Q.E.3 has arrived...As I have said for 3 years...They will print money to Infinity and Beyond...

Prepare For A Surge Of Treasury Issuance As Soon As The Debt Ceiling Is Lifted 

One of the side effects of the US hitting its debt ceiling in mid-May is that while the components of its total debt have been shifting, with total marketable debt slowly grinding higher, while intragovernmental holdings (i.e., government retirement pension accruals) declining, the total thing has been flat as a pancake at just $25 million below the mandated ceiling. Since May 16 (or 57 working days now), total US debt has been $14.345 billion and not a penny more. Yet the issue is that with the US expected to have a roughly $1.5 trillion budget deficit in the calendar 2011 year, the ongoing contraction in debt issuance is only temporary. Basically when and if the debt ceiling is lifted, the Treasury will not only have to issue as much debt as before, but it will have to issue massively more in the short term to catch up to the ongoing run rate, and also in order to prefund the same retirement accounts it has been plundering for the past 6 months. So here's the math. As the chart below shows, since May 16, the cumulative divergence between where total debt is and where it should be is now a whopping $265 billion. That's right: when the debt ceiling cap is finally lifted, and it will be lifted, with republicans "kicking and screaming", Geithner will suddenly find himself needing to plug a gap of over 2 months worth of accrued treasury issuance. Mathematically, this means the Treasury will have to sell not the $100 billion or so in net debt but well over double that in August and September. And this will happen at a time when there is no QE2 to soak up the excess slack.

A Glance At The Layout Of The Greek Parliament On The Eve Of The Austerity Vote 

Submitted by Tyler Durden on 06/27/2011 12:04 -0400

As the Greek parliament begins its debate on the mid-term austerity plan expected to culminate with a vote later in the week, below is a quick glance at the layout of the Greek parliament via Reuters for those who are still unsure of the distribution of power. As can be seen, PASOK's majority is in question, with just 5 votes in protest needed to scuttle the carefully set up house of cards which would set off in motion a chain of events that would lead to a liquidity freeze worse than anything seen in the aftermath of Lehman. The question is whether any of the opposition parties will shift their allegiance to G-Pap: if the vote of confidence is any indication, in which not a single non-Pasok member voted for the PM, it does not look good.

Guest Post: What If The Consensus Is Wrong? 

Submitted by Tyler Durden on 06/27/2011 11:31 -0400

There are a variety of consensus views floating around the Mainstream Media and the blogosphere. The two sets of consensus don't align on much, as might be expected: the financial MSM is still spouting the Federal Reserve/Wall Street's "happy story" about how the recovery is weak but muddling forward with "uneven growth" (i.e. someone else got laid off, you still have a job) but corporate profits (the only metric of "growth" that counts) will still be rising forever (as usual). The financial blogosphere consensus is more or less that the fiscal-stimulus/Fed-goosed "recovery" is obviously rolling over here, and since inflation and fear are baked in, gold will continue its steady climb towards $3,000 an ounce and beyond. Oil, meanwhile, is poised to rise as suppliers either lose production to depletion or ratchet production down to support prices. We all know about confirmation bias, the tendency to seek evidence which supports our views after they have hardened into conviction...Which leads me to play Devil's Advocate: what if both consensus camps are wrong?

 

 

 

 

 

EU Working On Greek "Plan B" If Austerity Plan Voted Down 

Just out from Reuters:

• EU WORKING ON CONTINGENCY PLAN IN CASE PARLIAMENT REJECTS AUSTERITY PLAN
• SEVERAL OPTIONS FOR GREEK CONTINGENCY PLAN RULED OUT, INCLUDING EU BRIDGING LOAN - SOURCES
• ONE OPTION IN CONTINGENCY PLAN WOULD BE FOR A THIRD PARTY TO EXTEND A NEW LOAN TO GREECE

But, but, didn't Schaeuble just say there is no "Plan B"... or was that just the now traditional weekend lie to get the EURUSD to spike higher on nothing but an endless barrage of lies. In other news, here comes the (heavily collateralized) Greek Debtor in Possession loan we predicted a month ago.





