ratings

Despite rumors of a 'deal', "The major issues that we think are necessary to jump-start the American economy continue to languish," reflects one lobbyist on what Bloomberg reports will be Congress's least productive year ever, with just 56 pieces of legislation signed into law so far. The former record low, reached in 1995, was 88 new laws. 2013 was supposed to be the year lawmakers, free of immediate election pressures, would revamp U.S. immigration policy, pass a debt-lowering budget and expedite a pair of trade deals. Instead, partisan rancor grew deeper; and to make matters worse, the politicians took plenty of time off - the House has been out 191 days, and the Senate 199 days.

Despite the ratings agencies (Moody's Dec 5th and S&P Nov 22nd) seemingly premature raising of the outlook for the nation's sovereign credit rating (from negative to stable), economic hardship in Spain looks likely to continue as loan defaults surge and the unemployment rate remains the second highest in the EU.

The grind higher in equities, and tighter in credit, continues as markets brush aside concerns about a December taper for the time being. Overnight futures levitation has pushed the Fed balance sheet driven record high S&P even higher, despite as Deutsche Bank points out, the fact that we had three Fed speakers advocate or talk up the possibility of a December taper, including the St Louis Fed’s James Bullard who is viewed as a bit of a bellwether for the FOMC. Bullard said the probability of a taper had risen in light of the strengthening of job growth in recent months. Indeed, he noted that the best move for the Fed could be a small December taper given the improving jobs data but below-target inflation readings. The Fed could then pause further tapering should inflation not return toward target during the first half of 2014.  Looking at today’s calendar, the focus will be on US JOLTs job openings - a report which Yellen has previously highlighted as an important supplement to more traditional labour market indicators. US small business optimism and wholesale inventories are the other major data releases today. As mentioned above, US financial regulators are due to announce Volcker rules at some point today although as we just reported, the CFTC's meeting on Volcker was just cancelled due to inclement weather.

Japan's PM Shinzo Abe has seen his approval ratings collapse for the first time since his 'devalue-to-glory' strategy was unveiled a year ago. Kyodo News reported, support for Mr. Abe fell 10.3ppt to 47.6%, while Japan News Network reported a 13.9-point fall to 54.6% as WSJ reports, public concern over the controversial secrecy bill (designed by Kafka, inspired by Hitler) and its nationalist overtones merely exacerbated Japanese people's concerns about their pocketbooks (as incomes stagnate and costs rise). As Abe plays lip service to economic issues (with a very Maduro-like speech recently on profit margins and wage increases), there is little but public outrage to hinder his plans as his ruling Liberal Democratic Party has big majorities in both houses of parliament, with no election scheduled until 2016. So much for Abenomics...

As fear and nationalism rise in Japan (and Abe's grip on the people founders amid falling approval ratings and underperforming economic indicators such as GDP tonight), so another party has joined the debacle in the East China Sea. As NHK World reports, South Korea has officially announced that it will expand its air defense identification zone, making it partially overlap those of Japan and China. The game of chicken over small islands (and submerged rocks!) in the middle of nowhere continues...

You know that game involving word association at the psychotherapists? The one where you have to say the first word that springs to mind.

As we noted last month, President Obama sat down for an interview with Chuck Todd on November 7 and said: "When we buy I.T. services generally, it is so bureaucratic and so cumbersome that a whole bunch of it doesn’t work or it ends up being way over cost." Well, this week we learned that the gap’s been closed. The Department of Health and Human Services (HHS) told us so. In its official report, HHS not only announced that it had “met the goal of having a system that will work smoothly for the vast majority of users,” but wrote that “the team is operating with private sector velocity and effectiveness.” That sure was quick. Reviewing these facts, we suppose HHS could support their claim to “private sector velocity and effectiveness” with some semantic tricks. If you interpret that phrase as referring to the principle contractors’ adeptness at winning huge, no-bid contracts through personal connections, donations, fund raising and lobbying, then it all adds up.

With the mainstream media inundated with tales of low paid workers demanding higher minimum wages (thus theoretically expecting to be paid more than a market rate for their services), we thought a look at the other end of the scale was worthwhile (where, some might argue, the following 10 CEOs are also paid above market rates for their 'ability')...

