Boehner’s reply was as vile and dishonest as you might have expected.
If the government is forced to slash spending when the money runs out. — We’ll be doing a 1937 squared.
I hope and pray that Obama’s lawyers discover that the 14th amendment solution is valid after all. Because otherwise we’ll be looking at very dire things, even if the markets stay calm.
It sounds to me that PK wants the markets to crash. (He’s ‘praying’ for a lawyer to find a loophole?) Maybe he thinks a 1,000 point DOW drop would get those “vile and dishonest” Republicans to cave in.
The fact is that the market’s collective response to the possibility of a US default has been extremely muted.
Ten-year treasuries are not showing any signs of stress. The current yield of 2.95% is significantly lower than just five months ago.
Stocks are doing just fine. The S&P is 5% higher than a month ago. We are back to the levels seen in May.
I don’t see any significant stress in the Muni market either. MUB (index) is just a tad off recent highs.
How are these results possible? Easy.
The Smart Money on Wall Street is 99.5% convinced there will be a deal.
I’ve never been so sure about that “smart money’ thing, (having spent a lot of time there) but I agree with this thinking. There will be a deal and there won’t be a default. But the deal that is going to be struck is going to stink. It will put the issue of default back on the table in less than eight months.
This reality will push the hand of Standard and Poor’s. They have said that the political will of the country to tackle tough problems was central to their decision to put the USA on their watch list. The US will fail on this if there is a short-term patch on the debt limit. S&P will have to follow through. They will drop the US by year end (or they have no balls).
Krugman is not looking in the right places for evidence of the stress that is building. Some places I see as signs of problems:
-Gold is reacting.
-The safe havens of Swiss Francs and Yen are being sought after.
The Swissie is about to break an important barrier. By the end of the week a lousy 80 Centimes will buy a Dollar. The Yen is not at a record, but it might as well be. We are at the panic levels of March 2011 and way back in 1994.
-Some stocks like AAPL are trading as if they are safe havens. (That’s crazy!)
-The most significant evidence of trouble brewing is an issue that I do not have a chart to show you. It is something that is not (now) being reflected in the markets.
I stay in touch with a number of folks who push money for a living. I am repeatedly hearing that there is stress in the funding market. There is plenty of liquidity and the cost is zero, but financing to fund assets (positions) is drying up. It’s becoming increasingly difficult to finance large liabilities. Where funding is available, it’s only for very short maturities. These issues are showing up in the repo market, euro dollar deposit market, money market funds, swaps markets and interbank lending.
I’m very concerned that the "smart" money on Wall Street is positioned very poorly for what is coming. We are setting ourselves up for a big disappointment. It’s as if the Street is set up for a Non Farm Payroll of +600,000 and we get a -200,000 print. The reaction will be swift and bloody.
Cash is definitely Trash these days. This investor is long as much cash as I can. I’m convinced that big volatility is in front of us. Being cash rich gives me a chance to play in markets where values are being presented.
I may miss out on what could be a soft landing and a happy ending. I never did believe in fairy tales.
Update:
In the hour and a half since I wrote this the President has came out with a threat of a veto. That would be an immediate default and downgrade. Like I said, I’m worried about that “smart money” thinking. Also, the USDCHF broke the 80 barrier. Gulp!
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How about by Wednesday morning!!! it hit 0.7979 this morning.....now "recovered" to a stonking 0.8012
In this interview, Sir Goldsmith discusses the ramifications of free-trade agreements that were about to take place in 1994 (GATT), as you can retrospectively see, he correctly predicted many of the things that happened after that.
http://www.youtube.com/watch?v=YW6KkF6aa_A&feature=related
You totally lost all your credibility when you didn't spike the punch with LSD at the Christmas party two years ago and let the bankster fucks try out their newfound abiliity to fly.
Laura Tyson See Start of a `Lost Decade' for Many Americans
She was a spokesperson in favour of GATT, arguing with Sir James Goldsmith on Charlie Rose that American jobs will be increased by the trade agreement. Now that traitor is saying that displaced workers face lost decade.
LAURA TYSON; Candidates for Obama's Inner Circle
BEING CONSIDERED FOR A top economic post, possibly in a return tour as director of the National Economic Council.
