President Obama

Yesterday we brought you the news that US debt quietly soared by $90 billion overnight to celebrate the new fiscal year end, reaching $16.2 trillion and sending total US debt to GDP to 103%. Needless to say, this comes at an exciting time, with the first Wall Street muppet presidential debate in about 12 hours, where the US debt crisis will be a front and center topic because in about 2 months, the US debt ceiling will again be breached adding to the Fiscal Cliff fiasco, resulting in a flashback to August 2011 when the market had to tumble by nearly 20% for Congress to get the hint that first and foremost its job is to make sure the money on Wall Street keeps flowing, all else secondary. And while it has become fashionable to say that US debt rose by this much under that president, the truth is that the Presidency is merely one of three institutions that are responsible for the shape of the US debt-to-GDP line (which is now going from the lower left to the upper right by default). The other two are, of course, Congress and the Senate. Luckily, to simply things substantially, we have a handy graphic from today's Bloomberg Brief which conveniently plots not only the political affiliation of the presidency, but of the House and Senate, in the chronology of the US debt crisis.

he stood in a town square and delivered a breathless tirade against “the forces” seeking to destroy Italian society.

Factory output has shrunk for 14 consecutive months and businesses must continue to trim the fat of their organizations during these recessionary times. The report showed that 18.2 million people were jobless in September; this is an increase of 34,000 people versus the previous month. As living standards fall and livelihoods are being wretched voter anger is becoming increasingly palpable, especially in countries such as Spain and France. History provides countless lessons as to the political consequences of detached economic policies and their real effects.  Northern Europe’s gamesmanship in rewriting previously agreed banking debt support may set a dangerous precedent and tear apart the tenuous ties of trust between governments - who after all must act together if they are ever to forge a solution to their current economic plight.

Whereas earlier today we presented one of the most exhaustive presentations on the state of the student debt bubble, one question that has always evaded greater scrutiny has been the very critical default rate for student borrowers: a number which few if any lenders and colleges openly disclose for fears the general public would comprehend not only the true extent of the student loan bubble, but that it has now burst. This is a question that we specifically posed a month ago when we asked "As HELOC delinquency rates hit a record, are student loans next?" Ironically in that same earlier post we showed a chart of default rates for federal loan borrowers that while rising was still not too troubling: as it turns out the reason why its was low is it was made using fudged data that drastically misrepresented the seriousness of the situation, dramatically undercutting the amount of bad debt in the system.  Luckily, this is a question that has now been answered, courtesy of the Department of Education, which today for the first time ever released official three-year, or much more thorough than the heretofore standard two-year benchmark, federal student loan cohort default rates. The number, for all colleges, stood at a stunning 13.4% for the 2009 cohort. And while it is impossible using historical data to extrapolate with precision what the current consolidated federal student loan default rate is, we do know that there is now $914 billion in federal student loans (which also was mysteriously revised over 50% higher by the Fed just a month ago). Using simple inference, all else equal (and all else has certainly deteriorated), there is now at least $122 billion in federal student loan defaults. And surging every day.

Ladies and gentlemen: meet the new subprime.

In the midst of the Great Depression, Treasury Secretary Andrew Mellon famously advised President Hoover to “liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate” instead of propping each industry up with tax dollars.  This liquidation doctrine would “purge the rottenness out of the system” and make certain that “people will work harder” and “live a more moral life.”  Contrary to popular belief, Hoover did not take Mellon’s advice and went forth with his own version of the New Deal that gave relief to farmers and supported wage rates in certain industries.  These efforts, which were exacerbated under the presidency of Franklin Roosevelt, effectively prevented the market from clearing.  The boom of the late 1920s that was driven by the Federal Reserve’s monetary inflation was not allowed to bust.  Instead of liquidating the debt and allowing the economy to reach a sound footing, both the Hoover and Roosevelt administrations attempted to manage it back to health.  The result was the longest period of unemployment ever recorded in American history.

A massive 13% collapse in durable goods, the biggest since January 2009; a $20 billion miss to annualized Q2 GDP estimates, and well below the lowest estimate, 60+ weeks of constant upward BLS revisions to initial claims "data" and not to mention assorted atrocious economic (note: not to be confused with market - the two are now completely unlinked) data from around the globe. And what does the White House say: the data shows that the "US is making progress." We sure wouldn't want to know what it would look like if after 3 episodes of easing, trillions injected into the economy via the Fed, and of course $6 trillion in extra debt the US was not making progress. Oh and yes, everything else is Bush's fault.

Indeed, it is now clear, via QE 3, that the Fed has gone “all in” in its commitment to money printing. QE 2 put food prices to record highs… what do you think QE 3 (which is unlimited) will do to the cost of living?

More bailouts and QE, until Beethoven writes the 10th Symphony.

But what if one wants Ron Paul to be elected? Can one vote for Ron Paul then?

