Barack Is Back: The 2012 Season Of The Fiscal Cliff Soap Opera Is Finally Concluding

Tyler Durden's picture

While the market will look with some last trace of hope to Obama's return from Hawaii to D.C. today, the reality is that even the mainstream media, which had so far gotten everything about the cliff spectacularly wrong (proving that sample polling and actual "predicting" are two very different things), is waking up and smelling the coffee. As Politico reports, "nearly all the major players in the fiscal cliff negotiations are starting to agree on one thing: A deal is virtually impossible before the New Year. Unlike the bank bailout in 2008, the tax deal in 2010 and the debt ceiling in 2011, the Senate almost certainly won’t swoop in and help sidestep a potential economic calamity, senior officials in both parties predicted on Wednesday. Hopes of a grand-bargain — to shave trillions of dollars off the deficit by cutting entitlement programs and raising revenue — are shattered. House Republicans already failed to pass their “Plan B” proposal. And now aides and senators say the White House’s smaller, fall-back plan floated last week is a non-starter among Republicans in Senate — much less the House. On top of that, the Treasury Department announced Wednesday that the nation would hit the debt limit on Dec. 31, and would then have to take “extraordinary measures” to avoid exhausting the government’s borrowing limit in the New Year."

Which means Obama must be particularly angry: his return to DC has nothing to do with negotiations, and everything to do with optics, and giving the popular impression that he is hard at leadership work. And what is supremely ironic is that suddenly everyone wants to go over the cliff: a move which incidentally is critically needed in a country which needs to apply some brakes to its runaway spending, where not even the mandatory expenditures (excluding military) could be covered in their entirety by government rax receipts.

Of course, all of this does not matter to the market which, just like the broader media, is incapable of rational thought, and especially not of forecasting, and will be grasping at straws onto any flashing red headline promising a deal is imminent in the 3 remaining trading days of 2012. In the meantime, instead of selling, traders will continue buying near-term puts, and sending the VIX ever higher because, as we noted last week, the fear is that once one starts selling, everyone starts selling, and nobody knows just how far the selling goes in a market as illiquid and broken as this one.

In this regard, watch out around 2:30 pm Eastern when House Republicans will hold a conference call to discuss next steps in the fiscal cliff stalemate. There will be many market moving headlines then.

In terms of actuall irrelevant newsflow, Italy sold some €11.75 billion in Bonds and Bills at a slighlty higher yield in its first debt auction to be settled in 2013. The treasury issued the targeted 8.5 billion euros of six-month bills, paying a yield of 0.949 percent, slightly up from 0.919 percent at a similar auction one month ago. Rome also sold 3.25 billion euros of two-year zero-coupon bonds at a yield of 1.884 percent, down from 1.923 percent in November. The tremors sent the yield on the benchmark 10 year BTP to a 10 day high. Is this merely the precursor of Italy taking the center bond stage in Europe in 2013: sit back in your easy chair and find out very soon.

Elsewhere, the Shanghai Composite did not share the enthusiasm of the Nikkei which is following the plunging Yen ever higher (but remaining flat in dollar terms), and posted its first red close in days, closing 0.6% lower as it flirts with the unchanged for the year level.

In far more important news out of China, we learned that the country plans to increase its budget deficit by a whopping 50% to 1.2 trillion yuan ($192b) in 2013, including sale of 350b yuan of bonds to fund local governments, a person familiar with matter tells Bloomberg News. Central government deficit is budgeted at 850 billion yuan, according to the person. Govt targets about 8% trade growth, down from this year’s 10% goal. So is China now becoming the US and joining every other country in the world in posting a whopping budget deficit? With all signs pointing to yes, one wonders: who in this world has a budget surplus left?

Yet all the above news is as always irrelevant: the only thing that matters is how the market, and the permawrong pundits spin any word coming out of Obama and Boehner, and how it digests the realization that it is increasingly likely that nothing at all will happen - as we have been saying for over 2 months - until the actual debt ceiling D-day deadline, some time in March.