WATCH AND EMAIL TO ALL
A prophetic interview with Sir James Goldsmith in 1994 Pt2
http://www.youtube.com/watch?v=SZTzPmn-87w&NR=1
Like all the left wing facsists Krugman and Pelosi feel it all slipping away. Now that they have to make policy and decisions, they are shown to be the intellectually (and morally) shallow pieces of feces they have always been.
According to TPM, Pelosi blasted the GOP saying:
Krugman, Drama Queen.
"I hope and pray that Obama’s lawyers discover that the 14th amendment solution is valid after all. "
Shakespeare’s Dick the Butcher had the right idea for what to do with lawyers.
I wonder if we could get short, smarmy economists included in that deal.
Act IV, Scene 2, line 2379
http://www.opensourceshakespeare.org/views/plays/characters/charlines.php?CharID=DickButcher&WorkID=henry6p2
Lincoln was elected, of course, on Nov 6th, 1860, but the attack on Fort Sumter was not until April 12th, 1861.
Compromise was the only option then too.
Of course lost in all the drama is the fact that the 2012 budget battle begins October 1st and the 2011 budget was not finalized until April 15th -3+ months ago.
South seceded before Lincoln was inaugurated. Before the southern legislators left Congress, it was not majority Republican, it was Democrat, both southerners and northern Democrat that werenokay with southernndemocrat agenda.
So the southerners had lost a democractic Presidential election, fair and square and still retained control of Congress and no one had violated the Consitution or otherwise acted undemocractically towards the South. The south lost a Presidential election
and before that President was even seated and before he had exercised one executive action that might have offended the South or violated constitution, they seceded. They lived under a union with set democractic rules, and quit when they lost an electiion and simply faced a divided government. They did not wait around to see if Lincoln would live by mild Republican platform or would live up to their worst fantasies, they bolted right after Lincoln's election, in fact, Jefferson Davis was inauguarated before Lincoln.
And what was Lincoln's and the Republicans horrible platform that sent the Southerners off in fearful revolt against their own democratic government even before new President in power? They were not calling for end of slavery, they were simply arguing for no expansion of slavery to the territories. Some Republicans were obviously abolitionists, but they were the minority in the party and and their complete anti-slavery views were not part of party platform... the Republican
platform, needed to unite a winning party, could not be against slavery in deep south (where slavery was already legal and already Constitutional) or most northerners would not have been joined Republican party. Many northerners simply wanted new territories to be free of slavery so they could homestead themselves as small family farms rather than slave plantations taking over whole new states.
Lincoln offered all kinds of compromises to southerners that drove the likes of abolitionists and Fredrick Douglas crazy, like he proposed gradual emancipation of slaves by financially compensating slave owners for their slaves, over a period that was only to end in 1915! He proposed shipping slaves back to Africa as a means for their freedom. Many Republicans hated these ideas as they saw slavery as the horrible moral wrong it was and wanted it ended immediately, with African slaves free to stay as American citizens.
But the two things Lincoln never compromised on was on allowing expansion of slavery into new territories and was the South to secede when they had no oppression nor undemocratic tyranny nor Constitutional violations to justify their revolt. Northern democrats, especially moneyed business interests offered all sorts of capitulation to southerners I. Their desire to avoid financially disruptive war, including allow expansion of slavery, compromises which Lincoln rejected. Read Lincolnshire first inaugural speech, it is very conciliatory but still firm, and again the abolitionists disliked it.
Will the TeaParty agree to secede again?
Then they can go elect Rick Perry and pray for an economy!
"Maybe he thinks a 1,000 point DOW drop would get those “vile and dishonest” Republicans to cave in.
The fact is that the market’s collective response to the possibility of a US default has been extremely muted."
I agree - the market just knows that a deal will be cut before the end of the week. But, what if the deal looks to be in question? How are they gonna "convince" Congress to step up and extend the limit? The only answer I can think of - and I am really surprised to not have seen it postulated here earlier - is that the Fed will unleash market hell by dumping a bunch of the securities they hold on their balance sheet as a result of POMO.
Bruce, if that happens, I can see you being ready to deploy your cash (or maybe half?) and BTFD - as you very well know from previous iterations exactly how Congress will respond. The debt ceiling will be abolished and POMO will start over until Dow 18K.
