President Obama

Despite German and French Manufacturing and Services PMI data outperforming expectations, European equity indices are trading down at the mid-point of the European session on extended concerns over the still-not-settled Greek PSI agreement.  Further downward pressure on German markets came from Siemens’ earnings report earlier this morning, with the company missing their revenue targets and foreseeing a difficult economic environment for them in Q2 of this year. In UK news, despite an unexpected fall in government spending, UK debt has topped the GBP 1tln mark for the first time.

• Fears Mount That Portugal Will Need a Second Bailout (WSJ)
• EU to Have No Deadline for End of Greek Talks (Bloomberg)
• Japan economy predicted to shrink in 2011 (AFP)
• Japan’s Fiscal Pressure Intensifies as Tax-Boost Plan Insufficent: Economy (Bloomberg)
• Berlin ready to see stronger ‘firewall’ (FT)
• Obama Speech to Embrace U.S. Manufacturing Rebirth, Energy for Job Growth (Bloomberg)
• EU Hits Iran With Oil Ban, Bank Asset Freeze in Bid to Halt Nuclear Plan (Bloomberg)
• China's Oil Imports from Iran Jump (WSJ)
• Croatians vote Yes to join EU (FT)
• Japan’s $130 Billion Fund Unused in Biggest M&A Year in More Than Decade (Bloomberg)
• Buffett Blames Congress for Romney’s 15% Rate (Bloomberg)

Find out what the $3.6-trillion Blackrock sees in 2012

The market will look for any signal on the pace of discussions over the ESM pre-funding details and the fiscal compact. Flash PMIs in the Eurozone and the IFO will also be key to watch given market fears over the activity impact of tight fiscal policy linked to the Eurozone fiscal crisis. Attention will likely shift to the US this week. Q4 GDP will likely exceed 3% mostly due to one-off drivers and less so due a genuine pick-up in final demand in our view. The FOMC statement and press conference are unlikely to lead to a change in US monetary policy. However, we will be focusing on the publication of the FOMC participants’ views of appropriate policy (specifically the path for the federal funds rate and guidance for the size of the balance sheet going forward). In addition, President Obama will give his State of the Union speech Tuesday night.

European indices as well as major currency pairs are trading in slight negative territory at the midpoint of today’s session due to profit-taking and cautious sentiment dominating the market, with the worst performing sector being Oil & Gas showing volatile trading this morning.  In European macro news, Greek PSI talks are closer to coming to a conclusion, with a source saying that the haircut announcement is likely to be today.

The big news of the day, aside from the idiot rally finally being back on full bore, is that the Obama administration finally pushed Canada's hand in telling it to sell its crude to China instead of the US, which we are confident it will gladly do. Much of this was largely priced on, as was the fact that opportunity for significant job creation was just kicked to the curb. What was not however expected, is that in keeping up with the fine tradition of taking responsibility for his decisions and actions, kinda sorta, America's president said that it was really the republicans whose fault it is that Keystone XL is now and will remain in its blueprint stages. From The Hill: "Obama said he was not acting on the merits of TransCanada Corp.’s plan, but instead was forced to make the decision based on the “arbitrary” deadline mandated by GOP provisions in December’s payroll tax cut extension deal. "As the State Department made clear last month, the rushed and arbitrary deadline insisted on by Congressional Republicans prevented a full assessment of the pipeline’s impact, especially the health and safety of the American people, as well as our environment," Obama said in a prepared statement. “As a result, the Secretary of State has recommended that the application be denied. And after reviewing the State Department’s report, I agree,” Obama added. In other words, do you remember where you were when the republicans blocked the Keystone Pipeline?

2011 was a merry-go-round of more bailouts, more deferrals and more denial. Everyone is tired of the Eurozone. It’s not fixable. There’s too much debt. The politicians don’t know what’s going on. Nothing has structurally changed. We’re still on the wrong path. There’s more global debt than there was a year ago, and it’s the same old song: extend and pretend, extend and pretend,… around and around we go,… and it isn’t fun anymore. Just as we wrote back in October 2007, and again in September 2008, we feel compelled to state the obvious: that the financial system is a farce. It’s a complete, cyclical farce that defies all efforts to right itself. This past year continued the farcical tradition with some notable scandals, deferrals and interventions that underscored the system’s continuing addiction to government interference. With the glaring exception of US Treasuries and the US dollar (which are admittedly two of our least favourite asset classes), it was not a year that rewarded stock picking or safe-haven assets. Many developments during the year bordered on the ridiculous, and despite some positive news out of the US, we saw little to test our bearish view. If anything, our view was continually re-affirmed.