 More "Change You Can Believe In"

Dallas Fed Plunges, Down -17.5 On Expectations Of Increase To -3.2 From -7.4 

Submitted by Tyler Durden on 06/27/2011 10:33 -0400

The collapse in the manufacturing base continues: the Dallas Fed general business activity index just printed at a whopping -17.5 on expectations of -3.2,  number that was supposed to be a gain from before, and yet another confirmation that Wall Steet is populated by a bunch of illiterate lemmings. From the report: "Perceptions of general business conditions were mixed in June. The general business activity index pushed further negative, falling from –7.4 to –17.5. Twenty-eight percent of respondents said activity weakened this month, the highest share in nine months. However, the company outlook index rose from 3.2 to 7.2, suggesting manufacturers were more optimistic about their firms’ prospects for the near future." Ah, back to consuming hopium. We wonder how many of these manfucturers were optimistic back in Q1 when the the index was printing in the 20 range only to see a near-historic collapse. We are now certain the ISM will pring sub-50, with a print as low as 46 most certainly possibly.

Aircraft Carrier, Stealth Fighter And Now Drone: China's Military Is "Catching Up" 

Submitted by Tyler Durden on 06/27/2011 09:56 -0400

Some time ago it was revealed that in its rush to catch up with western military technology, China has now developed an aircraft carrier and a stealth fighter (reverse engineering efficiency notwithdtanding). Now, it appears that China has developed its first ever unmanned drone. Wired has the latest: "It was another big reveal in a long history of them. Six months after the Chinese air force let the first photos of its new stealth fighter leak online, Beijing’s military has “accidentally” showed off another secretive weapon system: a small drone, apparently used to scout ahead of China’s fast-growing fleet of warships. Details of the Unmanned Aerial Vehicle — gleaned entirely from a snapshot (.pdf) taken by a Japanese navy patrol plane last week — are sketchy, at best. But the new UAV certainly represents a step forward in China’s development of American-style spy drones." Of course, the "leak" is anything but, and is merely another attempt to demonstrate its ongoing scramble to keep up with the US across all verticals. After all: why peg to the dollar, if you can't peg to the military. And while these attempts at oneupmanship are childish, expect to see a very vocal response from the headline hungry general population which may soon find itself in a "panic" over the fact that the biggest communist power in the world is suddenly getting "just as strong."

Moody's Warns Of "Severe Greek Bank Cash Shortage" Due To Accelerating Deposit Flight 

Submitted by Tyler Durden on 06/27/2011 09:12 -0400

We have long been warning that by fat the biggest risk to the Greek banking system is not whether or not its retains its access to the ECB funding window (it will, probably even in the case of a Greek bankruptcy through covert pathways), but domestic confidence in the financial institutions as expressed by deposits, or rather, the lack thereof. Today, as part of its Weekly Credit Outlook, Moody's issued for the first time a very stark warning that should the rate of attrition in domestic deposits (and to see where these are going merely look at the daily EURCHF chart) persist, or accelerate, the results would be disastrous. To wit: "a sustained decline of deposits by more than 35% (roughly equal to the consolidated banking system’s liquid assets and ECB funding availability) within a short period of time, would cause a severe shortage of cash among banks."  Bottom line, it is unclear if even the existing deterioration in the deposit base can ever be undone due to the banks unprecedented reliance on the ECB for day to day funding, now that the bulk of domestic Greek capital is stashed away, safely, somewhere in the Swiss Alps: "With the decline in customer deposits, we expect Greek banks to find it increasingly challenging to reduce their ECB funding dependence, which is their primary objective based on their funding plans committed to the Central Bank of Greece."

Personal Income And Spending Both Lower Than Expected, PCE Deflator Surges, Savings Rate Higher 

Submitted by Tyler Durden on 06/27/2011 08:42 -0400

Not surprisingly, the personal household weakness continues into May, when both personal income and spending came lower than expected, the first printing at 0.3% on expectations of 0.4%, in line with a revised 0.3% in April, while spending printing coming unchanged in May on expectations of a 0.1% rise, down from a revised 0.3% in April. Most important was that the PCE deflator increased by the most since late 2009, surging from 2.2% to 2.5%, just as expected. Squatters rent component of income once again increased: "Rental income of persons increased $3.3 billion in May, compared with an increase of $2.9 billion in April." More importantly, "Private wage and salary disbursements increased $14.1 billion in May, compared with an increase of $26.4 billion in April." This in line with observed decline in tax withholdings by the government over the past several months. Net result, in May the savings rate increased modestly from 4.9% to 5.0%, much to the chagrin of spending advocates everywhere, as in addition to deleveraging, US consumers also saved more. And this is before the market flush in June...