Treasury Department

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Frontrunning: September 26





  • The new normal name of a broken market: glitches - NYSE, Nasdaq Consider Cooperating to Address Glitches (WSJ)
  • Early Thursday Humor: Abe Tells Wall Street Japan’s Economy Is Exceptionally Good (BBG)
  • Rising Rates Seen Squeezing Swaps Income at Biggest Banks (BBG)
  • JPMorgan Mortgage Talks Said to Discuss $11 Billion Deal (BBG)
  • Can't make this up: HFT firm "finds" Fed did not leak data early to benefit HFT firms (FT)
  • Hertz Cuts Full-Year Forecast on Weak U.S. Airport Rentals (BBG)
  • Greece does not need third bailout, seeks debt 'reprofiling' - deputy PM (Reuters) - right, it needs a fourth and fifth
  • Hezbollah gambles all in Syria (Reuters)
  • Twitter Adds J.P. Morgan and Morgan Stanley as Bankers on IPO (WSJ)
  • Messi in Court Shows Tax Collectors Set to Pursue Star Athletes (BBG)
 
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Warren Buffett: "The Fed Is The Greatest Hedge Fund In History"





In a world in which all the matters is "scale", the ability to Martingale down on losing bets as close to infinity as possible (something which JPMorgan learned with the London Whale may not be the best strategy especially when one can't print money out of thin air), and being as close to the Fed's Heidelberg rotary printer as possible, it was expected that that "expert" of government backstops and bailouts, the Octogenarian of Omaha, Warren Buffett, would have only kind words for Ben Bernanke. But not even we predicted that Buffett would explicitly admit what we have only tongue-in-cheek joked about in the past, namely that the Fed is the world's greatest (and most profitable) hedge fund. Which is precisely what he did: "Billionaire investor Warren Buffett compared the U.S. Federal Reserve to a hedge fund because of the central bank’s ability to profit from bond purchases while accumulating a balance sheet of more than $3 trillion. "The Fed is the greatest hedge fund in history,” Buffett told students yesterday at Georgetown University in Washington. It’s generating “$80 billion or $90 billion a year probably” in revenue for the U.S. government, he said.

 
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The Surest Way To Spot Trouble: When Even The CBO Says There's A Problem





In light of this morning's Obama-Boehner volleys, we thought a reflection on the facts was useful. The Congressional Budget Office (CBO) released its 2013 Long-Term Budget Outlook yesterday morning, and its government debt projections are dismal... But the CBO’s featured chart only tells a small part of the story. The baseline scenario happens to be bogus. Even as it shows our addiction to debt worsening, it doesn’t do justice to the severity of that addiction. (You may want to show the chart to your children. After all, they’ll be the ones who’ll have to deal with the debt we’re piling on today.)

 
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25 Fast Facts About The Federal Reserve





Amid the 100 year anniversary of the creation of the Federal Reserve, it is absolutely imperative that the American people understand that the Fed is at the very heart of our economic problems.  It is a system of money that was created by the bankers and that operates for the benefit of the bankers.  The American people like to think that we have a "democratic system", but there is nothing "democratic" about the Federal Reserve.  Unelected, unaccountable central planners from a private central bank run our financial system and manage our economy.  There is a reason why financial markets respond with a yawn when Barack Obama says something about the economy, but they swing wildly whenever Federal Reserve Chairman Ben Bernanke opens his mouth.  The Federal Reserve has far more power over the U.S. economy than anyone else does by a huge margin.  The Fed is the biggest Ponzi scheme in the history of the world, and if the American people truly understood how it really works, they would be screaming for it to be abolished immediately.  The following are 25 fast facts about the Federal Reserve that everyone should know...

 
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White House Scraps Option For Labor Union Obamacare Exemption, Despite AFL-CIO Anger





A few days ago, when we reported that the largest federation of unions, the AFL-CIO, had figured out that Obamacare was not all it was craked up to be and demanded changes be implemented to appease their constituency as pertains to multi-employer group health plans, many wondered if the administration would not simply cave and pass an exemption giving unions a sidedeal at the expense of all other participants. Last night that option was taken off the table when the Obama administration appeared to rule out giving unions a special deal to offer their workers extra ObamaCare subsidies. As AP reports, "on Friday night, the White House said the Treasury Department had issued a letter making clear that it does not see a legal way for individuals in multi-employer group health plans to receive individual market tax credits as well as the favorable tax treatment associated with employer-provided health insurance at the same time."

 
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"Nobody Knows What The F**k Is Going On..."





Financial circles in Hong Kong are buzzing today on the new Goldman Sachs projection that gold may drop below $1,000 an ounce. The central thess: since the US economy is out of the woods, there’s no longer a need for gold as a risk hedge. But as one senior-level manager at a major investment bank noted, "Nobody knows what the f**k is going on..." However, this mentality entirely misses the point of precious metals. When the hopes and dreams of the entire global financial system rest on the lies of politicians, the whims of central bankers, and the mountains of debt they have all accumulated, things could turn on a dime... tomorrow. Gold is an insurance policy. It’s a form of money that you might never need to use. But should that need ever arise, you’ll be so much better off for owning it.

 
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Frontrunning: August 30





  • Al-Qaeda Links Cloud Syria as U.S. Seeks Clarity on Rebels (BBG)
  • Administration Tells Lawmakers of Evidence Linking Assad to Attack (WSJ)
  • Director of National Intelligence James R. Clapper to publish numbers of secret spying orders (CBS)
  • U.S., Switzerland strike bank deal over tax evasion (Reuters)
  • Another Budget Deal Bites the Dust (WSJ)
  • Contemplating Summers Drives Investors to Seek Beltway Expertise (BBG)
  • Austerity Test Looms in Australia as Abbott Pledges Cuts (BBG)
  • Gay Spouses in All States Now Married Under U.S. Tax Law (BBG)
  • Shadow banks face limits to securities trading (FT)
  • EU's Rehn sees European recovery strengthening in 2014 (Reuters) ... or 2015... or 2022... or never?
 
