Sequestration On, Risk Off

Tyler Durden's picture


The push higher in stocks today peaked as the voting began and now as we receive the 'shocking news' that:

  • Senate Lacks Votes to Advance Democratic Sequestration Plan

We see the equity market fading fast - reverting to VWAP first of course. Whocouldanode? What happens next is anyone's guess but FX and bonds sure aren't buying it.


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Thu, 02/28/2013 - 16:22 | 3287307 ejmoosa
ejmoosa's picture

Imagine the market rally if we could shut the Federal Government down for just one year.



Thu, 02/28/2013 - 16:38 | 3287410 fomcy
fomcy's picture

RISK ON this Morning - GOLD down, Risk OFF afternoon - GOLD down again?

What is GOLD then? Some hated Asset which is sold on any accasion?


Thu, 02/28/2013 - 16:47 | 3287440 Dr Paul Krugman
Dr Paul Krugman's picture

Inflation is low and gold bugs have been holding their precious expecting, any day now, that inflation is going to jet off like a rocket and we will be the new Weimar Republic.  Little known fact - except to the historically knowledgeable - it wasn't the Weimar Republic that ushered in the Nazi Regime, but Heinrich Bruning.

If we make the cuts the GOP wants, then we will slide into deflation and the depression will get worse.

Thu, 02/28/2013 - 16:48 | 3287465 LawsofPhysics
LawsofPhysics's picture

What are food and fuel costs in fiat relative to 5, 10, 15 years ago?  What's the value of my physical PM holdings relative to 5, 10, 15 years ago?  Funny how people will still very willingly provide me with the fruits of their labor for that "relic".

Thu, 02/28/2013 - 16:56 | 3287511 Dr Paul Krugman
Dr Paul Krugman's picture

There has been a lot of fear in the market since 9/11 and so there has been a lot of demand for gold, considering it is the fear trade.

Also you are forgetting that GDP has been rising steadily through that time frame, so people have been living a lot better during this time period.

Thu, 02/28/2013 - 17:00 | 3287538 pods
pods's picture

1.  GDP is not measured in an absolute term, but a relative one ($).

2.  Somehow we count Government spending as a PLUS to GDP.  Where does government get money?  Oh, they print it?  See 1 above.

Thanks for playing Paul.  


Thu, 02/28/2013 - 17:55 | 3287778 Money 4 Nothing
Money 4 Nothing's picture

because we have to run deficits to print money.

Thu, 02/28/2013 - 21:03 | 3288476 OldE_Ant
OldE_Ant's picture

Stop thinking in terms of USD!!!

GDP in terms of Gold rolled in 2000 and continues to fall, S&P as well.  GDP in real terms hasn't actually grown in any sustained fashion relative to real measures of value for at least a decade.

I've been looking for same chart priced in Silver, Oil and Natural gas as well as a reasonable basket of food prices but can make inferences from other things priced in gold. 

Food prices in gold have fallen 50% over past 20-30 years so perhaps we actually have improved food production.  (Quality suffering though imo)

And FYI college education priced in Gold is back to about the norm.

When you stop thinking in FIAT and start thinking about value of something real and imporant vs. something else real and important then and ONLY then can you make reasonable deductions about 'the economy'.    Everyone complains Gold is in a bubble.  Actually Gold has finally caught up with all the other asset bubbles.   If they deflate, gold will deflate with them.  If they inflate Gold will inflate with them.    Based on the above charts I don't see that the price of Gold is low relative to other measures (i.e. a bargain)  It was in the 90's, not now.   Silver on the other hand I think IS undervalued relative to historical norms and relative production/consumption basis.  In the 90's was waaaay under valued.

Hence I conclude not just from the above but other analysis that we have reached peak growth around 2000 (relative to real measures) and without some serious game changer (in energy or other real goods) as more people are added on this planet they will have 'less' real need goods of value than those who came before them for the same amount of hours worked.   Which means in real terms deflation is going on.   So far it hasn't hit the average AmeriKans waistline though.

Thu, 02/28/2013 - 17:03 | 3287547 akak
akak's picture

Our worst fears are actually the result of the crimes and depredations committed against us by our own sociopathic and increasingly authoritarian rulers in Washington, and our anger the direct product of the servile and corrupt cheerleading of those abuses of power by spineless and amoral lackies and Quislings such as yourself.

Thu, 02/28/2013 - 20:07 | 3288274 espirit
espirit's picture

My worst fear is running out of boolits.  Guess I'll save the last one for myself.

Thu, 02/28/2013 - 20:55 | 3288446 akak
akak's picture

Why not save the first one for yourself instead?