Catch the guillotine; brilliant plan. *cough*
Stupid Obummer, Bubba Boehner, Goofy Geithner, Bernanke the Bastard, Reid the asshole are all nothing more than puppets. The big bankers are calling the shots. They're just calculating how they can make the most money off this phony crisis. And that's what's going down. Never waste.......................etc.
Turdman just shows how smart he really is.....He now can run around saying "I am living the dream". Krugman please take a looonnnggg vacation please so i can have some peace.
He may be living his dream but it's our nightmare.
On 01/21/1998 the ratings agencies were thinking about a XXX rating for the US.
We have already defaulted. Debasing the currency by printing money is default by another name. Both ways you get back less than you expected.
Hey Bruce,
The S&P has no balls, but the rating agencies have been playing lately and appearing as a checker pretending against the ECB in the Greek brain surgery.
So, what is the deal? Have the rating agencies suddenly discovered Jesus like Eric Cantor or is putting the rating agencies out in front as having 'credibility' just another version of a Holloywood front?
I agree about your cash call.
What about the US CDS curve inverting for the first time ever? Non event?
http://ftalphaville.ft.com/blog/2011/07/26/635051/us-cds-curve-inverts-for-first-time-ever
Tks for this. Another big crack in the sidewalk.....
Hey guys? What if the fabled Run on the Chinese Banks started right about now?
Not that I want to cause trouble or anything, but I thought I'd ask.
F.A. Hayek in his Road to Serfdom (p. 168) said:
The connection between socialism and nationalism in Germany was close from the beginning. It is significant that the most important ancestors of National Socialism—Fichte, Rodbertus, and Lassalle—are at the same time acknowledged fathers of socialism. …. From 1914 onward there arose from the ranks of Marxist socialism one teacher after another who led, not the conservatives and reactionaries, but the hard-working laborer and idealist youth into the National Socialist fold. It was only thereafter that the tide of nationalist socialism attained major importance and rapidly grew into the Hitlerian doctrine.
The fact and the unequivocal truth regarding the US treasury default is that it is mathematically impossible, unless OBAMA chooses to do so.
Why? People/corporations are still sending in taxes all over the world and the treasury has enough to pay out interest and roll over the treasury bonds/notes/bills. See, no chance of treasury default.
As for the vendors/suppliers/federal employees/retirees/food stamp recipients/ etc., some 80 million checks and counting, when they will get paid is another issue. But late pay to all those 80 million strong recipients does not count as default, nor a credit event.
Bring it on. Default on the US treasury and put a question mark on the unquestionable public debts and trash 14th Amendment.I dare you. OK, I double dare you.
You're right, we can pay interest and things maturing, by not paying for Soc Sec, Medicare, UI, Defense, Soldiers and Fed employees, private hospitals and doctors that get half their income from Medicare/Medicaid, defense contractors who are some of the last manufacturers we have left In US...so we can avoid defaulting to investors and screw regular folks... investors will of course be first saved while rest of economy will be a mess...sounds about right - par for the course - and no matter the result, Wall Street with their connections, inside info, and corrupted govt protection, will profit.
Say what you will about Krugman, but innumeracy is not one of his failings. What's more, I have this nagging feeling that the 'smart money' is - essentially - doing a 'Jeetner' [aka 'deer in the headlights'].
We'll know soon enough.
apple is trading like it is making a shit ton of money and that IS NOT CRAZY and it is not over valued
you are starting to sound like the king of wrong when it comes to apple, RM
It took almost 2 weeks after Lehman belly-up for the market to realize we were in deep doodoo. I don't think anyone can guess what will happen, if we default. Something bad will happen, and it will not be something people already know.
A typo, Bruce? Otherwise you're contradicting yourself!
"Cash is definitely Trash these days. This investor is long as much cash as I can. I’m convinced that big volatility is in front of us. Being cash rich gives me a chance to play in markets where values are being presented."
"Trash" is yet another word that means the opposite of what it used to, in the' Street' Lexicon, e.g Bad, Cool, Sick, Boss, etc.
No Typo. I'm liquid. Sheets empty. And yes that is trash as I think it is costing me to do this.
What are the odds that works for me? Low. What is the payoff to me if we get a horrendous hiccup? Big.
What would I look for if there was a market break?
Off the run muni bonds that are missed priced.
Subordinated bonds of utilities (if they get slammed).
That worked pretty well in 08. Equity returns on bonds.
