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Someone Is Getting Very Nervous
A look at the stocks surge today and one would get the impression that not only should the government shutdown be permanent (closing the Fed would have a vastly different result on the S&P), but that the debt ceiling is completely irrelevant and immaterial for risk assets. One would get a far different impression by looking at today's just concluded 4-Week Bill auction. Today's outlier rate on the just priced $35 billion in 4-week bills can be seen quite dramatically on the chart below, and is evidence that someone (or someones) is getting quite nervous ahead of the events in the next few weeks.
What is going on here and why the spike? Recall what we said a week ago in "Here Is How To Trade The Debt Ceiling Showdown."
... there is a simple pair trade for those who would like to position for a contentious debt ceiling fight with an ETA mid-October and skip the bipolar and HFT-dominated equity markets. Recall that in the summer of 2011 when the last big debt ceiling debacle loomed and resulted in a last minute outcome that also led to the downgrade of the US by a rating agency that has since sold out, rates of bills due just before the debt ceiling D-Date soared, while those sufficiently after the ceiling interval tightened. Well, the same trade is just as applicable this time.
Sell October 31 Bills versus 12 Month Bills
Supply dynamics and potential market concerns around a debt ceiling stand-off in Washington should push the 1M1Y bill curve flatter... The October 31 bills are likely the most vulnerable, and should cheapen significantly versus 12 month bills in a protracted fight.
One-month and three month bills are already trading close to zero, having briefly traded negative last week. With bill supply to remain flat heading into the end of October, suggesting that supply should keep bills yields across the curve under pressure. With bill yields largely beholden to supply dynamics, the greatest scope for further compression is in year bills, which are currently trading around 10bp. Given historical relationship between bills yields and bills outstanding, year bills are roughly 3bp rich to supply-implied fair value, while 3-month bills are about 3.5bp rich.
This trade may be difficult to put on in size until after quarter end due to dealers balance sheet constraints. But as noted above, we believe that the market will not begin to fully price the risk to front end bills until about two weeks before the end date. We expect the opportunity to remain available at for the first week of October.
Sure enough, today is the first day of the next quarter (window dressing is over), and the bond market, if not so much the stock market, has finally awakened that the government shutdown is merely an indication of just how contenuous the debt ceiling negotiation very likely ill be, and that it is increasingly likely that the X-Date of October 18 may come and go without a deal, which just may result in a technical default on the nearest maturity Bills.
End result: today's auction was an absolute abortion and absent some deus ex machina agreement between the GOP and Democrats, one can expect the October 31 bills (and others just around them) to continue blowing wider as quietly but confidently those holding the most at risk paper exit stage left.
But that's not all. We also noted the following:
The last go-round, the 1m1y curve flattened to 3bp. Though the curve is just 6bp away from that right now, it is beginning from a starting point that is 10bp flatter than one month prior to the 2011 debt ceiling. The securities that the market viewed as “at risk” traded with yields above year bills, hence our recommendation to sell the October 31 issue rather than the current one month bills.
We think that the curve has scope to flatten to zero, if not further, depending on how close to the wire negotiations come.
As of moments ago, the curve has gone beyond flat and into "further" as the 1M1Y just went negative.
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800,000 workers x $8000 per month = $6,400,000,000.00 in missing cash flow per month. Can't the fed just print that? ;-)
Dafuq. 800 000 government workers earn $96k a year? I would have to call bullshit. If this is really the case... wow.
Average pay of fed.gov.emp was (as of a couple/few years ago) $154,000/year. Look it up. It's one of the reasons many are unhappy about the current state of the union. Local/State not far behind (and in some cases [life guards in Newport Beach, cops in, well, just about anywhere, etc.]).
There are 20-30 million. (Plus countless others in 'the private sector' dependent, ultimately, on government cheese.)
Finally, the last piece of the puzzle: If you work in the real, actual private sector, you make $30,000 year, or less, and are expected to pay for all this.
Do the math and weep.
For real? This is NUTS.... I never thought it was that bad.
Bad, but not that bad ... 2012 data.
http://www.washingtonpost.com/blogs/federal-eye/wp/2013/04/09/despite-salary-rate-freeze-average-federal-salary-rises/
$154k/yr?! I call total bullshit on that number.