Thu, 02/28/2013 - 17:04 | 3287561 LawsofPhysics
LawsofPhysics's picture

You didn't answer the question regarding the purchasing power of PM's.  Nor did you answer the issue of the cost of essential commodities over the same time period.  Living better?  So you want to ignore what the average wage has been as well?  This is how we give out nobels now, by ignoring things?  People are living better?  So now living better means even fewer people can afford healthcare and college? Must be my lying eyes again.  Halarious, a troll of the highest caliber.

Thu, 02/28/2013 - 16:54 | 3287493 Vashta Nerada
Vashta Nerada's picture

Brilliant.  So, you are saying that the only way to economic paradise is to keep spending 50% more than we take in, or raise taxes? 

I think I will go tell my boss that my 6000 square foot house, three SUV payments, plus student loans and credit card debt are costing more than I make, and it is his responsibility to increase my pay so that I can succeed.

Thu, 02/28/2013 - 16:54 | 3287496 fomcy
fomcy's picture

Dude, GOLD preforming well in both deflation and inflation invironment. In the great Depression

Gold stocks trippled while general stock market loss 40%+..

Thu, 02/28/2013 - 16:57 | 3287518 Dr Paul Krugman
Dr Paul Krugman's picture

That is because it is the fear trade.

Thu, 02/28/2013 - 17:02 | 3287551 pods
pods's picture

Fear trade meaning you moneychangers will FEAR for your life if people see the value of gold while holding a handful of colored pieces of linen.


Thu, 02/28/2013 - 17:27 | 3287520 fuu
fuu's picture

C'mon Dr. Redneck Fischer for Prosperity you can do better than that.

Thu, 02/28/2013 - 17:08 | 3287577 ejmoosa
ejmoosa's picture

You foolishly compute inflation based upon the planet Earth's relative position around the Sun. 

There is nothing magical about the time frame of 1 year, other than it marks the copletion of another lap.

But rest assured, an ounce of gold or silver will have gained a greater amount of purchasing power than an ounce of $100 bills will the next time we have a real balanced budget.


Thu, 02/28/2013 - 17:13 | 3287605 EmmittFitzhume
EmmittFitzhume's picture

Yeah and he was some idiot ivy league professor like you!

Thu, 02/28/2013 - 17:19 | 3287622 rubearish10
rubearish10's picture

blurred vision.

Thu, 02/28/2013 - 19:09 | 3288045 Stoploss
Stoploss's picture

Retirement Off!!

Thu, 02/28/2013 - 16:38 | 3287413 Dr Paul Krugman
Dr Paul Krugman's picture

Imagine the hunger if we shut the Federal Government down or just one year.

Thu, 02/28/2013 - 16:46 | 3287451 cifo
cifo's picture

I can't imagine. Care to describe it?

Thu, 02/28/2013 - 16:52 | 3287487 Dr Paul Krugman
Dr Paul Krugman's picture

Millions of jobs would be lost and their revenue would dry up, the productivity from the services provided from the government would crush GDP; we would be thrown into total chaos as there would be no police officers to fight crime, no fire fighters to extinguish burning buildings, no road crews to fix the streets.  The U.S.A would collapse.

Thu, 02/28/2013 - 16:55 | 3287500 Vashta Nerada
Vashta Nerada's picture

Keynesianism would collapse, which is what you really fear.

Thu, 02/28/2013 - 16:55 | 3287507 knukles
knukles's picture


Thu, 02/28/2013 - 17:10 | 3287592 ejmoosa
ejmoosa's picture

Millions of government jobs will be lost, eliminating those ineffective, productiviity draining positions, leaving the country in a stronger position.  Just the mere halt in regulatory growth will be enough to spur the real US economy into a sustainable recovery.

Thu, 02/28/2013 - 17:15 | 3287604 cifo
cifo's picture

It sounds like pre-1900, but with iPhones.

Hunger only for those depending on govt.

I would be left with more money, since I won't be forced to pay any taxes. I don't mind politicians losing their jobs.


Thu, 02/28/2013 - 17:26 | 3287638 Vashta Nerada
Vashta Nerada's picture

Government dependents could use some hunger - go look around at a Walmart on the first of the month.

Thu, 02/28/2013 - 17:29 | 3287649 Zap Powerz
Zap Powerz's picture

Mr. Krugman,

With all due respect, there would be plenty of people to eat.

Thu, 02/28/2013 - 17:40 | 3287696 imapopulistnow
imapopulistnow's picture

Regarding sequestration, a couple of observations from someone who worked in government budget and finance for 30 years.

1) Some portion of the budget cut was covered in Q4 of federal fiscal year 2012 by spending surplus budget authority in anticipation of the fiscal cliff.  (see ZH chart showing positive government contribution to GDP in Q4 2012)

2) Likewise some portion of the budget cut will be covered by the surplus budget authority that otherwise would have been available at the end of the current fiscal year.

