$15,OOO,OOO,OOO,OOOBAMA! - It's Official: Total US Debt Passes $15 Trillion (More "Change You Can Believe In")Too sad for commentary, but here is some math: total US debt has increased by 41.5%, or $4.4 trillion, from $10,626,877,048,913 on January 20, to $15,033,607,255,920, under Obama as president.
Citi's Willem Buiter whose succinct analysis a few weeks ago sealed the coffin of the worthless EFSF, has just come out with another knock out punch this morning after telling Bloomberg TV what everyone else knows is true, but is terrified to say out loud: namely that, "time is running out fast." He adds: " I think we have maybe a few months -- it could be weeks, it could be days -- before there is a material risk of a fundamentally unnecessary default by a country like Spain or Italy which would be a financial catastrophe dragging the European banking system and North America with it. So they have to act now." In sum - a rehash of the Deutsche Bank pitchbook to the ECB we posted earlier, only in Mutually Assured Terms that would make even Hank Paulson blush. At this point Germany has an option: tell Europe to take a hike, or go balls to wall in bailing out 250 million European's early retirement packages. The ball is in Merkel's court, who unlike Citi, JPM, DB, and everyone else, has to worry about this fickle, and potentially pitchfork bearing, thing called "voters."
And in lieu of any rumors out of Europe (they have all been exhausted, plus nobody believes anything out of the doomed continent), here is our own Fed with its best attempt to talk the market up:
- ROSENGREN: CRISIS MIGHT WARRANT COORDINATED ACTION BY FED, ECB
- ROSENGREN SAYS FED SHOULDN'T BE DISSUADED FROM TRYING TO HELP
- ROSENGREN: CENTRAL BANKS CAN'T SOLVE ECONOMIC PROBLEMS ALONE
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The late day collapse in financials (thanks to Fitch's comments that seemed to wake up a sleeping equity market to the reality that credit has been screaming for weeks) helped drag equities (and HY debt) significantly lower. Most notably, amid a much higher than average volume day today, the dislocations of the last few days - that we have highlighted - have converged very rapidly this afternoon. ES significantly underperformed a broad basket of risk assets (CONTEXT) into the close as copper and oil gave back some of the day's gains. TSYs closed at low yields for the day - and 2s10s30s dropped significantly - as we warned it would have to sustain any sell-off as EURUSD tracked back towards its lowest levels of the day dragging DXY up to almost unchanged on the day (+1.7% on the week). On a longer-term basis, HY markets are priced for an S&P around 1190 currently but as HY also collapses wider, we will rapidly see the 'expected' S&P level drop further. Credit Anticipates and Equity Confirms is often cited by old-school credit market professionals - it seems once again that it is true. What is more evident, and discussed by Peter Tchir of TF MArket Advisors, is the morphing of the sovereign crisis into a banking system crisis as TPTB are unable to achieve anything of note.
While Fitch sees US banks having manageable exposure to the PIIGS markets and having cut their overall exposure, the reality of the contagion of further European banking system stresses (which we have been very vocal about in our discussions) is a concern. We have highlighted again and again that the credit market has not been as comfortable as stocks with the US financial sector for the last few weeks and today it seems reality is starting to sink in as BAC trades with $5 handle and $MS a $14 handle back to one-month lows. XLF is now down over 2% today alone as the broad HY credit market is collapsing this afternoon. Once again credit markets had it right!
Remember the DOL's very appropriately named WARN website we noted some time ago which warns investment bankers they are about to be made redundant (at least someone is being honest)? Well, it may be time to refresh, especially if you work at Credit Suisse (and sorrry, no bumping rights - should have thought about that before joining a non-union job).