More from DB's Jim Reid

Just five days to go until the year-end and the moment in which the US will reach its $16.4 trillion debt ceiling. According to a written warning from Tim Geithner to the Congress that was released after US market close overnight, the government will hit the debt ceiling this coming Monday and the Treasury will soon begin to take a series of “extraordinary measures” to create $200bn in debt ceiling headroom. According to CNN such measures include suspending the reinvestment of federal workers’ retirement account contributions in short-term government bonds. The headroom aims to buy the government approximately two months of time before it faces “default on its legal obligations” unless the ceiling is raised prior to that.

To briefly summarise the fiscal cliff discourse over the last week or so, we’ve gone from a “grand bargain” including a proposed extension of the debt ceiling debate for two more years, to Boehner’s Plan B which was abandoned before a House vote, followed by Obama’s fallback plan, and now reports of Senate Majority Leader Harry Reid’s so-called Plan C.

Reid’s plan, which is being described as a “stop-gap” measure, aims to extend tax rates for incomes up to $250k, limits tax deductions, sets the dividend/capital gains tax rate at 20% and delay across-the-board spending cuts until early in the New Year when Congress will again need to negotiate an increase in the debt ceiling (NY Times). It comes after Boehner insisted on Wednesday that “lines of communication remain open” but held firm that the Senate must make the next move.

So with the Senate reconvening today and President Obama returning to Washington from his Christmas vacation in Hawaii, all eyes will be on whether Harry Reid can broker a deal with the GOP to pass last-minute legislation that could then be brought to the House later in the week. House leaders have told lawmakers that they would receive a 48-hour notice before being called back to Washington. According to the NY Times, House leaders haven’t yet given that notice and are still discussing the schedule, so as we stand it appears that the earliest the House could reconvene would be Saturday if the 48-hour notice stands to be true. On that note, DB’s Head of Government Affairs, Frank Kelly, is hosting a daily conference call this week providing updates on the Fiscal Cliff. Details are provided at the end of today’s EMR for those interested.

Turning to markets now and the S&P 500 closed 0.48% lower yesterday led by Retailers (-1.27%) on reports of sluggish holiday season sales. The WSJ reported that US holiday retail sales grew at 0.7%yoy, the weakest pace since 2008, citing data from Mastercard. However, CNBC noted that the survey period included the week of Hurricane Sandy which explains some of the weakness in sales. In other data, the Case-Shiller October reading confirmed the continuing upward trend in house prices with the 20-city index up 0.66% mom (vs 0.48% expected) but this positive print was largely outweighed by the concerns over the looming fiscal cliff deadline. The VIX jumped another 4.8% on Wednesday to close at a 5-month high, bringing the total rise over the last 5 sessions to 25%.

As a reflection of the risk-off sentiment, 10yr UST yields edged 2bps lower to 1.751% while Gold rose marginally by 0.1% for its fourth gain in as many sessions.

In overnight markets, most Asian bourses are trading higher led by gains on the Nikkei (+1.0%) and Hang Seng (+0.42%). In Japan, Mr. Abe officially took office as the PM on Wednesday and was quick to reiterate his policy of pushing for “bold monetary easing” and “flexible” fiscal policy. Abe also named key members of his cabinet which included Taro Aso as finance minister. As Prime Minister in 2008-2009, Aso oversaw a JPY14 trillion stimulus package which was the largest Japanese spending plan on record (Nikkei). The JPY continued to slide against major currencies on Wednesday. USDJPY gained 1% on Wednesday and is consolidating at 85.80 overnight, its highest level since September 2010.

The other big mover of late in Asian markets has been onshore Chinese equities which have rallied 13% since the multi-year trough reached on 3rd December, or approximately two weeks after China’s new leaders were appointed. Following solid gains over Christmas, the Shanghai Composite has managed to claw back into positive territory for the year-to-date (+0.7%) although it still remains the worst-performing major equity index in Asia.

