Frontrunning: October 22

  • Despite budget win, Obama has weak hand with Congress (Reuters)
  • Carney Brings In McKinsey for Bank of England Strategy Rethink (BBG)
  • Bill Gates Buys Stake in Spanish Construction Company FCC (WSJ)
  • Jerusalem Mayor Barkat Seeks New Term in Race Arabs Sitting Out (BBG)
  • J.P. Morgan Aimed to Limit Damage (WSJ)
  • EU Lawmakers Reject Draghi Call for Bank Bondholder Clemency (BBG)
  • Wall Street Profits May Halve in Second Half (WSJ)
  • Petrobras-led group wins Brazil oil auction with minimum bid (Reuters)
  • Apple to Refresh IPads Amid Challenges for Tablet Share (BBG)
  • Italy plans to offer guarantees on govt bond derivatives (Reuters)
  • Berkshire Beats Apple as Favorite Stock of Tiger 21 Group (BBG)

Frontrunning: October 21

  • FHFA Is Said to Seek at Least $6 Billion From BofA for MBS Sales (BBG)
  • Record Pact Is on the Table, But J.P. Morgan Faces Fight (WSJ)
  • Magnetar Goes Long Ohio Town While Shorting Its Tax Base (BBG)
  • Mini-Wall Street' Rises in Hamptons (WSJ)
  • Obama to call healthcare website glitches 'unacceptable' as fix sought (Reuters)
  • Starbucks Charges Higher Prices in China, State Media Says (WSJ)
  • Cruz Is Unapologetic as Republicans Criticize Shutdown (BBG)
  • Berlusconi struggles to keep party united after revolt (Reuters)
  • SAC Defections Accelerate as Cohen Approaches Settlement (BBG)

Frontrunning: October 18

  • Republican Civil War Erupts: Business Groups v. Tea Party (BBG)
  • Budget fight leaves Boehner 'damaged' but still standing (Reuters)
  • Madoff Was Like a God, Wizard of Oz, Lawyers Tell Jury (BBG) - just like Bernanke
  • Republicans press U.S. officials over Obamacare snags (Reuters)
  • Brilliant: Fed Unlikely to Trim Bond Buying in October (Hilsenrath)
  • More brilliant: Fed could taper as early as December (FT)
  • Russia Roofing Billionaires Seen Among Country’s Youngest (BBG)
  • Ford's Mulally won't dismiss Boeing, Microsoft speculation (Reuters)
  • China reverses first-half slowdown (FT)
  • NY Fed’s Fired Goldman Examiner Makes Weird Case (BBG)

Frontrunning: October 17

  • Congress Vote Ends Impasse to Be Revisited in January (BBG); Congress Passes Debt, Budget Deal (WSJ)
  • House GOP extracts no concessions (Politico)
  • Washington becomes the biggest risk to the U.S. economy (Reuters)
  • Debt Deal Seen Boosting U.S. Consumers as Holidays Approach (BBG) - only thing missing: disposable income
  • Federal Employees Head Back to Work (WSJ)
  • Regulator Suggested Shift for Dimon at J.P. Morgan Unit (WSJ)
  • Twitter hires Google ad exec ahead of IPO (CNET)
  • Teens can now post publicly, but posts are friends-only by default (WaPo)
  • Germany Moves to Finalize Coalition Deal (WSJ)
  • Draghi Turns Judge on EU Banks as ECB Studies Accounts (BBG)
  • UK nuclear deal with China a ‘new dawn’ (FT)

"What Politicians Want Is A World Of Pure Beta And Zero Alpha"

What politicians want from their regulatory efforts is a world of pure beta and zero alpha. This is the ultimate “level playing field”, where no one knows anything that everyone else doesn’t also know. The presumption within regulatory bodies today is that you must be cheating if you are generating alpha. How’s that? Alpha generation requires private information. Private information, however acquired, is defined as insider information. Insider information is cheating. Thus, alpha generation is cheating. QED. Why would politicians want an alpha-free market? Because a “fair” market with a “level playing field” is an enormously popular Narrative for every US Attorney who wants to be Attorney General, every Attorney General who wants to be Governor, and every Governor who wants to be President … which is to say all US Attorneys and all Attorneys General and all Governors. Because criminalizing private information in public markets ensures a steady stream of rich criminals for show trials in the future. Because the political stability of the American regime depends on a widely dispersed, non-zero-sum price appreciation of all financial assets – beta – not the concentrated, zero-sum price appreciation of idiosyncratic securities. Because public confidence in the government’s control of public institutions like the market must be restored at all costs, even if that confidence is misplaced and even if the side-effects of that restoration are immense.