As Zero Hedge reported first, the US is once again, in just 5 short months (see chart), back at the debt ceiling, with just $25 million in new debt issuance dry powder, or in other words, no space of more debt absent resorting to the same "technique" last seen in late July when the Treasury plundered from government retirement accounts in order to accommodate new debt, such as yesterday's issuance of 3 Year bonds, and today's 10 Year bonds. And as The Hill reported yesterday, Obama is expected to request that Congress allow the incremental and final $1.2 trillion debt expansion (of the $2.1 trillion total) within a few days. So it is all on autopilot right? Wrong. As Bank of America explains below, it is very likely that the US will not have a debt ceiling hike for at least a few weeks, meaning that while a debt hike will ultimately come, it will very soon be all the song in dance, potentially overtaking the GOP drama, coupled with the pillaging of government retirement accounts yet again and likely leading to more rating agency action as the US debt fiasco is once again brought front and center. And the last thing the market needs is to experience the August 2011 collapse which brought it to 2011 lows and sent it gyrating for 400 DJIA points daily, in essence breaking the market as noted previously. And the worst news is that even with $1.2 trillion in new debt capacity, the total amount is guaranteed to not last through 2013, and should tax withholdings dip as trends are already indicating on adverse year over year comps, the $1.2 trillion in new debt may be exhausted as soon as September, which at this point may be the only thing that derails an Obama reelection if indeed he is running against "Wall Street."

Remember when the hiring of former Wall Street insider and JP Morgan career man, Bill Daley, by the Obama administration as its latest Chief of Staff was big news last January? Well so much for that. The LA Times reports that the detente between Obama and Wall Street has reached new levels, with Daley's resignation expected to be announced at 3 pm by the president and is to be replaced by Citi's Jacob Lew, who in turn was the guy who oversaw the bank unit that "shorted the housing market." Well, at least Obama now knows to keep away from the JPM crew, whose Jamie Dimon is not all that happy with the president, if he wishes to avoid looking like not only the Wall Street's patsy, but also the guy who fails at sloppy seconds.

Previously we heard Pimco's thoughts on the matter of an Iranian escalation with "Pimco's 4 "Iran Invasion" Oil Price Scenarios: From $140 To "Doomsday"", now it is the turn of SocGen's Michael Wittner to take a more nuanced approach adapting to the times, with an analysis of what happens under two scenarios - 1) a full blown EU embargo (which contrary to what some may think is coming far sooner than generally expected), and the logical aftermath: 2) a complete closure of the Straits. The forecast is as follows: 1) "Scenario 1: EU enacts a full ban on 0.6 Mb/d of imports of Iranian crude. In this scenario, we would expect Brent crude prices to surge into the $125-150 range." 2) "Scenario 2: Iran shuts down the Straits of Hormuz, disrupting 15 Mb/d of crude flows. In this scenario, we would expect Brent prices to spike into the $150-200 range for a limited time period." The consequences of even just scenario 1 is rather dramatic: while the adverse impact on the US economy will be substantial, it would be the debt-funded wealth transfer out of Europe into Saudi Arabia that would be the most notable aftermath. And if there is one thing an already austere Europe will be crippled by, is the price of a gallon of gas entering the double digits. And then there are the considerations of who benefits from an Iranian supply deterioration: because Europe's loss is someone else's gain. And with 1.5 million of the 2.4 Mb/d in output already going to Asia (China, India, Japan and South Korea) it is pretty clear that China will be more than glad to take away all the production that Europe decides it does not need (which would amount to just 0.8 Mb/d anyway).