From PolitiFact
"According to the Bureau of Economic Analysis, a federal statistics-gathering agency, federal worker compensation in 2009 averaged $123,049, which was double the private-sector average of $61,051. ... However, that figure includes both salary and benefits"
Salary alone in 2012 has had varying stats, but $80K+ seems to be the number.
Our daughter's bf makes some $80k less than a handful of years out of college. But, he is "non-essential", so it may be some time again before he gets back on the money train.
it's only $80k
relax (of course that excludes gold plated benefits, retirement 55, indexed pension etc
"relax (of course that excludes gold plated benefits, retirement 55, indexed pension etc"
and the right to abuse power/authority to commit acts of fraud for personal economic gain! How many Fed workers with access to insider information use it to for investments? Then there are the old tools, Kickbacks, bribes, and theft! I am sure the Average Pay for Federal workers exceeds $154K if all of the fraud is included. In the movies secret agents have a license to kill, in the USA Gov't workers have a license to commit fraud!
Not only have govt workers passed up private workers in wages, they also got much more in terms of benefits/pension. Private workers should be earning more than govt workers to offset the rich benefit packages govt workers get.
Re: Can't the fed just print that?
6 billion bucks? A month? I don't think the Fed even measures numbers that small.
"numbers that small" Good laugh.
I understand that without Ben's QE, the banks fold under toxic balance sheets and the USG defaults, and that's the real reason for the program; it's not stimulus--it's life support.
If Ben really wanted ecomonic stimulus, he'd equally distribute that QE to each resident of the country: $85 billion split 330 million ways is about $250/month.
can someone tell me what the information in this article is telling those of us who do not trade the market or buy bonds? tia
Ask yourself why would anyone buy bonds with no, or almost no, returns. Then wait for the light to come on.
Re: Ask yourself why would anyone buy bonds with no, or almost no, returns.
Opportunity?
For what? Only negative rates can make short bonds "worth" more. Even long bonds are near zero historically. Having said that, I feel rates will be kept low while the value of the bond in anything other than $ (i.e. real assets) plunges.
Re; For what? Only negative rates can make short bonds "worth" more.
I was just being snarky. Sorry.
So if I'm following, this would be a bet FOR deflation?
"Ask yourself why would anyone buy bonds with no, or almost no, returns. Then wait for the light to come on."
Because they are exiting other investments that they expect to turn into giant losses. Better to make nothing than to lose a boat load.
Since is extremely short term they are parking for the short term bills to see what happens. If the problem is solved they can just wait out the month and re-invest back into the markets. If they were really worried about a mid to long term bear market they would be buying long term bonds.
So true the old rule, it's not return on investment it's return OF your investment. Why do people think big money pays the Swiss 2% to hold their money.
We have a winner.
I parked half on my investments in bonds two months before Lehman. Back then I made money. I am almost completely out of the market now.
It means the yield curve inverted, something that doesn't happen very often and usually a warning sign to a lot of people. It means it's cheaper to borrow money for 1 year than 1 month or vice versa. Based on the time value of money and the principle of opportunity cost, that shouldn't otherwise happen unless there's something else going on. Like the risk of default (or delay of payment) or there's a high demand for liquidity right now.
You see very inverted short term yield curves in the aftermath of Lehman or when a money market fund breaks the buck.
Thank you
Yes, we needed reminding, + 1 to both of you.
Republicans might be growing a back bone and have a real good plan... fund every agency, except Obamacare.
House Republicans said to offer separate agency budget measures; stopgap measures said to cover spending through December 15
growing backbone and breaking backbone is what this is all about
problem is Barack has backed them into a no win corner
and that might just mean they end up winning
Their 50% of the problem. You been payin attention or what?
Read >
Now the Republicans are still getting blamed for the shut down.
The deal was keep govt. Open and defund obama care.
Govt. Closed and OC is still on the table?
The reverse just happened and it's still the Republicans fault? Really?
If you took the red pill, everything going according to plan.
Is there a website where I can order the red pills from?