Frontrunning: October 14

  • Headline of the day: U.S. Risks Joining 1933 Germany in Pantheon of Deadbeat Defaults (BBG)
  • As Senate wrestles over debt ceiling, Obama stays out of sight (Reuters)
  • The "Truckers Ride for the Constitution" that threatened to gum up traffic in the capital was a dud as of Friday afternoon (WSJ)
  • China New Yuan Loans Top Estimates as Money-Supply Growth Slows (BBG)
  • Vegetable prices fuel Chinese inflation (FT)
  • China Slowing Power Use Growth Points To Weaker Output Data (MNI)
  • London Wealthy Leave for Country Life as Prices Rise (BBG)
  • Gulf oil production hits record (FT)
  • Every year like clockwork, analysts start out bizarrely optimistic about future results, then “walk down” their forecasts  (WSJ)
  • Weak Exports Show Limits of China’s Growth Model (WSJ)

Frontrunning: October 11

  • Dot Com part deux: Investors are showing increasing hunger for initial public offerings of unprofitable technology companies  (WSJ)
  • Poll Finds GOP Blamed More for Shutdown (WSJ)
  • House, Senate Republicans Offer Competing Plans on Debt-Limit, Government Shutdown (WAPO)
  • Obama, Republicans aim to end crisis after meeting, hurdles remain (Reuters)
  • US Rethinks How to Release Sensitive Economic Data (WSJ)
  • Chinese East Oil Fuels Fresh China-US Tensions (WSJ)
  • ECB Agrees on Swap Line With PBOC as Trade Increases (BBG)
  • China September Auto Sales Surge 21% on Japanese Rebound (BBG)
  • JPMorgan Taps Taxpayer-Backed Banks for Basel Rules (BBG)

Frontrunning: October 9

  • Janet Yellen, a Backer of Pushing the Fed's Policy Boundaries (WSJ)
  • Jos. A. Bank proposes to buy Men's Wearhouse for $2.3 billion (Reuters)
  • J.P. Morgan to Cull Business Clients (WSJ)
  • RBS Said to Pass Currency Trader Chats to FCA Amid Probe (BBG)
  • Prosecutors give SAC settlement ultimatum (FT)
  • U.S. builders hoard mineral rights under new homes (Reuters)
  • Bill Comes Due for Brazil's Middle Class (WSJ)
  • US expected to slash aid to Egyptian government (AP)
  • Samsung launches world's first smartphone with curved screen (Reuters)
  • Microsoft’s $7.2 Billion Nokia Bet Not Luring Apps (BBG)
  • China raises hurdles for foreign banks (FT)

Frontrunning: October 8

  • Hilsenrath: Tense Negotiations Inside the Fed Produced Muddled Signals to Markets (WSJ)
  • Biggest US Foreign Creditors Show Concern on Default Risk (BBG)
  • Shutdown Costs at $1.6 Billion With $160 Million Each Day (BBG)
  • What default? Republicans downplay impact of U.S. debt limit (Reuters)
  • Top Bankers Warn on U.S. Debt Proposal (WSJ)
  • India to stick with austerity despite looming election (Reuters)
  • Japan's Current-Account Surplus Plunges (WSJ)
  • Amazon Wins Ruling for $600 Million CIA Cloud Contract (BBG)
  • German Factory Orders Unexpectedly Fall on Weak Recovery (BBG)
  • Britain's Higgs, Belgium's Englert win 2013 physics Nobel prize (Reuters)
  • Supreme Owner Made a Billionaire Feeding U.S. War Machine (BBG)