UBS, which has been issuing ever gloomier forecasts over the past few months, with the sole intent of getting someone to bail out the European financial system, which despite the current stay of execution is increasingly more brittle (because solvency crises only get worse with time, never better), has just come out with its magnum opus. In a report released overnight, the firm's Global Rates Team has just jumped the shark, with a prediction that things in Europe are literally about to implode: "we anticipate that the crisis will deteriorate further than the stressed levels of late November. We do not believe that Greek PSI will take place in a “voluntary” fashion but instead expect coercive restructuring of Greek debt either before or soon after the March redemption, triggering CDS contracts. Greece is not likely to decide to leave the euro area in 2012, though the risks of that happening have certainly increased." And as we well know from previous UBS reports, a departure of a country from the Eurozone would lead to a mass splurge in purchases of guns, spam and gold. So is this merely a last ditch call for a bailout from someone, anyone: either Fed or ECB will do? Most likely. Because if while the general market continues to ignore Europe, and European banks are out there literally screaming the end is nigh, then the truth is surely somewhere inbetween. Especially, if as Reuters reports, Greece is just the beginning. "One of Portugal's most prominent business leaders has moved his family holding company to Holland partly because of uncertainty over whether the country will remain in the euro, Alexandre Soares dos Santos said in a newspaper interview on Saturday. Soares dos Santos, who is chairman of the board of Jeronimo Martins, caused a stir in Portugal this week when it emerged that his family holding company that controls the country's second largest retailer had moved to Holland...."I also don't know if Portugal will stay in the euro. And if it leaves, it will be to the escudo," Soares dos Santos told Expresso, referring to the escudo currency used by Portugal before it adopted the euro. "I have a right to defend my property."" So while everyone continues to expect the best, those who really matter are planning for the worst.

Despite the barrage of geopolitical headlines involving Iran, and as of today, the US and Israel, especially as pertains to wargame exercises in the Straits of Hormuz, a different, and potentially much more important story is to be found in the country's capital markets, and specifically its currency, which has continued to tumble ever since Obama signed the Iran financial boycott on New Year's Day as reported here. And, as we predicted, it is the aftershocks of the boycott which may have the most adverse impact on geopolitics. Because if the Iran regime finds itself in a lose-lose situation with its economy imploding and its currency crashing, the opportunity cost of doing something very irrational, from a military standpoint or otherwise, gets lower and lower. Then again, something tells us the US administration has been well aware of this sequence of events all along. Here is Art Cashing explaining it all.

America may be $25 million away from breaching the interim debt ceiling, it may have well over 40 million people subsisting on food stamps, and we may be reading all about this "austerity" thing gripping the country, but it sure won't be impacting Federal workers, all millions and millions of them, if Obama has his way. According to Washington Post, the White House will propose a 0.5 percent pay increase for civilian federal employees as part of its 2013 budget proposal, according to two senior administration officials familiar with the plans." Well as long as the president is adamant about increasing taxes on what is left of America's upper middle class (and let's not forget that half of America pays no taxes at all) to pay for this, we see no way that this proposal will irritate the class-war divided United States even further. And yet we can't help but wonder: why a pay increased? Haven't we been brainwashed day after day how the only threat is deflation, that prices are not going up, that nobody actually needs food or gas, and that people should in fact be grateful for a pay cut?

Looking for a reason why the surge of BAC has been abruptly halted after hours? Look no further - as predicted earlier, when we commented on the periodic reincarnation of the always false global refi rumor which served among other things to push BAC higher by almost 10%, the rumor was found to be false... all over again. In other words no refi, no benefit to TBTF, and all of today's gains are based on what Bloomberg noted was a report issued yesterday by a Jaret Seiberg, who until recently was an employee of MF Global, and has since been acquired with his entire Washington Research Group by none other than Guggenheim partners, which just happens to be run by former Bear Stearns exec Alan Scwhartz. From Bloomberg, here is the official denial (which came literally seconds after market close):

• White House Has No Plan for Mass Home Refinancing, Person Says

Incidentally, even if the rumor was true, here is JMP explaining why it would have no real impact on Bank of America

There is literally no difference between Obama and a moderate Republican when it comes to the truly important policies governing the nation's insolvent finances, its predatory financial sector, its corrupt and fraudulent sickcare system or its sprawling Empire. Obama's policies have all aided and abetted existing Status Quo cartels and fiefdoms. He has changed absolutely nothing of import except further eroding civil liberties. President Obama can be charitably characterized as an ineffectual Demopublican. From those demanding more, then he can be accurately described as a well-meaning puppet of Wall Street and the rest of the Status Quo cartels and fiefdoms.