I think I need a couple after watching Kitco.
I want to buy into the plan all of a sudden.
Either that or maybe some one could drop by and drive an ice pick into my pre-frontal cortex?
Here, just watch a few of these free movies a day:
TrueWorldHistory.info
again "the problem has always been LIQUIDITY" not debt. hence "equities soar to the moon" along with other liquid assets. if you are in DEBT however in order to drive your liquidity position higher you MUST NOT BORROW. if we look at the historical record since 2008 and QE however a "reflexivity" appears to have taken hold (thanks for the free money loser America!) and a "borrowing binge" took hold in spite of all evidence to the contrary (2008 was caused by a LIQUIDITY shortage...obviously there was no problem with "debt"...we created three trillion of it that was MONETIZED ALONE!...going into 2008. Hence..."QE." the irony that this extinguishment of debt...and that's all QE is..."created more debt" should not be lost (but was almost en toto) on anyone. in other words cash is suddenly a valuable asset (when isn't it...right?) and thus "the market" basically obliterated (by going through the roof) "the cash-less." so today we have "overnight debt" (so called cash or a "risk less asset) being obliterated. again not an expert bu this says to me someone is being forced to sell their DEBT in order to raise CASH in order to settle an "owe-ance." in other words "highly complicated repayment" but repayment none the less. the price on the debt (as defined by the interest rate) still looks "okay" here to me but we could be having some type of "self embargo" as the Government and the Fed "set" prices giving all us here in the cheap seats "what we get" (meaning demand is to be absented.) cash flow itself has tremendous value under this metric however because there still exists actual funding needs that must exist absent the taxpayer. in other words we cannot go forward absent growth even if we had ZERO debts to be paid...amazingly we do have some growth...taxes are being paid...there is a modicum of inflation as well..but neither seems sufficient to "fit the bill." again not an expert but this view goes a long way towards explaining "Detroit being nuked" (financially speaking) as even with interest rates at record lows the "necessary and sufficient economic conditions" still do not exist to, well...pay for everything. as is assumed here "interest rates can rise." another option however is simply default. in other words "payment stops" and a kind of "you owe me-ism" takes hold. not a very efficient way to run an economy (the rule is to lend against GOOD collateral I believe not ALL collateral) but there is an element of "workability" here. we will see. no course correction is on the table that I am aware of. "kicking the can" or "more of the same-ism" still appears to me to be the order of the day. in other words as I invested (counter-cyclical ity means stocks are the bargain and gold is while not foolish insufficient vis a vis the capital needs) so I "invest again" (long treasuries) as the necessary and sufficient condition (recovery) is not meant and "growth" is failed to be restored via a Very Low Rate policy. for the record I was "wrong" in the sense of "tapering" and a "we're better off nuking everyone" (in an economic sense) than allowing the mathematcical or formulaic reality play out. this in fact was played out...the bond market in general was nuked...sure, capital can now be raised (in the case of Verizon "the most ever") but the price for said raisings is now very dear...to the extent that it can be done at all.
Too many words and no formatting. Sorry. And if you are copying from another source, please cite it or include a link to the original.
Hey dude,too much coffie without sleep. make a few paragraph separations.
Are they that broke that they need to save money by screwing government workers?Treasury hard up and going broke with counterfeit currency?
Why not? They have been screwing the private sector employees for a hundred years.
Gold and silver prices must be manipulated by looking at the dump they took today. Stock market up a little. US dollar just hanging in there at 80, waiting for the psycho 79.....this is like watching a scary movie. All the monsters are in D.C.
In other news FB is trading at 50. That is all.
Even the 'Money Masters' are just microbes on a marble hurtling thru space....anything can happen, and most likely will.
We are off the edge of the map and well into the Lands of Unintended Consequences now.
OK, so the Federal Government is shut down. I'm good with that. Now if Obama would just shut up we could all relax.
Can't we just buy out his contract?
Unfortunately he has an iron clad insurance policy that kicks in if he loses his job and you don't want to pay that bill.
Or just trade him to another country like sport teams do with players. Although we would have to trade him to Antarctica since no other nation would take that trade. Let Obama promote Obamacare and other socialist programs to the Penquins!
kenya and indonesia are a good place to start??
