Obama Administration

In what is sure to be a complete non-starter with the Obama administration, WSJ reports that Paul Ryan said that "Republicans are discussing whether to support a short-term increase in the nation's borrowing authority, possibly linking the debt ceiling to future talks aimed at reaching a major deficit deal....Mr. Ryan said no decisions have been made about how to approach the debt and spending negotiations, but that leaders hope House Republicans will reach consensus on a strategy by the end of the week. The former vice-presidential candidate said "we're discussing the possible virtue of a short-term debt limit" increase that would lead to broader deficit talks with Senate Democrats and the White House. "We hope to achieve consensus on a plan to proceed so we can make progress on controlling spending and deficits and debt," Mr. Ryan said." The logical question immediately arose, and promptly received a non-answer "Mr. Ryan wouldn't say what he meant by a temporary debt-ceiling increase, declining to give a specific increase figure or timeframe for an extension."

From Goldman Sachs: "Allowing the sequester to hit would, in our view, have greater implications for growth than a short-lived government shutdown, but would not be as severe as a failure to raise the debt limit. Although Republicans in Congress generally support replacing the defense portion of the sequester with cuts in other areas, there is much less Republican support for delaying them without offsetting the increased spending that would result." And in bottom line terms: "Sequestration would reduce the level of spending authority by $85bn in fiscal year (FY) 2013 and $109bn for subsequent fiscal years through 2021. The actual effect on spending in calendar 2013 would be smaller--around $53bn, or 0.3% of GDP--since reductions in spending authority reduce actual spending with a lag. The reduction in spending would occur fairly quickly; the change would  be concentrated in Q2 and particularly Q3 and could weigh on growth by 0.5pp to 1.0pp." In other words: payroll tax eliminates some 1.5% of 2013 GDP growth; on the other side the sequester cuts another 1%: that's a total of 2.5%. So: is the US now almost certainly looking at a recession when all the fiscal components to "growth" are eliminated? And what will the Fed do when it is already easing on "full blast" just to keep US growth barely above 0%?

The underlying trends seen this year have continued, but after strong follow through in Asia, a more subdued tone has been seen in Europe. The US dollar is generally softer, except against the yen and sterling. Japanese markets were closed for holiday, but the MSCI Asia-Pacific Index rose almost 0.3%, lifted by more than a 3% rally in China on speculation that there may be a sharp increase in the cap on foreign investors' ability to invest in Chinese equities. In Europe, the Dow Jones Stoxx 600 is hp about 0.4%, led by a rise in financials. Spanish stock market is at its highest level in almost a year (Feb 2012) and Italy's market is at its best August 2011, though their bond markets are seeing some profit-taking today. With a light economic calendar in North America today, Bernanke's speech in Michigan after the markets close may be the highlight. We identify six key factors shaping the investment climate.

As 1.4 million people have been kicked off the 99 week unemployment rolls, the number of people applying for SSDI skyrocketed. Just because the scumbags on Wall Street and in the rest of corporate America commit fraud on a massive scale does not mean we should look the other way when lowlifes in our community do the same thing on a smaller scale. The working middle class pays the bill for the cost of both frauds. More than 90% of all the people who go onto SSDI never go back to work. This program was supposed to be short term until people could recover and go back to work. There are now 8.83 million people so disabled, they supposedly can’t work. There are only 12 million officially unemployed people in the country. The government is so incompetent, they barely check the applications for SSDI. Anyone with an ounce of brain power (this disqualifies anyone on MSNBC) knows that at least 50% of the people on SSDI are capable of some form of employment.

• Obama Picking Lew for Treasury Fuels Fight on Budget (BBG)
• Deutsche Bank Bank Made Huge Bet, and Profit, on Libor (WSJ)
• Spain Beats Maximum Target in First 2013 Debt Sale (BBG) - In other news, the social security fund is now running on negative?
• "Icahn is also believed to have taken a long position in Herbalife" (NYPost) - HLF +5% premarket
• Lew-for-Geithner Switch Closes Era of Tight Fed-Treasury Ties (BBG)
• Turkey Beating Norway as Biggest Regional Oil Driller (BBG)
• Greek State Firms are Facing Closure (WSJ)
• Draghi Spared as Confidence Swing Quells Rate-Cut Talk (BBG)
• China’s Yuan Loans Trail Estimates (BBG)
• SEC enforcement chief steps down (WSJ)
• CFPB releases new mortgage rules in bid to reduce risky lending (WaPo)
• Japan Bond Investors Expect Extra Sales From February (BBG)

Every nation-state has a body of laws woven into the fabric of society. As Peruvian economist Hernando de Soto has commented on extensively, the stronger the rule of law, the stronger the economy. And by "stronger" laws, I mean laws that are impervious to tampering for personal or political gains. The connection between a sound judiciary and economic health is readily comprehensible, except maybe to a politician... businesses and individuals are far more likely to invest capital in a country with understandable laws that are impartially and universally enforced than if the opposite condition exists. That's because the lack of a consistent body of law breeds uncertainty and adds a huge element of risk for entrepreneurs. Which brings us back to the matter at hand – American justice on a slippery slope.

As reported previously, when Bloomberg broke the news two days ago, it now appears that the official appointment of Jack Lew as the new SecTres will take place tomorrow. From Bloomberg: "President Obama will announce tomorrow that White House Chief of Staff Jack Lew is his pick for Treasury secretary, person familiar with the matter tells Bloomberg’s Han Nichols." In other words - goodbye Timmah: best of luck writing your new book, which in the tradition of every ex-public servant who departs the government where they kept their mouths firmly shut, we assume will be all about bashing Tim Geithner.