• With website improved, Obama to pitch health plan (Reuters)
• Joe Biden condemns China over air defence zone (FT)
• Tally of U.S. Banks Sinks to Record Low (WSJ)
• Black Friday Weekend Spending Drop Pressures U.S. Stores (BBG)
• Cyber Monday Sales Hit Record as Amazon to EBay Win Shoppers (BBG)
• Ukraine's Pivot to Moscow Leaves West Out in the Cold (WSJ)
• Investment banks set to cut pay again despite rise in profits (FT)
• Worst Raw-Material Slump Since ’08 Seen Deepening (BBG)
• Democrats Face Battles in South to Hold the Senate (WSJ)
• Hong Kong reports 1st case of H7N9 bird flu (AP)
• In Fracking, Sand Is the New Gold (WSJ)

"It’s time to put that power back where it belongs," explains Jonathan Zimmerman in today's Washington Post, "Barack Obama should be allowed to stand for re election just as citizens should be allowed to vote for — or against — him. Anything less diminishes our leaders and ourselves." The 22nd Amendment, limiting the Presidential term, according to Zimmerman, reflected "a shocking lack of faith in the common sense and good judgment of the people." Of course, in the increasingly 'entitled' America, it would only cost a few hundred million to bribe all the newly downgraded Middle-to-Lower class Americans with Obamaphones in order to finally get a "dictatorial democracy" by indirectly funding the lower common denominator with $400 in free money every election cycle.

Despite a ratings 'upgrade' Spain's youth unemployment rate has re-surged to a record 57.4% (just below that of Greece which still tops the scary chart list at 58%). Italy and Portugal also saw notable rises (despite the former's record low short-dated bond yields) at 41.2% and 36.5% respectively. Ireland and France saw modest improvements but overall the Euro-zone's youth unemployment just keeps rising. In spite of all the rhetoric from Merkel, Van Rompuy, and Barroso, 24.4% of Europe's under-25 population is unemployed...

A hungover America slowly wakes up from a day of society-mandated consumption and purchasing excess to engage in even more Fed-mandated excess in the equity markets. The only difference is that while the "90%" was engaged in the former and depleting their equity, and savings, accounts in the process, far less than 10% will be doing the latter. Overnight attention was drawn to the rapidly escalating territorial dispute between China and Japan, now in the air, Bitcoin's brief surge above the price of an ounce of gold, and the ejection of the Holland from the AAA Eurozone club (where only Germany and Finland remain), following an S&P downgrade of the Netherlands from AAA to AA+, which however had been largely priced in long ago (and was coupled with an upgrade of Spain from negative to stable outlook, as well as an upgrade of Spain from CCC+ to B-). Europe surprised pleasantly on both the inflation (better than expected) and unemployment rate (dropped from an all time high of 12.2% to 12.1%), even if youth unemployment rose to fresh record highs.

While moderate recovery in growth and inflation is BofAML's rates team's base case, there are numerous risks to that forecast. The risk of tapering is already quite well known and they suspect it may not result in the significant market-moving event many expect when it actually happens; however, the following downside and upside risks threaten BofAML's central scenarios for 2014 as well.

To paraphrase Mark Twain, "It isn't the stuff you don’t know that will kill you – it's the stuff you're sure about but is totally wrong that will do you real harm."  As a corollary to this fateful phrase, Convergx's Nick Colas has collected a list of market "knowledge" that is questionable at best and harmful at worst.

As we showed very vividly yesterday, while the world is comfortably distracted with mundane questions of whether the Fed will taper this, the BOJ will untaper that, or if the ECB will finally rebel against an "oppressive" German regime - with $3.5 trillion in asset (and debt) creation per year, is China. China, however, is increasingly aware that in the grand scheme of things, its credit spigot is the marginal driver of global liquidity, which is great of the rest of the world, but with an epic accumulation of bad debt and NPLs, all the downside is left for China while the upside is shared with the world.  Which is why it was not surprising to learn that China has drafted rules banning banks from evading lending limits by structuring loans to other financial institutions so that they can be recorded as asset sales.  And while we are confident Chinese financial geniuses will find ways to bypass this attempt to curb breakneck credit expansion in due course, in the meantime, Chinese liquidity conditions are certain to get far tighter. This is precisely the WSJ reported overnight, when it observed that yields on Chinese government debt have soared to their highest levels in nearly nine years amid Beijing's relentless drive to tighten the monetary spigots in the world's second-largest economy.