Just lock him and The Mooch out of the White Mosque. Send them back to Man's Country and the murder capital of America. Maybe The Mooch can finish his/her (her/his) sex change transformation.
Screwing government workers? Ha, that is a good one. LOL
In other news.........
http://hypervocal.com/news/2013/world-war-ii-veterans-shutdown/
get em, Pops !
I liked the comment that: Would the men who stormed the beaches at Normandy and fought the battle of the Bulge let a sign stop them. Have the guts to do this every time it happens and stand tall.
Could you think of a better script to bring the curtains down than to be able to get people to fight over the blame between the Repulicans and/or the Democrats for ushering the country in to financial ruin?
Just too many things in the October pipeline; no better time to blow it up, if that is indeed what your intent is.
Honker down folks. You've been warned.
A false flag event for the banking drill mid-month? Or, how about the gridex exercise coming up? Or maybe just plain ole default because of failure to raise the debt ceiling.
Just a regular ole buffet of choices....
Just legalize POT and Ecstasy, it will be all good!
They just might do that. The best remedy for patriotism run amok.
Any bad news is good news for Wall Street. Better chance for increase in funny-money printing.
The USA could take over Saudi Arabia in 15 minutes. Problems solved.
Except the House of Saud has taken control of our financial intitutions and banks.
Considering the US can barely handle turd-world countries and the fact that Obama just made the largest arms sale in history to the Saudis, you might want to reconsider.
I wonder if all the sophisticated technology we sell has a backdoor like Microsoft and Apple products? I don't see why not. Pretty much everything today has a computer.
Harry Truman === the buck stops here
Bathhouse Barry ==== all bucks come from me
I wonder if there is some kinde of ideological debating still left in the congress. Or is it just a very disgusting shit show?
They're all like a bunch of fucking two-year olds having a tantrum in the grocery store. The appropriate thing to do is take them out of the store, explain that their behavior is inappropriate, that there will be consequences, and then either go home or wait until they calm down and start acting civilly to return to the store. Unfortunately, the 'media as parent' in this little analogy is just rewarding their bad behavior with a lot of attention, basically legitimizing it and setting us all up for repeated episodes. Little fuckers are going to grow up to be a bunch of narcissistic, self-centered spoiled little brats without any concept of responsibility or self-control.
a belt and a good ass whipping might work better...
Unfortunately these days you'd probably get CPS or whatever your state's equivalent is on you after someone snitches and have your kids taken away by the state to be added to the DynCorp child trafficking racket.
the media's reaction is disappointing at best ... they just seem to be taking sides instead of playing a more mature and independent role ... too much politics, and everybody seems to be entangled one way or the other ... bad for the country!
0% - This is really the key to keeping the interest expense on the deficit manageable....
Shut down... Debt fight... puts the "No way" on the taper... load up on TMV and gold, Bitchez!!
Meanwhile in Japan...
WSJ: Huge spike in dogs biting humans in Fukushima town
How long before zombies start walking around?
Have you seen Congress lately?
If a turd didn't taper,our ass would slam shut!
Merck just fired another 8,500 scientists and researchers I heard on the radio. This just after firing 7,500 of these highly trained scientists recently.
I suspect Merck now 'Sees the Light." You don;t need solid research ..or even real sales...just a good mix of highly paid Wall Street accountants, top notch lobbyists, and Big Buy Backs to prop its stock price and exec compensation.
It's no wonder Yutes don't want to go into chemistry, biology, etc.
How about we stop the 4,000,000/year permanent and long-term immigrants?
Are you f'kin nuts, at $750K in debt per head plus their Socialist votes they're worth their weight in gold! http://www.bet.com/news/national/2012/01/26/one-dropout-costs-taxpayers-an-estimated-750-000-over-a-lifetime.html
LA Unified drop out rate over 50% http://capoliticalnews.com/2013/04/10/great-news-los-angeles-unified-school-district-admits-to-only-a-34-drop-out-rate/
Assuming a 50% US immigrant dropout rate the US immigrant debt franchise is worth (2 milX750K) $1.5 trillion in additional new debt every year, and that was before Obamacare.
