House Calls Off Thursday's Vote on Debt Plan; Dollar Falls

After hours of trying to get enough votes late Thursday, the Republicans who control the House of Representatives put off action for the night, as the clock ticks towards a default if the debt ceiling is not raised by August 2.

US House Republicans to Meet Friday 10am EST to Assess Path Forward: Pence

Futures Plunge As Boehner Unable To Get Enough Votes, Essentially Cancelling Deficit Plan Vote, Dollar Plummets

Tonight just got that Lehman Brothersy feel to it. After hours of delays, Boehner just experienced a supreme dose of humiliation after he announcing he would cancel tonight's much delayed vote on his deficit plan after apparently being unable to get the requisite 218 votes to pass his plan though the Congress (forget that it would never pass Senate or the President). Boehner has said he will instead hold an emergency meeting with members Friday morning but the damage has been done. The result: the markets are now in absolutely terrified mode, with ES just plunging by over 12 points on the news, the dollar hitting fresh post March 17th lows against the Yen following the Fukushima explosion, and overall total chaos appears to be on the horizon. And with Europe about to open, all hell is about to break loose. Something tells us that the deer in headlights will be on prominent display tomorrow, not to mention the bear cavalry.

S&P Key Support Level: 1284; After That It Is Rough Sailing Until 1252

As ES tumbled to 1285, there is a good reason why it was instrumental to halt the drop because should the 200 DMA in the S&P get taken out, at about 1284, then say hello to the next support which is at the March and June swing low trendline of 1258. Then again, in order to get QE3, which by the way is the goal here once all the smoke and pizza boxes clear, the market does need to plunge as has been warned again and again. Alas, it has to drop by another 20% from here. So, all those who traditionally keep buying the dip in advance of anticipated Fed intervention sooner or later will have to eat their losses. And considering that America may be bankrupt as soon as Tuesday unless the Fed sells its gold, it will certainly be sooner. So as Asian dealers scramble, and Europe wakes up (can UniCredit make it a trifecta of trading halts? Why of course), with America to follow thereafter realizing its Q2 GDP was just 1.7% (and to be revised to 1.4% in 2 months), the race for QE3 finally is on with just one month until Jackson Hole.

Guest Post: Who Are The Extremists?

The Debt Ceiling Reality Show approaches its grand finale in the next week. The world breathlessly awaits the shocking conclusion. The debt ceiling will be raised. The world will be saved. Wall Street will rejoice. Americans can focus on the important stuff again, like Casey Anthony’s upcoming book, who will win this week’s Toddlers and Tiaras pageant, and the latest app created for their iPads. Based on my observations over the last few weeks, I’m absolutely sure that 90% of the politicians in Washington DC would lose on Are You Smarter than a 5th Grader? What the public doesn’t see is the rooms filled with PR maggots in the bowels of Congress generating talking points and testing them in over night polls of the public. Their sole purpose is to generate a message that will convince the public the fiscal debacle is the fault of the other party. The goal is to gain an advantage in the next elections. The long term future of our country is unimportant to the soulless autobots that get paid to misinform and mislead the masses. Leaving unborn generations with an un-payable debt so we can selfishly cling to benefits promised to us by corrupt politicians who only made the promises so they could be elected, is the ultimate in egocentric myopia.

Dispersion Between Pre- and Post-"Default" Cash Management Bills Hits 11 bps

Yesterday we reported of a dramatic dispersion between the just maturing July 28 Bills and the "post default" August 4th version of short-term funding. We also suggested that this is probably a spread that should be promptly collapsed as in the very unlikely event there is a default, the last thing on your counterparty's mind will be trying to collect the several MMs owed to him. Well, the July 28s matured today, and the spread appears to have evaporated. Not so fast. Those who so wish, can still put on the compression trade, although not using plain vanilla bonds, but CMBs instead. In fact, as of today, traders can capitalize on the Treasury's D-Day, with the spread between the August 2 and August 4 CMBs rising from 5 bps to 11 bps in 2 days. Now the reason why this trade, with lots of leverage would be ideal, is that, as mentioned above, if the US does default, Repo desks and Prime Brokers will have much muich bigger problems, and two, as we pointed out, it will imminently become "uncovered" that the Fed has a secret stash of cash, up to the amount of about half a trillion, which may easily carry the Treasury through the new year, in which case the spread will immediately collapse. Of course, we could be wrong, and everyone who plays the compression will blow up in an epic supernova that will make Boaz Weinsten's legendary basis trade annihilation seems like amateur hour.

One Day Ahead Of Q2 GDP, Visualizing The Disastrous Historical "Growth" Consensus Estimates

Any time Wall Street tells you something, ignore it. Case in point: the historical "consensus" forecast of Q2 GDP. We have presented this chart before, most recently as pertains to Q1 GDP, although when it comes to unmasking Wall Street's broad incompetence, repeated showings never hurt. And the chart speaks volumes not only to just how much more "insight" those experts have into the future of the economy (none, but that doesn't prevent them getting multi-million bonuses at the end of every year), but also that any hopes of a Q3 and Q4 economic rebound will be imminently dashed. Below is the dramatic(ally wrong) history of Q2 GDP consensus forecasts, one day ahead of the first estimate of the official data release which will now most likely come well below a contractionary level in real terms.





Here's a Must Read article...