3) Some portion of the budget cut has already been made by cautious managers in the first 5 months of the current FFY. (again see link above)

4) Some portion of the budget cut will come from appropriations and accounts that have no real dollar impact on spending levels of respective agencies.  Due to the vagaries of governmental budget processes, there are more of these than you would think.

There almost always are budget authority surpluses within various governmental accounts.  Some more than others obviously and an across the board cut will cause problems.  However with flexibility,  the percentage reductions will be far less painful than many think.

As a general observation, government agency budget cuts of 2% to 3% can be made without much real pain.  Since, unlike state and local governments, the federal government has not really had to go through the exercise of cutting the budget excesses that "naturally" grow over time, they might actually be able to cut an even higher percentage before any real economic pain is felt.

I agree that, but for deficit spending and QE, the economy is in a depression.  If it slides back to negative growth in the next quarter or two, sequestration will have some effect, but the real culprits will more likely be elimination of the payroll tax credit ($120 billion) and higher fuel prices ($! billion per penny increase).

Thu, 02/28/2013 - 17:42 | 3287709 imapopulistnow
imapopulistnow's picture

"positive government contribution to GDP in Q3 2012, which is Q4 of FFY 2012."

Thu, 02/28/2013 - 18:10 | 3287844 Wile-E-Coyote
Wile-E-Coyote's picture

Let it collapse so we can hang every banker and economist by their bollocks by piano wire from the nearest street light.

Thu, 02/28/2013 - 19:00 | 3288006 rotagen
rotagen's picture

Yeah right, we need a babysitter because people are too violent and stupid to take care of themselves, speak for yourself.

Thu, 02/28/2013 - 16:51 | 3287480 McMolotov
McMolotov's picture

Fat bureaucrats and parasites cut off from mooching. Senators and representatives forced to get real jobs. No dronings of brown people. Citizens keeping the money they earn.

Oh, the humanity.

Thu, 02/28/2013 - 16:56 | 3287512 knukles
knukles's picture

I get shivers just thinkin' of it...

Thu, 02/28/2013 - 16:52 | 3287488 LawsofPhysics
LawsofPhysics's picture

God forbid individuals provide for themselves.  Come to think of it, you are a rather plump motherfucker, roasted pig anyone?

Thu, 02/28/2013 - 16:42 | 3287433 Being Free
Being Free's picture

OT? - The Fed's March purchase operations schedule is out...another $45B in treasury securities...

Fuck you Bernanke.

Thu, 02/28/2013 - 16:47 | 3287463 Vashta Nerada
Vashta Nerada's picture

I would be equally happy if they shut down 5 or so federal departments permanently. 

Thu, 02/28/2013 - 16:24 | 3287311 TruthInSunshine
TruthInSunshine's picture

That 1/3 of 1% of the Annual Federal Budget (sequestration amount as implemented upon timeline) will be the DEATH OF US ALL!


HOLD ME, HANK "Look you Congressional Puppets, I've Got 200 Million in Tax Exempt Stock Options Vested, so Pass TARP/TALF/QE4ever-POMO Now Bitchez" PAULSON!!!!

Thu, 02/28/2013 - 16:24 | 3287324 Edward Fiatski
Edward Fiatski's picture

Dude, we're operating here at so low margins, that even the 10-yr UST at 1.889% is Too Damn High. :P

Thu, 02/28/2013 - 16:26 | 3287341 francis_sawyer
francis_sawyer's picture

Hank the TANK bitchez!

Thu, 02/28/2013 - 16:26 | 3287342 francis_sawyer
francis_sawyer's picture

But NOBODY beats 'Frank the Tank'...

Thu, 02/28/2013 - 16:34 | 3287392 francis_sawyer
francis_sawyer's picture

[Voiceover.] Dear Mitch, if you're holding this letter you already know. The house has been boarded up. The doors. The windows. Everything. We're at the Comfort Inn. Room 112. I love you. Frank

You know I was thinking we could go back home...have some dinner and pop in the Sisqo Weren't thinking that? Ok.

[Sitting naked in the car.] Hey honey! Do you think KFC's still open?

[Funnels a beer.] Fill it up again! Fill it up again! Once it hits your lips, it's so good!



Thu, 02/28/2013 - 16:43 | 3287437 TruthInSunshine
Thu, 02/28/2013 - 16:45 | 3287442 francis_sawyer
francis_sawyer's picture

It's UNIMAGINABLE that there's yet to be a "Frank the Tank" username/avatar on ZH...

Thu, 02/28/2013 - 16:53 | 3287491 McMolotov
McMolotov's picture

I'm surprised there's no "Bernank the Tank."

Thu, 02/28/2013 - 17:23 | 3287629 francis_sawyer
francis_sawyer's picture

INSPIRED ENTRY!... But ~ I'd go with "Frank the Tank" unless you had a burning passion & desire to become a junk magnet...

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