With the Airbus & Dreamliners we can surpass 4 million new debters a year every year till we run outa jet fuel.
Hey You !
Moody, S & P and Fitch
Are you shutdown too ???
You need to downgrade the US immediately- otherwise permanently close down
The US debt markets are toast, with or without a downgrade. They are junk anyways. This is going to be so amusing watching the Fed scramble to pump prime the only market they care amount - stocks.
Pop corn ready
my up vote didn't register, but it's there nonetheless.
Great post ZH!
The worry is the USD dump (Asia) also as they with South America were keeping it bid over 80. We could see a collapse here on any close call for a default.
The global ecomomy is balanced on a pinhead.
2014-2015 is the year of the only 21st Century Tetra, which is four lunar eclipses in a row which leads to a Blood Moon, the last time that happened in 1987-1968 Israel took Jerusalem in the 6 day war.
So in other words get ready for another pretext to some war being cooked up in 6-8 months time.
https://www.youtube.com/watch?v=dQm6KIrrxso
It would be nice if we actually did default on the debt now and got it over with. Unfortunately, the more likely outcome will be to raise taxes ever higher, and turn over every stone imaginable looking for more tax revenue. The NSA is going to be the new wing of the IRS, looking to safeguard all those fat government pensions with confiscatory intrusiveness never before imagined. Default, no way. Not until every 401k and IRA has been totally looted, and we are left withered and sucked dry like zombies. Then we get a default.
Woa, 1/50th of 1%...
THINK ABOUT IT
Read on bloomberg the other day that every $10 increase in the price of a barrel of oil chops 0.5% off growth in developed economies.
Oil was 11.70 in 1998 - it's now over 100.
Inflation adjusted (using the bogus numbers we are Fed) says oil should be about 30 bucks.
Let's double that to account for the bogus CPI and say oil should be 60 bucks a barrel.
So that's 4 x $10 x.5 = 2% hacked off GDP.
2008 oil was 147.
All this corruption - all these insane policies from the Fed are not the disease - they are SYMPTOMS of the disease.
The actual disease is the end of cheap energy - yes there is a lot of oil left in the ground BUT it is expensive to extract - the low hanging fruit is gone.
So governments are being forced into crazy actions like printing money and zirp forever - in a futile attempt to compensate for growth lost to the high prices of energy.
I was having this discussion with a banker friend the other day over a pricey dinner and we concurred that we should enjoy such dinners while they last - because the world is soon going to turn into a dystopian nightmare - and we will not be enjoying the lifestyles we have now ever again.
Remember this - we have 7 billion people on the planet reliant on cheap energy - farms are dead soil without petroleum based fertilizers and pesticides.
As the costs of those increase food inflation goes out of control - and you get a hunger revolution.
What is coming is unimaginable. Billions will perish.
There is no way out of this - and your government knows this... that is what these are for: http://www.forbes.com/sites/ralphbenko/2013/03/11/1-6-billion-rounds-of-...
Good to know you know what's going on. Just as the population of the earth started expanding at an unnatural rate in the 1800's with coal fueling the industrial revolution and then the dramatic rise in the 1900's with cheap oil, the population now is going to be contracting with an equal magnitude. History will view the period of cheap fossil fuels as the most gluttenous and then tragic time in the history of the earth. Slow starvation is a bitch. It makes people do some mighty crazy things.
When I talk to people about the story of being passed peak cheap oil and what cheap oil has done for the population of the earth, and what happens when the support for that population dwindles away I just get blank stares. If one views our current world from the perspective of being past peak cheap oil, most of what is going on makes perfect sense.
While I completely agree with the basic premise, that we are past peak oil - what we are seeing is the banksters are using the crisis to gain total control.
We have alternatives to oil, but those alternatives are intentionally being suppressed - they want this economic collapse to happen, and they want to control the outcome.
The best alternative to oil at this time appears to be the microbial algae farms. The microbes produce very high quality fuel that barely needs refining, and a small volume of water can produce massive amounts of fuel. This is probably one of the better known alternatives, but there is also 'cold fusion'*, and high frequency molecular disassociation of water molecules between charged plates.