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As Syria Distracts, Here’s What's Happening While No One Is Looking





As everyone is now completely distracted with the looming prospect of yet another illegal war to be waged by the 2009 Nobel Peace Prize recipient, let’s look at a few other things going on while no one is looking.

 
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The Chart That Every Taxpayer Deserves To See





This chart seems to sum up our fiscal challenges as well as anything else...

 
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Final Obamacare "Individual Mandate" Rules Released: This Is What You Will Pay





With president Obama taking his role as Warmonger-In-Chief ever more seriously, it is easy to forget that the only important function before the greatest presidential teleprompter reader in history, is that of Socialized Healthcare Provider-in-Comrade. And so today, in the fog of pre-war, the Obama administration released the final rules on the "Individual Mandate" component of Obamacare, which requires most Americans to buy health insurance starting in 2014 or be fined. Specifically, the rules list lay out the amount of penalties that Americans will face if they opt out of socialized healthcare. The WSJ was kind enough to read the Treasury Department release and summarize it as follows.

 
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Frontrunning: August 27





  • Opposition figure: major decisions on Syria expected within hours (Al Arabiya)
  • Syria challenges U.S. to "produce the evidence" that Assad regime launched chemical attack (CBS)
  • British PM says world must act on Syria, weighs response (Reuters)
  • U.S. Treasury to Hit Debt Limit in Mid-October (WSJ)
  • U.S. could look beyond U.N. Security Council in any Syria strike (Reuters)
  • Nasdaq, NYSE at odds on outage cause as SEC seeks facts (Reuters)
  • Ackman’s J.C. Penney Sale Ends Failed Saga to Agitate for Change (BBG)
  • Zandi, LaVorgna, Blinder, Rattner all is one con puff piece (BBG)
  • Best Buy Founder Schulze Plans Stock Sale to Diversify Assets (BBG) - "diversify assets" = dump overpriced junk
  • Zero Worship: Credit-Card Firms Compete With No-Interest Transfers (WSJ)
  • Len Blavatnik wins $50m in JPMorgan lawsuit (FT)
  • Danone Finds Yogurt’s All Greek as Oikos Chases Chobani (BBG)
 
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With Fed Holding 31.6% Of All Treasurys, The "Short Gamma" Pain Trade Is The One To Watch





As rising Taper (and QE unwind) uncertainty, the biggest trade driving the rate complex, and by implication, the entire risk complex, is being put (no pun intended) to rest. As BofA explains: "the FOMC (the biggest buyer of duration and convexity risk in the world) is long the option to taper asset purchases (and eventually raise rates) if the data improves. That leaves the market short the option that the Fed may decide to taper. The market has looked to hedge this “short gamma” exposure by selling duration and buying vol."

 
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How Soaring Yields Are About To Make A 5 Year Bond Auction Into A 7 Year Reopening





THE RESULTS OF THE 5-YEAR NOTE AUCTION COULD RESULT IN THE UNSCHEDULED REOPENING OF THE 7-YEAR NOTES OF SERIES P-2018 (CUSIP NO. 912828RE2)

If the auction of the 5-year Treasury notes to be held Wednesday, August 28, 2013, results in a high yield in a range of 1.500% through and including 1.624%, the 5-year notes will be considered an additional issue of the outstanding 1-1/2% 7-year notes of Series P-2018 (CUSIP No. 912828RE2) originally issued August 31, 2011. The additional issue of notes would have the same CUSIP number as the outstanding notes, which are currently outstanding in the amount of $29,886 million. If the auction results in the issuance of an additional amount of the outstanding 7-year notes rather than a new 5-year note, it will be indicated in the Treasury's auction results press release and by a special announcement. Any net long position reporting in this auction should be in regard to the 5-year notes.

 
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18 Signs That Global Financial Markets Are Entering A Vicious Circle





The yield on 10 year U.S. Treasuries is skyrocketing, the Dow has been down for 5 days in a row and troubling economic news is pouring in from all over the planet.  The much anticipated "financial correction" is rapidly approaching, and investors are starting to race for the exits.  We have not seen so many financial trouble signs all come together at one time like this since just prior to the last major financial crisis.  It is almost as if a "perfect storm" is brewing, and a lot of the "smart money" has already gotten out of stocks and bonds. Of course a lot of people believe that we will never see another major financial crisis like we experienced in 2008 ever again.  A lot of people think that this type of "doom and gloom" talk is foolish.  It is those kinds of people that did not see the last financial crash coming and that are choosing not to prepare for the next one even though the warning signs are exceedingly clear.  The following are 18 signs that global financial markets are heading for a vicious circle...

 
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Guest Post: What Is Going To Happen If Interest Rates Continue To Rise Rapidly?





If you want to track how close we are to the next financial collapse, there is one number that you need to be watching above all others.  The number that we are talking about is the yield on 10 year U.S. Treasuries, because it affects thousands of other interest rates in our financial system.  When the yield on 10 year U.S. Treasuries goes up, that is bad for the U.S. economy because it pushes long-term interest rates up.  When interest rates rise, it constricts the flow of credit, and a healthy flow of credit is absolutely essential to the debt-based system that we live in. 

 
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