALYST
JAIN EXPECTS TO TAKE ADDITIONAL LITIGATION RESERVES
Stock promptly plunges because nobody could have possible foreseen this...
China Beige Book Exposes Government Lies: "Conventional Wisdom Of Economic Expansion In China Seriously Flawed"Submitted by Tyler Durden on 09/25/2013 06:58 -0500
There are facts; then there are completely fabricated, made up numbers. And then there is Chinese "data." After having been exposed in the past several years countless times on these pages alone as being absolute manipulated propaganda hogwash, it is amazing that anyone, anywhere still believes anything to come out of the official Beijing mouthpiece, which merely adjusts a few variable cells in the big central planning goalseeking excel spreadsheet and reports the answer. Yet the recent myth of a China "rebound" is one of the factors why stocks recently hit fresh all time highs: forget all that stuff about a CNY1 trillion deleveraging (yes, China's credit bubble is still the biggest in the world) - all that matters is made up garbage. Well, it may be more difficult this time. As Bloomberg reports, a "Beige Book" survey of the Chinese economy conducted in late August showed that "China’s economy slowed this quarter as growth in manufacturing and transportation weakened in contrast with official signs of an expansion pickup, a private survey showed." Surprise: China was lying again.
While the commemoration of the 5 year anniversary of the start of the Great Financial Crisis is slowing but surely fading, another just as important anniversary is revealed when one goes back not 5 but 15 years into the past, specifically to September 23, 1998. On that day, the policy that came to define the New Normal more than any other, namely the bailout of those deemed Too Big To Fail, a/k/a throwing good (private or taxpayer) money after bad was enshrined by Wall Street as the official canon when faced with a situation where capitalism, namely failure, is seen as Too Dangerous To Succeed. This was first known as the Greenspan Put, subsequently the Bernanke Put, and its current iteration is best known as the Global Central Banker All-In Systemic Put. We sow the seeds of bailing out insolvent financial corporations to this day, when instead of making them smaller and breaking them up, they are rewarded by becoming even bigger, even more systemics, and even Too Bigger To Fail, and their employees are paid ever greater record bonuses.
Whether we want to admit it or not, we find ourselves in pre-revolutionary times at the moment. This doesn’t mean we predict violent upheavals everywhere followed by chaos and bloodshed, it means that the current paradigm is no longer sustainable because it is not longer working. More and more people now recognize this. In case you needed anymore insight into the complete and total insanity of the “elite” Central Planners driving the U.S. economy off a cliff, we have decided to highlight a couple of articles explaining the rapid reflation of two important subprime markets: Homes and Autos. Clearly the only lesson learned from the 2008 crisis was that connected oligarchs can steal all they want with total impunity. There’s only one way this ends. With a complete and total collapse and then a massive paradigm shift. We're quite hopeful our next system can be far better than this one.
Yes, yes, only the Fed matters. Still, there was some event flow overnight which while completely meaningless for the epic liquidity bubble, may have some implications eventually when the music finally stops. In thie regard, perhaps the best summary of the the lunacy coming out of the Marriner Eccles building is the following sentence from Bloomberg: "Bernanke said he was concerned that market interest rates, driven higher by his own suggestion he would scale back QE, would curb growth." One can't make this up.