In European headlines, caretaker Italian PM Monti tweeted on Christmas night that “Together we have saved Italy from disaster. Now we have to renew politics…Let rise to politics!” which some saw as a strong indication of Monti’s intention to run in the next elections. Monti also published his pro-European political manifesto, titled “Change Italy. Reform Europe”, which drew endorsements from a number of centrist parties including Pier Ferdinando Casini’s Catholic UDC. According to the FT, Monti will meet with prospective coalition partners on Thursday to discuss strategy and candidate lists amidst reports of a likely Centrist-Democrats coalition heading into next year’s election (FT).

Looking at the day ahead, major European markets will reopen today after the Christmas/Boxing Day break. In Europe, the data flow will remain thin with French jobseekers and Italian business confidence the main highlights. In the US, the House Republicans will hold a conference call at 2:30pm USEST to discuss next steps in the fiscal cliff stalemate. In terms of US data, consumer confidence, jobless claims and new home sales are the major data points – although the next few days of data will likely be overshadowed by developments in Washington.

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GetZeeGold's picture



Cool...the end game approaches. Been waiting for this for a while.


Let's do this thing already.


Boehner has almost made up his mind.....almost.

Looney's picture

 ...and in other news… Tea killings in India… Shouldn't we preempt the same thing here and start ratcheting up TEA CONTROL? ;-)


GetZeeGold's picture



We must ban all high capacity tea kettles immediately.....that and anything that is hot that could warm up the tea kettles.


If we can't do that....we should tax the snark out of them.

bloostar's picture

I'll just turn up my fridge freezer to compensate.. No way you're getting my kettle, tea kettle especially.

ziggy59's picture

Is Tiny Tim going to haveto sell more paper gold so that his asian friends can buy more actual gold at after the Christmas sale?
What measures? Doesnt congress have a say in the publicly owned Treasury, or like the FED, privately owned, and and they do WTF they want whenever?

GetZeeGold's picture



Skipping entitlements and going straight to gold seems a little cocky.


But if they think they can pull if off.....what the hell.

eclectic syncretist's picture

What's astonishing is when you realize how few people out there realize that the credo of "getting something for nothing" was purposefully designed and implemented by our politicians in cahorts with banksters when they created the Federal Reserve to issue debt (and convince us that it was really money) from nothing.  They wanted to get something for nothing for themselves, and so they have for 100 years now.  But their parasitic and degradative system is coming under increasing stress as it is by design unsustainable, and the answer, as always up until the end, is simply going to be parasitize harder (raise taxes) so that the politicians and banksters can continue to skim the highest standard of living for nothing of value in return.  In reality, they are a far greater drag on our economy than the pittance they have to toss to the unemployed to maintain their status quo.

Mr. Hudson's picture

: "they created the Federal Reserve to issue debt (and convince us that it was really money) from nothing"

Why do people keep saying that money is created "from nothing"? It is created from "debt". This debt is an obligation on Americans that will not go away. The Federal Reserve "holds the note", which means they have the authority to collect on the debt whenever they want to. The Fed does what the Wall Street firms do: make money on other people's labor.

insanelysane's picture

And we finally know why the Repubs turned on Bonehead.  They found out that the debt limit was going to be reached now instead of in March like the MSM had been saying.  Let the games begin.  Can-kicking games of course, we're still 2 years away from really playing for keeps.

Bindar Dundat's picture

Obama singing at work December 31


Hi Ho , Hi Ho

It's off the cliff we go

Hi Ho Hi Ho

If we sit tight

We'll build the fright

And than off the cliff REPUBS will go

Hi Ho Hi Ho, Hi Ho......




brewing's picture

does anyone really care...

youngman's picture

Press conference in 5-4-3-2-1-------------

Mr. Hudson's picture

: "...a move which incidentally is critically needed in a country which needs to apply some brakes to its runaway spending, where not even the mandatory expenditures (excluding military) could not be covered in their entirety by government rax receipts."

What are "rax receipts"? Are those taxes paid to rats?