Guest Post: Conscience Of A Gold Investor

Many deep dilemmas face investors of Gold & Silver. First and foremost we feel an urgent need to defend ourselves against a crippled corrupted USDollar. The level of debilitation cannot be adequately put in words, as it has lost perhaps 70% of its value just since 1980 when the Jackass entered the workforce after years at the university. The USEconomy cannot be rebuilt or sustained on bond fraud, debt auctions covered by the printing press, endless war, phony accounting, outsourced industry, home equity extractions, rigged financial markets, constant deception on economic recovery, falsified economic statistics, and pursuit of the next asset bubble. The end game is fast along, gaining traction as much as public attention. The remedies put in place to date have centered on additional currency debasement of all major currencies, extension of sovereign debt when its burden is already at a staggering level. The rescue of the bank assets, largely toxic from the bust in housing and mortgage, has resulted is widespread redemption of nearly worthless bonds or heavily impaired bonds. The consequence has been a rapid rise in the entire cost structure to the global economy, without the benefit of rising incomes.

In The News Today

July 28, 2011, at 6:28 pm
by Jim Sinclair 

My Dear Friends,

Financial TV actually has a countdown clock to the day of Default. I still feel that a compromise at the last moment that offsets the default but does not do anything meaningful in the over the top debt problem will come.
The question in all our minds is what will such compromise have on the price of gold?
We have written here recently and published the articles of others that state a downgrade of US Treasuries has more serious long-term implications economically than a short term technical default.
I cannot recommend the hedges you hold by owning gold and gold related items be dropped even if gold was trading at $1650.
There is nothing going to happen that is going to offset the borrowing demands of the US Treasury in a significant way. Rating Agencies who have not hesitated to downgrade everything Euro cannot hide from the sloppy process going on now in the Senate and House.
If US rating agencies fail to downgrade US Debt they show themselves to be Europhobic and without any credibility.
Stand strong and hold your gold hedges. What is likely to happen is a US debt downgrade after a compromise on the debt ceiling which will be much ado about nothing.
Regards,
Jim



Jim Sinclair’s Commentary

Any actions taken to curtail debt will increase unemployment and put more pressure on housing. I believe 2012 is an election year.






Jim Sinclair’s Commentary

Others now realize that there is no upcoming solution to the over the top US debt problem.

‘Dollar Malaise’ to Last: Forex Pro – CNBC By: Guillaume Desjardins
Assistant Producer, CNBC.com
With the clock ticking in Washington DC and Congress desperatetly trying to find an agreement on raising the debt ceiling, the greenback is heading towards levels last seen in the fall of 2008, when it reached its lowest point over the past 10 years.
This "dollar malaise" is set to last, Thanos Papasavvas, the head of currency management at Investec Asset Management told CNBC on Wednesday.
"The shorting the dollar is going to be here for a little bit longer… even if they do find a resolution," Papasavvas said. "There are still issues: fiscal issues will not go away; the economy is not just simply going to rebound out of a current structure; the industrial environment is not going to be lifted, and reserve managers are going to be looking for continuing to move away from dollars to other currencies," he added.
This move away from the US dollar is to benefit other currencies such as the Aussie, the Kiwi and the Canadian dollar.
"It’s the currencies which have had strong fundamentals," Papasavvas explained, "these are countries which are doing relatively well with a continued expansion of the emerging market growth story, China, and commodities."
More…





Jim Sinclair’s Commentary

If debt rating agencies are to deal with the Euro and the Dollar with an even hand, this alone would call for a downgrade.

House Postpones Vote on Boehner’s Debt Ceiling Plan
House Speaker John A. Boehner abruptly delayed an expected vote on Republican debt ceiling legislation late Thursday, shifting business on the House floor in the middle of the debt debate.
The delay came after House lawmakers had already began discussing the legislation that would set up a pivotal showdown between the House and the Senate over how to cut spending and increase the debt limit before the federal government loses its ability to borrow.
It was unclear whether the debate and vote on the legislation was delayed because Republicans did not feel that they had the votes to ensure its passage.
More…

Jim’s Mailbox

July 28, 2011, at 6:26 pm
by Jim Sinclair 

Those Appalled Haven’t Seen Anything Yet 

CIGA Eric

Capital understands that headline adjectives are often layered. "Appalled" enough to seed the headlines with discontent? Yes. Appalled enough to sell Treasuries? Not yet.
Investors that believe bonds can’t be sold faster than bad habits at finishing school are likely to be ‘appalled’ by their price action by 2016.
US Treasury Bond 20YR+ (TLT) And US Treasury Bond Diffusion Index (DI)
Headline: Chinese Officials ‘Appalled’ by U.S. Impasse: Roach
Senior Chinese officials are “appalled” by the impasse among U.S. politicians on raising the nation’s debt ceiling to avoid a default, said Stephen Roach, non-executive chairman of Morgan Stanley Asia Ltd.
“Coming so shortly on the heels of the subprime crisis, the debate over the debt ceiling and the budget deficit is the last straw” for China, New York-based Roach, 65, said in an e- mailed note today. He said his assessment was based on visits to Beijing, Shanghai, Chongqing and Hong Kong.
In another sign of concern within the nation that is the biggest foreign owner of Treasuries, the official China Securities Journal said today that the U.S. stand-off signals long-term dollar weakness that will push up commodity prices and pose inflation risks for the world. In Mumbai yesterday, a former central bank adviser, Yu Yongding, repeated his call for China to reduce its Treasury holdings, adding that a default would be “disastrous.”
Roach cited an unnamed Chinese policy maker as saying in mid-July that “we understand politics, but your government’s continued recklessness is astonishing.” In the past, the economist has met with officials including central bank Governor Zhou Xiaochuan.
Source: bloomberg.com
More…