Global economic fundamentals are awful, bearish divergences are occurring everywhere, investor sentiment is nearing bullish extremes, political risks remain high and last week's market performance can be summed up in four words - 'lack of follow through'. As Gluskin Sheff's David Rosenberg explains, more than two-thirds of the rally points the stock market has enjoyed since the summer-time lows occurred around central bank policy announcements. So the market is really a one-trick pony here, breathing in the fumes of central bank liquidity. What was supposed to happen, as the elites told us, was that the lagging hedge funds were going to throw in the towel and chase this market. Everyone expects this to be a major source of buying power. At the same time, what if the bulls who lucked out this year because they hung onto Ben Bernanke's arm decide to take profits or at the least lock in their gains? CRitically, as Rosie details, QE3 is occurring at a different point in the cycle this time and insomuch as it helps invogorate already rising 'animal spirits' we suspect it has missed the baot.

In a system that depends on lies and the credulity of the citizenry, the greatest lie is that the Federal Reserve's "quantitative easing" bailouts of the banks somehow help our citizens and communities. To clarify this, ask yourself this question: what else could we have bought with the $29 trillion the Fed loaned or backstopped to the banks?  If you enjoy quibbling about the total sum of Fed support, be my guest; the Levy Institute came up with $29 trillion after poring over all the data, while the Government Accountability Office’s (GAO) tally topped $16 trillion. That's 100% of the nation's GDP and roughly 100% of the $16 trillion national debt. While we're asking about opportunity costs, let's ask what else we could have bought with the $10 trillion that the Federal government has borrowed and blown in the past 11.7 years. The national debt was $5.727 trillion when G.W. Bush was sworn into office on January 20, 2001. It had risen to $10.626 trillion when President Obama was sworn into office in January, 2009. It is now $16.016 trillion, an increase of $5 trillion in less than four years in "debt held by the public" (i.e. the Chinese central bank, the Japanese central bank, the Federal Reserve, etc.)

The performance of CRB's sub-industrials relative to Oil has been a consistently useful indication of economic sentiment. Given the recent performance, Oil prices suggest a significant drop in US Manufacturing PMI - sub-40! This leaves President Obama with a dilemma: one the one hand he needs to pressure Oil down (SPR jawboning?) in order to maintain some semblance of economic growth and recovery (and perhaps jobs) but given the highly correlated (and QEternity-driven liquidity spillover) asset markets, a lower oil price fundamentally suggests lower global growth and technically drags risk-assets lower - which in turn moves stocks lower. Once again an encumbent tries to find the Goldilocks-level of Oil - too hot and growth slumps, too cold and markets slump, just right and get re-elected.

Just over a week ago, we wrote of the challenge to Obama's NDAA totalitarian bill. Hope remained that Chris Hedges' view of the indefinite detention as "unforgivable, unconstitutional, and exceedingly dangerous" would bolster judgment. However, as Russia Today reports, a lone appeals judge bowed down to the Obama administration late Monday and reauthorized the White House's ability to indefinitely detain American citizens without charge or due process. On Monday, the US Justice Department asked for an emergency stay on the previous Chris Hedges'-driven order, and hours later US Court of Appeals for the Second Circuit Judge Raymond Lohier agreed to intervene and place a hold on the injunction. The stay will remain in effect until at least September 28, when a three-judge appeals court panel is expected to begin addressing the issue. It would appear the total fascist takeover of Amerika is drawing nearer by the day.

As the US Presidential and Congressional election campaigns move into their frenetic final stages ahead of the November 6th polling date, we thought it would be good to see what the futures markets think about the outcome. As UBS notes, the Iowa Electronic Markets (IEM) are futures markets allow traders to take positions, with real money, on a variety of economic and political events, the best known of which are US elections. Since inception, the IEM has had an impressive track record of forecasting elections, consistently better than conventional polls months in advance. The current data, however, highly contradictory - or Schrodinger-like - as the gap in the popular vote has narrowed significantly, yet the gap in the winner-take-all election result market has widened dramatically in favor of Obama. Furthermore, there is a 70% chance the Republicans wrest control of the Senate and the probability of the democrats gaining a House of Representatives majority is a mere 10%. It would seem gridlock will persist with a divided government - not good news for the fiscal cliff.

• Nothing has changed and things have just gotten worse: Europe Banks Fail to Cut as Draghi Loans Defer Deleverage (Bloomberg)
• Mitt Romney secret video reveals views on Obama voters (BBC)
• Romney Stands by Government-Dependent ‘Victims’ Remark (Bloomberg)
• Video shows Libyans helping rescue U.S. ambassador after attack (Reuters)
• Fannie Mae paid BofA premium to transfer soured loans-regulator (Reuters)
• Northrop to shed nearly 600 jobs (LA Times)
• LOLmarkets: Retail Currency Traders Turn to Algorithms (WSJ)
• U.K. Royal Family Wins French Ruling on Kate Photos (Bloomberg)
• Nevada recluse dies with $200 in bank, $7 million in gold at home (LA Times)
• Gap Between Rich and Poor Grows in Germany (Spiegel)
• Chicago teachers meet Tuesday to decide whether to end strike (Reuters)
• Australia's Fortescue wins debt breather, shares soar (Reuters) ... a deal which ultimately will prime equity and unsecureds by $4.5 billion in secured debt
• Ford car sales fall 29% in Europe (FT)