Moody's Warns That Any Fluff Deficit Reduction Plan Will Likely Result In Downgrade 

Since we don't have minutely Europe headlines, instead we get US ones. And here is the first official reaction to the McConnell plan from a rating agency. Since this Plan B is far more concrete than the Gang of Whatever Plan, Moody's will have absolutely the same to say about the previously noted 5 page talking points memo. 

 

 

 

 

Portugal Joins Spain And Greece In Lying About Its "Colossal" Deficit 

First Spain's Castilla La Mancha region was the first to announce it had "discovered" major debt ceiling holes, now it is Portugal's turn. The Telegraph informs that "Portugal's new leader Pedro Passos Coelho has told the nation to brace for further austerity measures after his government discovered a "colossal" €2bn (£1.7bn) hole in the public accounts left by the outgoing Socialists." And while it answers our immediate question "who's next" it certainly does not provide an answer to who's last. Because as more and more governments are changed, more and more such "discoveries" will be announced, but luckily for Europe (and then America), there are far more pressing issues that distract the populace than discoveries than in the past would have led to popular backlash. Concurrently, Portugal joins Greece in indicating that beggars can most certainly be choosers: "Mr Passos Coelho also appeared to caution the European authorities that his government will not tolerate heavy-handed interference in the country. "We want to take part in an ambitious European project and make our contribution so Europe can confront its problems in the most ambitious way, but as prime minister I will not stand by and let Europe govern Portugal," he told a party gathering." And while short-termism reigns across capital markets at least for a few more hours, the reality is that there is simply not enough money out there to plug each and every hole as it is uncovered. But that will take the market a few weeks to months to realize.

James Grant: ‘We Need the Gold Standard NOT the “PHD Standard”‘ (video)

Author: goldnews | Filed under: Central Bank News, Economic News, Forex News, Political News, Precious Metals News James Grant, publisher of Grant’s Interest Rate Observer, discusses the debt ceiling, treasury market and gold standard with Bloomberg’s Carol Massar. Read the rest of this entry »

 

 

 

 

 

Wildebeast Heard Shifts From Dumping All Long Bonds To Lifting Every Available Offer 

While it is easy to ignore the latest delayed and frankly laughable melt up in stocks, which reacted to nothing but Bloomberg headlines even as the "Gangbang of Three hundred million" information was well in the public domain, and have surged on the usual and now much adored low-to-no volume move, the move in bonds is far more troubling for the simple reason that unlike stocks (recall that most fast money asset manager are now in cash and just intraday HFTs and day traders rely on the S&P, as well as the dumb money of course) bonds are far more critical. And it is there that we have a truly unprecedented buying rampage, with an emphasis on the 30 Year, which has moved from being most hated this morning to most loved in the span of a few hours: a move which courtesy of massive leverage has left many holders with a whiplash induced concussion. And since the Congress has said absolutely nothing good about this news, expect the same whiplashing that we saw out of Europe on every headline to make its way to the US bond market. 

 

 

 

 

 

Delayed MOMO Knee Jerk Reaction To "Fluff Compromise" Breaks ES-RISK Correlation 

You guessed it: the second the headline scanning momos and HFTs got wind about the new debt program, despite it being out there for over an hour, the market surged. But only stocks. The broader representation of risk has barely budged. Is this divergence sustainable? Who knows (except for Brian Sack of course). Those who can recreate the RISK basket synthetically may wish to contiune the trend of profitable compression trades between reality and momo stupidity. 

 

 

 

 

 

 

 

Are Apple's Directors Planning Steve Jobs' Succession Behind His Back? 

With Apple due to report earnings after the close, everyone is focusing on the stock whose market cap at this rate of growth will surpass $1 trillion within a few short years. While we wish Apple all the best in that questionable pursuit, especially if it wishes to avoid a Volkswagen-Porsche type short squeeze, it is interesting to note that the WSJ has reported that "some directors" are pondering the succession of the iconic Steve Jobs, who until 2 years ago was perceived as instrumental and the vision behind what has become the "coolest" brand in technology. The surprising finding is that this may be happening behind his back. From the WSJ: "Since Steve Jobs went on medical leave this winter, some members of Apple Inc.'s board have discussed CEO succession with executive recruiters and at least one head of a high-profile technology company, according to people familiar with the matter. The conversations weren't explicitly aimed at recruiting a new chief executive and were more of an informal exploration of the company's options, said these people. The directors don't appear to have been acting on behalf of the full board, some of these people said. Apple has seven directors, including Mr. Jobs." Jobs response was not very agreeable: "It is also unclear whether Mr. Jobs was aware. "I think it's hogwash." However, while we assume that no voicemails were hacked in the procurement of hits article, we do tend to believe the WSJ, especially with Jobs' frail health in the last few months. Will it impact the stock as it did once upon a time: probably not. Or at least not until such time as the absence of Jobs does change the precarious ecosystem balance of geeky, techy and cool. Finding a replacement will not be easy. 