Buckaroo Banzai's picture

That's where my taxes go. It's spelled "'rats", though. The apostrophe must be included, for accuracy.

insanelysane's picture

I think it is a misspelling and should have been rex receipts as in taxes paid to King Barack.

Winston Churchill's picture

Mohamed comes to the mountain.

jcaz's picture

Wow- Barry is gonna miss a couple of tee times over this.......  Impressive indeed......

Debeachesand Jerseyshores's picture

He is pissed because he had great tee times for the remain of his "Holiday Vacation".

ArkansasAngie's picture

While I hope we do go off the cliff word out of the IRS and other govt agencies is that they will NOT adhere to the tax increases or cuts. They've decided to NOT follow the law. So ... Other than some showcase dog and pony BS designed for the MSM nothing is going to happen

BidnessMan's picture

That should not be a surprise.  Has been standard operating procedure for years for government agencies to ignore laws and regulations that don't come with implementation funding.  And regulation and prosecution has been optional since at least the Clinton years.  CFTC ignores egregious commodity manipulation, SEC ignored Madoff Ponzi, LIBOR, and lots else to protect their revolving door to Wall Street employment, prosecutors don't bother to prosecute Too Big To Jail bankers and anyone else they like.  30,000+ laws and regulations came into effect on January 1, 2012 - just more to pile on when the bureaucracy decides to go after someone.  It is now completely arbitrary and capricious as to which laws and regulations get enforced.  Whatever interests a liberal GS15 career civil servant is what drives the fickle finger of fate.  The political appointees will be gone soon enough and can be stalled, ignored, and waited out.  Will Rogers was right - thank goodness we don't get all the government we pay for.

Cult of Criminality's picture

Send him back please we do not want him here.Put him on a boat with piers and send them both out to sea.Like maybe sea of Japan.

q99x2's picture

Watch him closely. This is the time of year he typically passes laws to kill us. That son of a bitch is up to something no good.

Buckaroo Banzai's picture

That evil motherfucker is up to no good all day, every day, 24/7/365.

Mr. Hudson's picture

President Obama signed the National Defense Authorization Act (NDAA) into law on December 31st. That is where the military can pick anybody up for any reason, and detain them indefinitely without a charge or a trial. What surprise does Obama have in store for us this December 31st?  The FEMA Camp Security Act of 2012?

DosZap's picture

President Obama signed the National Defense Authorization Act (NDAA) into law on December 31st. That is where the military can pick anybody up for any reason, and detain them indefinitely without a charge or a trial. What surprise does Obama have in store for us this December 31st? The FEMA Camp Security Act of 2012?

This is kid stuff (fiscal cliff,dog n pony show,they make me PUKE),giving HIM unlimited control over the Debt ceiling raises, is like giving a Pedophile a roomful of kids to play with unsupervised.........

gkumar's picture

Why should one sell now when by March there is going to be a solution? Market can start rally in anticipation of that

dick cheneys ghost's picture

Time to close the Empire. The Banksters won as the entire world is loaded with debt and our currency is worthless.

spentCartridge's picture

Their currency is worthless

One American dollar = 371.25 grains of .999 silver

One federal reserve debt note = piece of paper




Mr. Hudson's picture

If the fiscal cliff happens, what will happen to the dollar? To the price of gold? Oil? Food? Supposedly, the fiscal cliff will begin a serious recession (depression), which means that money will be tight.  If so, doesn’t the dollar become the safe haven to which everybody runs to?

Shizzmoney's picture

the fear is that once one starts selling, everyone starts selling

We can only hope

Silverhog's picture

May 2013 bring the bankers much hardship and incurable diseases.  

Zer0head's picture

his return to DC has nothing to do with negotiations, and everything to do with optics, or perhaps the prospect of spending 10 more days with the Mrs


Pants McPants's picture

(yawnnn) ... what does this have to do with RGIII and DC's Redskins push for the playoffs, hmm? 

I'm sorta kidding, as I'm certain many many people care more about NFL playoffs than a few measly trillions added to future obligations.