Frontrunning: October 7

  • A U.S. Default Seen as Catastrophe Dwarfing Lehman’s Fall (BBG)
  • Software, Design Defects Cripple Health-Care Website (WSJ)
  • Gunmen kill 5 Egyptian soldiers near Suez Canal, 2 people die in blast (Reuters); Egypt death toll rises to 53, streets now calm (Reuters)
  • Three retailers sell Apple iPhone 5C for $50 or less (Sun Sentinel)
  • New American Economy Leaves Behind World Consumer (BBG)
  • Dow's Exiles Often Have Last Laugh (WSJ)
  • Macy's Puts China Online-Expansion Effort on Hold Amid Economic Slowdown (WSJ)
  • Gold Befuddles Bernanke as Central Banks’ Losses at $545 Billion (BBG) - just ask the BIS gold selling team: they are unbefuffdled
  • Markit Group Said to Avoid U.S. Antitrust Claims as EU Proceeds (BBG) - being owned by the banks has benefits
  • Paulson leads charge into Greek banks (FT) - and scene for the Greek banking sector

David Stockman Explains The Keynesian State-Wreck Ahead - Sundown In America

David Stockman, author of The Great Deformation, summarizes the last quarter century thus: What has been growing is the wealth of the rich, the remit of the state, the girth of Wall Street, the debt burden of the people, the prosperity of the beltway and the sway of the three great branches of government - that is, the warfare state, the welfare state and the central bank...

What is flailing is the vast expanse of the Main Street economy where the great majority have experienced stagnant living standards, rising job insecurity, failure to accumulate material savings, rapidly approach old age and the certainty of a Hobbesian future where, inexorably, taxes will rise and social benefits will be cut...

He calls this condition "Sundown in America".

What Is The Impact Of A Technical Treasury Default?

Yesterday we described the various scenarios available to Treasury in the next few weeks should the shutdown and debt ceiling debacle carry on longer than the equity markets believe possible. As BofAML notes, however, the most plausible option for the Treasury could be implementing a delayed payment regime. In such a scenario, the Treasury would wait until it has enough cash to pay off an entire day’s obligations and then make those payments on a day-to-day basis. Given the lack of a precedent, it is hard to quantify the impact on the financial markets in the event that the Treasury was to miss payment on a UST; but the following looks at the impact on a market by market basis.

Frontrunning: October 4

  • Troops Forage for Food While Golfers Play On in Shutdown (BBG)
  • Police suspect dental hygienist Miriam Carey was behind the wheel of Capitol chase (WaPo)
  • Italian Senate committee starts Berlusconi expulsion process (Reuters)
  • Swiss Regulator Probing Banks Over Foreign-Exchange Manipulation (WSJ)
  • GOP Begins Search for Broad Deal on Budget (WSJ)
  • No Jobs Report Means Economists Chew on Football Instead of Data (BBG)
  • U.S. default seems unthinkable but investors have options (Reuters)
  • Citigroup fined $30 million after analyst sent report to SAC, others (Reuters)
  • FBI Snags Silk Road Boss With Own Methods (BBG)
  • Recession Warnings Found in Asset Price Falls (BBG)
  • Bank of Japan warns of severe global impact from U.S. fiscal standoff (Reuters)

What Will Happen To The US Credit Rating?

With short-term Treasury Bills starting to price in a missed payment possibility and USA CDS surging (though still low), the debt ceiling (and implicit chance of a technical default) is nigh. As we approach yet another debt ceiling showdown (especially in light of the seeming congruence of a CR and debt ceiling debate in an entirely divided Washington), market attention will turn towards a possible US sovereign rating downgrade. In this article, we provide an outline of the likely actions by the three rating agencies (S&P, Moody’s and Fitch).

Frontrunning: October 3

  • Mounting Wall Street fears of US default (FT)
  • This is what the US government does when it is "shut down" - CIA ramping up covert training program for moderate Syrian rebels (WaPo)
  • SEC Weighs Overhaul of Exchanges’ Self-Regulatory System (WSJ) - just let Goldman and JPM do all the policing; not like anyone cares anymore
  • Reid Sets Tone for Democrats in Shutdown Fight (WSJ)
  • No Movement in Shutdown Standoff (WSJ)
  • Shutdown will not slow Fed nomination, says Obama (FT)
  • Syrian Regime Chokes Off Food to Town That Was Gassed (WSJ)
  • Tesla Says Car Fire Began in Battery (AP)
  • China Services Index Increases in Sign of Sustained Rebound (BBG) or sustained data manipulation