Bruce - Apple is safe but Chipolte, Travel Zoo, Linked In, Amazon are even safer. ;-)
Good article.
I'm with you Bruce, almost all cash now. If we get lucky and are nimble, the trade of the year might happen this week -- or very soon anyway. I'll take the opportunity cost of being ready, if there is one, to also avoid the risk if what I was in gets killed quick.
Heck, if you guys are going to go this far, why not go a little farther and go short?
Short what? Stocks? I'm not sure about that. Bonds are a lousy investment. So stocks are a reasonable alternative. Where is the money going to go?
You can't short Treasuries. It costs a fortune to hold that position. Anyone who has tried, has lost on that trade.
So for me, no shorts.
PS I (almost) always short signal names rather than major market indexes. I stay away from negative carry trades (short bonds).
I have been looking at the short ETFs. I know it is dangerous because it does not seem to take much to pump up the market on low volume. Thanks for your opinion.
That was just mean.
Remember the TARP!
The President is a Chicago Politician. Threats, intimidation, dirty tricks and back room deals. Politics the old fashioned way.
If they do not get a deal done, you may have to practice the old duck and cover for a nuclear blast. When you see the flash, duck under your school desk, curl up in a ball, put your head between your legs and kiss your sweet a-s goodbye.
This would not be a black swan since it is an anticipated yet lower probability outcome. It would simply be a mushroom cloud.
Personally I'll put a dollar on a deal getting done. Stakes are too high.
Oh please Obama is such a compromiser and caver, everyone knows it, so he will cave to whatever Wall Street wants, just like W did...shoot Ws Sec of Treasury Paulson was so desperate to get TARP passed he got on his knees to Pelosi and begged, while they also told Congress in private that people pitchforks would be coming for them if they did not pass TARP.
The president that signed TARP is a Texas politician. Politics the old fashioned way still applies though. Yes, a deal will get done, but it will be a short-term deal and we'll have to go through this same craptastic show again soon.
It's all a farce anyway. We're running a one trillion dollar deficit YOY and they're bickering over cutting three trillion over the next ten years. Well, this is first grade arithmetic, and will result in an additional seven trillion in debt. Of course, these simple numbers ignore the fact that our deficit is growing ever faster year after year. Dog and pony show - divide and conquer.
IS, I believe our deficit is more like $2 trillion.
"They will drop the US by year end (or they have no balls). "
They have no balls.
I would have said the same thing up until very recently. However, neither S&P nor Moody's is threatening to take U.S. debt to sub-investment grade. They're just threatening to shave a little serif off the last "A" of AAASuper++.
Both rating agencies are still stinging from their humiliation in the mortgage-derivative debacle, not to mention numerous ongoing class-action suits. My guess is Bruce is right here, and while S&P may not find a full pair of gorilla juevos, they may just get a little sack on to prove that someday, somehow they will really mean business.
The catch is that even a minimal downgrade will probably cost the Treasury complex 50 to 70 bps. That will translate to maybe an additional $300 billion per year in debt service costs, even if they don't take the ceiling to $15 trillion plus. This game can't go on too much longer; I give it another two years at best.
the only thing about the "smart money" anyone has to know is that the "smart money" does not broadcast what they are doing in mainstream media ... the kabuki theater money does.
Good article and thank you.
I am also hoarding cash, scared to buy anything. Same as the summer of 2008. By the next summer I was on my way to seeing many of my resource plays at or on the way to tenfold returns.
Cash will be king for a brief while once again some day soon.
smart money left wall street long ago.
it's at Mulligan bank now.
...therefore it's all in gold, eh Rearden?
I went to the grocery store tonight. I try to watch foods where they cannot screw with the box contents too much like cereal. Cereal has all sorts of prices to try to fool people not paying attention - like most of America.
The stuff that has stayed more uniform is: PopTarts have gone from $2.00 to $2.18 to $2.25. Red Baron's 2-pack of personal pizzas went from $2.88 to $3.00 to $3.18. Milk is way up.
Must be the Milk and Pop Tart speculators.
Hoping for a 14th ammendmant solution............
http://slatest.slate.com/posts/2011/07/24/congress_scrambles_for_debt_plan_ahead_of_opening_markets.html?from=rss/&wpisrc=newsletter_slatest
Stay with pseudo-non-economics, dipshit.