If mere hope of an "imminent" deal starting on Thursday and continuing through Monday, with no actual deal but who cares about details, was enough to push the DJIA up by 600 points, then all it would take to set a new record market high today, is for another day to pass - one day before the October 17 X-Date when one Senator can filibuster the US through the deadline on their own, and when the House still has to have a voice on what the Senate has been doing - without an actual debt deal. After all, the market is so "centrally-planned" all that is needed is knowledge that Bernanke will get to work, and is getting to work to the tune of $85 billion a month, mixed in with some hope. And with today's "market for idiots" facilitating POMO of over $5 billion which guarantees a green close, all that is needed is a complete failure in talks for the SPX to go limit up on even more hopes things will be fine any second now... if not right now.
With two days to go to until dreaded October 17 D-Day (on which incidentally, very little of note will happen, because as Goldman explained earlier today, that is simply the date past which the Treasury can no longer borrow, but still has some $30 billion in cash which could last to fund the Treasury's needs as long as the end of the month if not longer) Washington is now openly playing with fire. Because for all the hopeful talk of an imminent deal on Thursday, then on Friday, then today, not only is there nothing substantive on the table, but Obama will not even meet with the Senate, let alone the House, until tomorrow morning. At that point there will be about 36 hours until October 17. But what is worse for all the end is nigh-ers, who are absolutely certain the world will end if Congress crosses the D-Day deadline (which, again, as Goldman said earlier "going slightly past the October 17 deadline is entirely possible") is that as The Hill explains, Senate could still miss the debt deadline, assuming there is a debt deal in the first place. Which is a big if.
With the possibility of a US government default growing day by day (1Y USA CDS rose 12bps today to 72bps) amid impasse after impasse in DC, Bloomberg's Mike McKee looks at the five possible scenarios should the debt ceiling be breached (however unlikely and ridiculous some may appear). From prioritization of payments to across-the-board cuts, 14th amendment interventions and delaying payments, McKee explains the process and implications of each. There are no good options left but we can't help but get the sense the Republicans might just be playing a longer-game here to take us beyond the Democrats' "red-line" of October 17th to highlight their fear-mongering (remember the shut-down devastation?) and potentially regain some election capital (in this increasingly twisted game of picking the worst of two evils)... and indeed, as we have long argued, until we see the market crash, nothing will be resolved.
In the midst of a domestic crisis, it is easy to forget that the rest of the world is watching. Now that the U.S. federal government has shut down for the first time since the mid 1990s, the talk of the town is the political problems of the world’s largest economy and sole superpower. In China, most media reports about the shutdown have been merely informative, but every now and then they offer a rare insight into what the Chinese have learned about America’s shortcomings. Yet other commentators find the federal shutdown inspiring. the newspaper Nanfang Dushi Bao commended the strength of American society for being able to function without the government. Interestingly, while the American public sees the shutdown as a government failure, some Chinese are seeing it as a sign of efficiency.
Gold imports have virtually dried up in India. Battling a high trade deficit, the country has set the import duty on the precious metal at a record 10%.
Headlines just hitting:
- *MEETING BETWEEN OBAMA, CONGRESSIONAL LEADERS POSTPONED
- *WHITE HOUSE MEETING POSTPONED TO ALLOW FOR FURTHER TALKS
- *WHITE HOUSE STATEMENT SAYS DELAY TO GIVE MORE TIME FOR TALKS
Seems like there is no deal for now then... and sure enough that hope premium in stocks is fading
If one looks at various sovereign states, it seemingly doesn't matter that their public debts continue to rise at a hefty clip. The largest ones are considered to have economies that are big and resilient enough to be able to support the growing debt load. Part of the calculus is no doubt the notion that they contain enough accumulated wealth to allow their governments to confiscate even more of their citizens property and income in order to make good on their debts. Then there are the small and mid-sized states in the EU that are getting bailed out by their larger brethren, or rather, the tax payers of their larger brethren. However, things are different when the territories or municipalities concerned are considered too small and have no such back-up. Detroit was a recent case in point, and it seems that the US territory of Puerto Rico is the next domino to fall.
UPDATE: *OBAMA SAYS REPUBLICANS MUST SET ASIDE SOME PARTISAN CONCERNS
Senator Harry Reid has a cunning new plan and says "we're getting closer," providing yet more hope that the US won't tip inauspiciously over the edge of the economic abyss. The latest rumored deal proposal, to be presented at the White House meeting at 3pm, includes automatic spending cuts, a framework for budget negotiations, extends the debt ceiling for 6-9 months, and funds the government through December at current sequester levels. Doing so, as AP reports, would punt the fight over whether to lock in 2014 sequestration levels at $967 billion until December. And by extending the debt ceiling until the middle of next year, it would put the issue in the center of the heated 2014 midterm elections. While this provided some short-term optimism, Obama was quick to remind the market that "it appears that has been some progress in the Senate in fiscal impasse negotiations and will see if it is real when he meets congressional leaders."
So the debt ceiling “we’re going to run out of money and the world ends” talk is not accurate. What is accurate is that playing games with your debt limits impacts other investors’ psychologies. And THAT is the real issue here.
Remember: what Goldman wants, Goldman gets. The only question is whether Jan Hatzius and Bill Dudley have had their talking point convergence meeting over a tasty lobster club sandwich at the Pound and Pence already today...
- 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)
It’s a Myth that the U.S. Has Never Defaulted On Its Debt
With the House, as previously reported, now out of the debt ceiling negotiations, it is all up to the Senate to reach some compromise with 4 days until the midnight of the first X-Date. Unfortunately, or maybe fortunately, at least going into Monday, there is no deal, and not even a glimmer of what a potential deal may look like. Yes, Democrat leader Harry Reid did said on Sunday that he had a "productive conversation" with Senate Republican leader Mitch McConnell on efforts to reopen the U.S. government and raise the federal debt limit, Reuters reports, but that's as far as it gets. "Our discussions were substantive, and we'll continue those discussions. I'm optimistic about the prospects for a positive conclusion to the issues before this country today," Reid said in remarks on the Senate floor. He did not provide any specifics of the conversation. Democrats and Republicans remain divided over spending levels in any temporary government-funding measure.
Big picture and dispassionate discussion.
Another of history’s many lessons is that governments under pressure become thieves. And today’s governments are under a lot of pressure.