* Whatever the mechanism is for the energy release of this process, it is unknown and inexplicable by current theory - it does however exist and there are a number of people working on this around the world. The controllers (energy and money interests - ie petro dollar cabal) did a massive discreditation job on this technology - almost everyone still thinks it was a hoax.
There is little doubt we are living in a post peak world. $148 per barrel oil pierced the facade that is our monetary system. Things are going to get a lot worse before there is an actual default on any US Treasury paper though, count on it. When you see 30% unemployment, mass civil unrest, soup lines, and asset deflation beyond which you ever could have imagined, only then will we see an actual default. That lovely scenario will be shortly followed with all out WW3.
This is not that complex. It is the culmination of two major trends.
First, the use of "big data" to draw congressional maps. It has resulted in less and less "competitive" congressional districts...like there were so many before. The net result is that Dems fear only people running to the left of them and Reps only people running to the right of them. The net effect is a Congress who is not interested in the middle ground. If you are a Rep and even hint at compromise the tea party will find someone harder right than you are.
Two, the enhanced buying of political power by the elite. This has been going on for a long time but let’s face it, since Citizens United Congressional seats are now "deregulated" and can go to the highest bidder. You do not even need to know who is doing the buying/trading.
These two major trends basically are driving us to the situation we are in now. The answer is to put pressure on legislatures to start to draw maps where incumbents actually have to move more to middle to win. Yeah…good luck with that..but it is part of the fix. Two, pass a constitutional amendment that says that money does not equal speech in elections. Then cap sending from any source. Take a look and places like Canada and England. While you can argue their politicians are not any better than ours…at least you do not have to listen to a 360/24/7 election cycle.
What extraordinary measures has the treasury taken, to keep from hitting the debt ceiling the last couple months? You know they were playing tricks w/ accounting, but what specifically did they do???
They give social security iou's of treasuries rather than treasuries - bizarre but it works
ah thanks, off balance sheet shenanagins!!!!
I'm going to skip entering any payables in my quickbooks i make much more money!!!! yahooooooo!
They give social security iou's of treasuries rather than treasuries - bizarre but it works
They give social security iou's of treasuries rather than treasuries - bizarre but it works
fudged the books even moar?
And someone...knows how to tell it like it is.
Like, wowie zowie! THIS!!!...is what REAL reporting used to look like.
http://thecommonsenseshow.com/2013/09/22/the-cia-manchurian-candidate-gr...
That site is disinformation and propaganda, nobody is stupid enough to believe that rubbish. The take over of the US has been done by the international bankers, not the Russians (god what a joke).
The banksters are English, Jewish and American - of course they would love to deflect blame onto Russia, or even China - and the site you link proves they are trying. Your message is either auto generated, you are a CIA paid shill or you are just plain moronic - in any case, get lost.
The banksters own the CIA.
The plot may not be as absurd as it may seem.
Let's stay tuned.
I can say from experience the Russky destabilization plans are real, but imo, we have more to fear from drunken congressmen with unlimited credit cards.
One of the things less covered over the years is that the defense industry here in the US and Europe and elsewhere's depend on export sales.Many of the targeted countries for sales are hopelessly corrupt and these sales may dry up---unless the defense exporters could arrange finance as well.The local peasants get doubly screwed: paying for high-tech weapons that will be pointed at them,and exorbitant interest payments over the years.
Many of these third world campaigns introduced a new twist.Angola,Cambodia,etc. are carpeted by anti-personell land mines.Due to the risk in farming or other agriculture,the countries become dependent on foreign aid food supplies.Using food as a weapon...
The whole motherfucking stock market is bullshit.
Dup, So I thought I'd use it...
The whole motherfucking political establishment is bullshit.
Sheesh. Trip.
Everything is fine. Remain calm.
http://www.youtube.com/watch?v=zDAmPIq29ro
What size would you need to put this on in to make $1,000? Factor in carry and cost of short?
If the Administrations plans to kill the dollar, as Schiff (?) reported, NOW is the time to do it: balk at the debt ceiling while under shut down.
Let's see what happens.