Sovereigns

While the idea of the interventionist suppression of short-term 'normal' volatility leading to extreme volatility scenarios is not new, hearing it explained so transparently by a current (and practicing) central banker is still somewhat shocking. As Buba's Jens Weidmann recent speech at Harvard attests, "The idea of monetary policy safeguarding stability on multiple fronts is alluring. But by giving in to that allure, we would likely end up in a world even less stable than before."

A dispassionate analysis of Bitcoins, their function and implications.

It is only fitting that promptly following the third worst bear market of all time resulting from the bursting of the biggest, until that point, credit bubble that as a result of over $10 trillion in global fungible central bank balance sheet expansion, and a new and improve and bigger than ever credit bubble, one which includes the sovereigns too, the S&P is now 162% higher from its March 9 2009 lows of 676.53, making this the fourth biggest bull market in US history. The next logical question: what would make this relentless Fed balance sheet tracking "bull market" become the 3rd biggest bull market in history, or 2nd biggest... or biggest of all time. Here are the S&P500 breakevens for those particular thresholds...

"The employment situation in America is in a state of serious dysfunction," is how Elliott Management's Paul Singer begins his discussion of the problems (that existed before 2008) that are getting worse... "A related problem in America is benefits policies that encourage dependency. This is insidious and life-draining, because a balance must be struck between helping those truly in need and providing harmful incentives for able-bodied people not to work. If the government makes it less economically attractive to work than to receive a check, the predictable result will be an increase in handouts and a drain on the productive sectors of the economy."

Jansen notes that this is a new record for exports for the small country with a yearly estimate of 2,912 tons for exports.  It is surmised that 1,100 tons of the gold bullion is set to flow East to China or Hong Kong.

Faber, whose advice has protected millions of investors in recent years, warned of a global systemic crisis possibly due to the massive size of the global derivatives market which is now worth over an incredible $700 trillion.

He warned “when the system goes down,” and only plastic credit cards are left, “maybe then people will realize and go back to some gold-based system.” He wisely said that, “I advise everyone to have some gold.”

It would appear that French-owned Fitch, following its rating-watch-negative shift on the US credit rating last week, has got a tap on the shoulder from the powers that be. As Hollande complains about Obama's espionage, Fitch has released a statement explaining how the USA can do whatever it wants and not be downgraded. With only the Chinese ratings agency "able" to openly comment on the creditworthiness of the USA, it is no surprise that Fitch gave itself an "out" on the basis of the USDollar's exorbitant previlege.

If Obama’s budget projections prove accurate, the National Debt will top $20 trillion in 2016, the final year of his second term. That would mean the National Debt increased by 87%, or $9.34 trillion, during his two terms.

The U.S. is engaged in fiscal and monetary policies that are akin to a Banana Republic.

In addition to electronically creating out of nothing $85 billion every month to buy its own debt in the form of bonds, the U.S. is also borrowing more money than it is authorized to borrow, from itself again.

How Fitch has not downgraded the U.S. already is a mystery to analysts looking at the U.S. fiscal position and the lack of political will to tackle it. It seems likely that significant political pressure is being put on credit ratings agencies regarding their credit rating of the U.S.

So what exactly did Reid know and when?

• *UNITED STATES' AAA IDR RATING MAY BE CUT BY FITCH :3352Z US
• FITCH SAYS PUTS U.S. ON RATING WATCH NEGATIVE AS U.S. AUTHORITIES HAVE NOT RAISED FEDERAL DEBT CEILING IN A "TIMELY MANNER
• *FITCH STILL SEES U.S. DEBT CEILING TO BE RAISED SOON :3352Z US
• *FITCH SEES RESOLVING US RWN BY END OF 1Q '14 AT LATEST
• *FITCH STILL SEES U.S. DEBT CEILING TO BE RAISED SOON :3352Z US
• *FITCH SEES U.S. ECONOMIC GROWTH REVERTING TO 2.25% AFTER 2017

Gold’s price falls are very counter intuitive and suggests that Wall Street banks, either independently or in unison with the U.S. authorities possibly through the Working Group On Financial Markets or the Plunge Protection Team, are suppressing gold lower.

Gold imports have virtually dried up in India. Battling a high trade deficit, the country has set the import duty on the precious metal at a record 10%.

Not much comment necessary on a topic we have beaten to horse pulp in the past 2 weeks aside to note that this time is ironically different from 2011 as the inversion in the CDS curve is considerably more biased to a piling up of short-term default risk than in 2011.

Yesterday we described the various scenarios available to Treasury in the next few weeks should the shutdown and debt ceiling debacle carry on longer than the equity markets believe possible. As BofAML notes, however, the most plausible option for the Treasury could be implementing a delayed payment regime. In such a scenario, the Treasury would wait until it has enough cash to pay off an entire day’s obligations and then make those payments on a day-to-day basis. Given the lack of a precedent, it is hard to quantify the impact on the financial markets in the event that the Treasury was to miss payment on a UST; but the following looks at the impact on a market by market basis.