 

 

 

 

What Volume? 

Those hoping for some relative distribution in this rally will have to do what they always do on up days: wait until a down day. The chart below shows cumulative divergence from average volume. Ever since yesterday's late ramp on hopes for yet another European solution through today's so called debt ceiling resolution, when we have seen 30 points surge in the ES on no actual news, the volume has been well below average for two consecutive days in a row. Yes: the move is once again based on marginal churning courtesy of HFT vacuum tubes and the occasional day trader. Everyone else has already tapped out their margin account. 

 

 

 

 

 

Rhetoric on U.S. ‘Deficit-Reduction’ is Nonsense

In every way, the “negotiations” between Republicans and Democrats on “deficit reduction” are a complete joke. As always, the best place to start when engaging in logical analysis is with definition of terms.

A “deficit” is the annual budget-gap between what a government spends, and what it brings in with revenues. Officially, the U.S. deficit has never exceeded $1.6 trillion. Obviously, you can’t “reduce” a number which has never exceeded $1.6 trillion by $4 trillion – but it sure sounds impressive when you spout such drivel.

Back in the real world (a place shunned by both U.S. politicians and the mainstream media), here is what is really taking place at the political circus in Washington. Republicans and Democrats are (supposedly) negotiating to reduce a small portion of future U.S. deficits, totaling $4 trillion over a period of many years. Suddenly this “Grand Bargain” doesn’t sound quite so grand, does it?

In fact, if they wanted, U.S. lawmakers could proclaim an even “bigger deal” when these anti-climactic “negotiations” mercifully come to an end: they could “reduce the deficit” by the same amount each year – but continue this “deficit fighting” over a 100 years (or a thousand), and “reduce the deficit” by $20 trillion, or $50 trillion (depending on how “hard” these deficit-hawks were prepared to “fight”).

The general problem here is an obvious one: the U.S.’s debts, liabilities, and current deficits are so gigantic (and totally unsustainable) that merely reducing the annual deficits by 15%, or even 25% falls far, far short of what is necessary for the U.S. to avoid outright bankruptcy. Thanks to the harsh mistress known as “compound interest”, the only way the U.S. economy can avoid bankruptcy is to eliminate the deficit completely now, and return to real budget surpluses – not the ‘smoke-and-mirrors’ budget “surpluses” which the Clinton regime pretended to achieve.

If the U.S. were forced to pay the same interest rates that Greece is paying today, this alone would double the current U.S. deficit, and increase the cumulative total of U.S. deficits by well over $10 trillion (during the same interval in which Republicans and Democrats claim they coud “reduce the deficit(s) by $4 trillion”). I’ll return to this topic later, but at the moment I wanted to get to the specific reason why this entire debate is unrealistic to the point of absurdity.

A large portion of the current U.S. deficit is “structural” in nature. For those without a background in economics, this is the opposite of a “cyclical” deficit, where the deficit exists merely because of a trough in the business cycle – and it will disappear on its own (or at least most of it) as soon as the economy “returns to normal”. Generally, this is what our political leaders are pretending in all Western economies, but specifically this is the implicit assumption which forms the basis of the “plan” being publicly cobbled together by Republicans and Democrats.

Meanwhile, back in the real world, the vast majority of the current U.S. deficit is “structural” in nature: specifically, it is an economy which is now “structured” to produce far too little revenues to fund the U.S. government. This is no “secret”. I showed this conclusively in a chart I included with a recent commentary.

Read more: Rhetoric on U.S. ‘Deficit-Reduction’ is Nonsense

 

 

 

 

 

US House Price to Decline as Housing Starts and Permits Rise

Author: goldnews | Filed under: Central Bank News, Economic News Today two pieces of data were released by the U.S. Department of Housing and Urban Development which gave rise to optimism in the US housing market. Housing starts climbed an unexpectedly large 15% to a 629K annual pace and building permits were higher than expected as well at 624K. The rise in housing starts mean more homes are presently under construction and the growth in building permits suggest construction is going to continue to increase into the future.
US equity markets have rallied since the release, accompanied by some positive reports by Coke and IBM driving markets higher. The housing data is not a positive sign, however, despite the market’s present interpretation based on the fact past recoveries usually include an uprising in housing construction. The difference is the present crisis was rooted in the housing market, and unlike past crises, the market was significantly inflated and remains far from repair. Read the rest of this entry »

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