MyBrothersKeeper's picture

I still very much believe that a "deal" gets done.  The govt has spent the last 12 months supressing volatility, fudging economic data etc to keep the sheep happy.  In the end they will do so again.  They just need this drama so that they can short the market for the dip and then go long again.

As far as withholding taxes goes, the government can, under law, stay at current withholdings as long as a deal is perceived to be immenent....thus avoiding the disruption of temporary tax hikes.

Obama dosen't care about any of this.  He wants carte blanch over the debt ceiling.  He said he would not allow spending cuts to be used for leverage on raising the debt ceiling.  It will be interesting how he manages that.  My guess is another impasse but this time he will use that clause to raise the debt ceiling on his own...the one Clinton urged him to use last August.

It still strikes me as funny that Obama talks about bringing down deficit/national debt and how paramount it is to our future, while almost in the same breath talks about needing the ability to raise the debt ceiling unilaterally.  It would be like me saying my sole purpose is to pay down my credit card debt but i'm going to need an unlimited credit limit to get it done. Is it possible that people are really that dumb as to believe such nonsense? And why isn't anyone asking him this question?

mtomato2's picture

It is not only "possible," but I have determined that it is certain.

People. are. that. stupid.

youngman's picture

We are all talking about the "Fiscal Cliff"....but come January can add in Obamacare taxes...and its rules and regulations...whatever they are and we do not know exactly yet.....

You can add in Dodd Frank rules and regulations...and again we do not know what they are either

EPA new rules and regulations

State and City new rules and regulations and taxes

Basel III

Volker rules.....

The Debt ceiling....we do know what that is...

There are many headwinds in thing for certain..there will be more people on welfare..its free you know..and class warfare is now standard issue..ethnic too...

DosZap's picture thing for certain..there will be more people on welfare..its free you know..and class warfare is now standard issue..ethnic too...


Not only this, everyone is going to be paying more taxes of some kind, we just haven't heard about it yet.It's always in the "Details".

John Law Lives's picture

Here is more good news for Obumble to address:


Social Security Ran $47.8B Deficit in FY 2012; Disabled Workers Hit New Record in December: 8,827,795

By Terence P. Jeffrey

Fire up the printing presses, Chairsatan.



Northeaster's picture

Happy New Year! Now here's your $4,000 AMT!

d edwards's picture

What BS! Owebama will waste millions flying back to DC (Air Force 1 costs $180k an hour) roll up his sleeves, issue a stern bloviation, show all his syncophants how "he's working hard for the American people" hop on the jet and waste millions flying back.

I repeat: bullshit.

Zap Powerz's picture

Mother Nature, how long shall you allow this kind of stupid to exist?

Does not this kind of stupidity offend thee?  How can you allow such stupidity to violate the perfect balance that only you can achieve?

Please, Mother Nature, restore balance, destroy the stupid, weak and inferior in a beautiful, magnificent way that only you can do!

BidnessMan's picture

George Carlin was right.  Mother Nature will shake us off like a case of fleas.  My guess is a SuperBug pandemic, but solar flares zapping most of the world's transformers would quickly do the trick too.    

odatruf's picture

Wrong, wrong wrong,Tyler! Why you repeat the shit from Politico (and even author yourself) that parrots the below nonsense is beyond me:

"Hopes of a grand-bargain — to shave trillions of dollars off the deficit by cutting entitlement programs and raising revenue — are shattered."

This and other sites like it make often use of the Willie E. Coyote imagery when he is running in place mid air not knowing he has gone off a cliff.  That's the wrong comparison.  The real one is Tom or Jerry banging their head against a rock or a wall when they just can't take the stupid any longer.

The so called fiscal cliff raises taxes and cuts spending. That's why people want to avoid it: it is too responsible for their taste!  Any grand bargain is going to do less, more slowly.

I am the only one who understands this? Am I fucking crazy? Is everyone else so fluent in Orwellian Double Speak that they believe in it?

I need some meds.  Stat!!