A year ago, out of nowhere, the grotesque suggestion to "resolve" the US debt ceiling with a platinum dollar coin came, and like a bad dream, mercifully disappeared even as the debt ceiling negotiations dragged until the last minute, without this idea being remotely considered for implementation, for one simple reason: it is sheer political, monetary and financial lunacy. And yet there are those, supposedly intelligent people, who one year later, continue dragging this ridiculous farce, as a cheap parlor trick which is nothing but a transparent attempt for media trolling and exposure, which only distracts from America's unsustainable spending problem and does nothing to address the real crisis the US welfare state finds itself in. And while numerous respected people have taken the time to explain the stupidity of the trillion dollar coin, few have done so as an integral part of the statist mainstream for one simple reason - it might provide a loophole opportunity, however tiny, to perpetuate the broken American model even for a day or two, if "everyone is in on it." Luckily, that is no longer the case and as even Ethan Harris from Bank of America (a firm that would be significantly impaired if America was forced to suddenly live within its means), the whole idea is nothing more than "the latest bad idea" straight "from the land of fiscal make believe." We can only hope that this finally puts this whole farce to bed.

SSDM: just like in October, and September, and August, and so on, November consumer credit saw a decent pick up of $16 billion, well above the expectation of $12.75 billion, above the $14.1 billion in October, and the third highest monthly print of 2012. And if this was driven even remotely by actual short-term consumption demand, it would likely be a good sign, as it would imply consumers have more faith in being able to repay their credit cards. Sadly, of the entire $16 billion jump, only $817 million, or 5%, was based on a jump in revolving credit. The real "growth" came as usual courtesy of Uncle Sam handouts, solely in the form of auto and student loans, which accounted for a whopping $15.2 billion of the increase in consumer debt, the second largest jump in the year, second only to the $18 billion in January. And as everyone knows, student loans are already on fast track to forgiveness (full forgiveness in 10 years if one works for the government), as will be the case for those NINJAs who buy GM cars using government loans. For all of 2012, a whopping $130 billion of the $137 billion total has been in the form of government handouts. In other words, nearly 1% of 2012 GDP has been funded by Uncle Sam in the form of (dischargeable) loans which everyone else will be responsible for, until nobody at all is responsible.

The CIA Is Taking Over the Dirty Work in Fighting America’s Wars

Bloomberg is out after hours with news that was expected by many, but which was yet to be formalized, until now: namely that following today's flurry of contntious nomination by Obama, the latest and greatest is about to be unveiled - Jack Lew, Obama's current chief of staff, is likely days away from being announced as Tim Geithner's replacement as the new Treasury Secretary of the United States. In other words, Jack will be the point person whom the people who truly run the Treasury, the Treasury Borrowing Advisory Committee, chaired by JPM's Matt Zames (who just happens to also now run the notorious JPM Chief Investment Office which uses excess deposits to gamble - yes, you really can't make this up) and Goldman's Ashok Varadhan, global head of dollar-rate products and FX trading for North America (recently buying a $16 million pad at 15 CPW) will demand action from.

Why We Are In a Perpetual Series of Wars ...

Two weeks ago, when we commented on the biggest farce in financial thinking at the time (promptly replaced by the even more lunatic platinum coin "idea"), namely that one of the main "spending cut" proposals of the Obama administration, one amounting to $290 billion, was the assertion that the US will save hundreds of billions because, get this, interest rates are now lower than they were before. We commented as follows: "this is where one's Excel refs out, because the interest payment on Treasurys, at least in a non-banana republic, one set to see 120 debt/GDP in 3-4 years, is a function of fiscal decisions (central-planning notwithstanding), and to make the idiotic assumption that one can control interest rates for 10 years (central-planning notwithstanding), just shows what a total farce this whole exercise has become, and also shows that nobody in the administration, or the GOP for that matter, has even modeled out the resultant budget pro forma for the proposed tax hikes and budget "savings" as that would blow up said excel model immediately." We now learn that one other entity that did not fully model out the last minute Fiscal Cliff deus ex, and especially not the recursive debt relationship in a country where half the government spending is funded by debt, is the always amusing CBO (whose epic prediction failure rate has been discussed here on numerous occasions). It appears that they just did, after the close, on Friday. The outcome? Their initial estimate of a $4.0 trillion budget increase was wrong and when one factors in the fact that this incremental spending would have to be funded by, you guessed it, debt, debt which has interest, the full impact of the Obama tax cut rises deficits by 15% to $4.6 trillion over the next decade.

Oops.

Sometimes I just have to smile when faced with anti-gun propagandists, regardless of the vicious statements they make, because I know from years of past experience in this debate that because of their deep rooted hypocrisy, they will inevitably make my pro-gun case for me.  All I have to do is sit back and wait for them to contradict themselves. The gun grabber personality is interminably flawed, but it could be summarized thus: They believe the whole of society should cater to their personal concerns.  That we should give up our rights just to make them feel safer.  And, that they are somehow a step above the rest of us, and do not need to practice what they preach.  My question is, why should we go out of our way to please such weaklings and frauds?  I have yet to hear a good reason...

This deal has made our debt problems worse.