As I listen to all types of perma-bull talk about how the S&P would be at 1400 if it wasn't for Europe (which is the equivalent of: if my wife was 100 pounds lighter... she'd be a supermodel), I can't help but pulling my hair out. The situation in Europe is clearly bad, and after reading Michael Lewis' new book... appears almost impossible to be resolved without massive defaults. However, the other domino in the equation is the Chinese real estate market. The 'global growth engine', China, is running out of steam. Their policy of placing market orders on anything and everything to inflate stimulate the economy - surprise, surprise - is proving to be unsustainable.
This is just getting ridiculous:
- CALIFORNIA REVENUE MAY TRAIL FORECAST BY $3.7 BLN, ANALYST SAYS
- CALIFORNIA REVENUE SHORTFALL MAY MEAN SHORTER SCHOOL YEAR
In 2007 and 2008 the Fed instituted all sorts of programs to enhance liquidity. It was the first time they went beyond simple rate cuts (which they also employed). In the end it didn't help much. It ensured that banks could fund the positions they wanted, but it didn't stop the sell-off in assets, because the banks didn't want the risk. No one wanted the risk. Liquidity concerns and even some capital concerns are driving down Italian and Spanish bonds, but behind that, there are real solvency concerns. There are clearly liquidity problems again, but they are directly tied to solvency. The Euro basis swap isn't getting worse because US banks don't have money to lend to European banks, they don't want to lend to European banks. Maybe we should be worried the Fed knows something we don't about how bad it is and are trying this ploy again, because it is one of the few things they can do to help Europe?
JPM, which has been stuck holding on to reflationary assets for months and months expecting a QE3 announcement which keeps on not coming as the market always frontruns it and makes any actual reflationary progress by the Fed impossible, couldn't wait to release today's crude price update following the reversal of the Seaway pipeline. The bottom line: JPM is lifting its WTI forecast to $110/bbl in 2012 and $118/bbl in 2013, and see the Brent-WTI spread narrowing to $5 and $3/bbl in those years, respectively. Previously WTI was seen as hitting $97.4 in 2011 and $114.25 in 2013. Consumers everywhere rejoice as they will have to take even more debt on (never to be repaid of course) in addition to never paying their mortgage payments. As noted earlier, now that WTI is well north of $102, kiss any deflation risks goodbye and with that the announcement of MBS LSAPs. At least until tomorrow's post 3 am European gap down, which will be fully filled and then some in the period between noon and 4pm.
"What is the future of work?" Given the "recovery’s" stagnant job market and the economy’s slide into renewed contraction, it’s a timely question. To answer it, we must first ask, what’s the future of the U.S. economy? In broad brush, the Powers That Be have gone "all in" on a bet that this recession is no different than past post-war recessions: all we need to do to get through this “rough patch” is borrow and spend money at the Federal level, and the household and business sectors will soon recover their desire and ability to borrow more and spend it all on one thing or another. We don’t really care what or how, because all spending adds up into gross domestic product (GDP). In other words, we're going to “grow our way” out of stagnation and over-indebtedness, just as we’ve done for the past fifty years. Unfortunately, this diagnosis is flat-out wrong. This is not just another post-war recession, and so the treatment—lowering interest rates to zero and flooding the economy with borrowed money and liquidity—isn’t working. In fact, it’s making the patient sicker by the day. The best way to eliminate the signal noise of official propaganda (“The stock market is rising, so everything’s great for everyone!” etc.) and the high keening wails of Keynesian cargo cultists is to construct a model of the underlying fundamental forces that will shape the future. The best way to do that is to glance at a few key charts.
We are trying to decide what is funnier: Italy cancelling bond auctions and telling the world it does not need the cash, even as its Treasury Director tells the world the country will need to raise €440 billion... that's €440,000,000,000 in cash, next year, or that as Reuters reported earlier, the country has simply decided not to issue preliminary Q3 GDP data. It makes sense: due to austerity Greece had to clamp down on ink costs and as a result was unable to print tax forms. And now Italy gets two ministers for the price of one (PM and FinMin) and now its statistic office is cutting back on calculator and abacus costs. Very prudent and we are sure the ECB will be delighted with this proactive expense management.