Saturday, October 19, 2013

Weekly Indicators for the week of October 14 - 18 at

- by New Deal democrat

Weekly Indicators at The link takes you to the post - surprsingly positive, ocnsidering....

Friday, October 18, 2013

"Real" initial jobless claims adjusted for California's computer glitch: an update

- by New Deal democrat

Bottom line: initial jobless claims are still in an improving trend. Click on this link to read the full post at

About That "Exploding Government" Thing

Over the last few weeks one of the most common refrains from the idiots who got us in this mess (teaparty, reality denying jackasses) is the takeover of America by an exploding federal government.  Unfortunately, that just isn't the case.

Total federal expenditures have in fact been remarkably stable over the last 4 years. When we look at a longer time series of total federal spending to GDP, we get this:

First, in the above graph notice the largest percentage of government spending/GDP figure we get is about 26%, and that was in response to the worst recession since the Great Depression.  This is standard economic policy 101, and if you don't like it, please re-read Samuelson's Economics textbook (now in its 18th Edition, I believe).  Also note the quick decline we see after that event, indicating the high level of spending relative to GDP most obviously did not continue.  In short, we did engage in extraordinary measures -- but in response to an economic meltdown caused by a freezing of the financial sector, literally forcing us into bold action.  And, what we did is part and parcel of basic economic thinking.

And about too many federal employees we get the above chart: aside from the obvious spikes caused by the census hiring, total federal employees have in fact also been remarkably stable over the last 40 years. 

Bottom line: there is no takeover by the federal government. 

I realize the above uses charts and data, which are anathema to your way of arguing.  However, please make an effort to try to learn basic logic and methods of supporting an argument in the future.

Thursday, October 17, 2013

Yes, Virginia, the Slowdown Cost Us Real Money

From the NY Times:

Even with the shutdown of the United States government and the threat of a default coming to an end, the cost of Congress’s gridlock has already run well into the billions, economists estimate. And the total will continue to grow even after the shutdown ends, partly because of uncertainty about whether lawmakers might reach another deadlock early next year. 

A complete accounting will take months once the government reopens and the Treasury resumes adding to the country’s debt. But economists said that the intransigence of House Republicans would take a bite out of fourth-quarter growth, which will affect employment, business earnings and borrowing costs. The ripple from Washington will be felt around the globe. 

“We saw huge effects during the summer of 2011, with consumer confidence hitting a 31-year low in August and third-quarter G.D.P. growing just 1.4 percent,” said Beth Ann Bovino, chief United States economist at Standard & Poor’s, referring to earlier brinkmanship over the debt ceiling. “Given that this round of debt ceiling negotiations” took place during a shutdown, she said, “the impact on the economy could be even more severe.”

The delusion of victory and the damage done

. - by New Deal democrat

Both temporary and permanent damage has been done to the US economy due to the latest fiscal crisis. Standard and Poors estimates that the US lost $24,000,000,000 of output due to the government shutdown. But the damage is more permanent. This is from CNBC:
Currency analysts have told CNBC that the dollar's status as a reserve currency will suffer long-term damage from the impasse.

"I think it's part of the demise of the dollar as an international reserve currency," Chris Watling, CEO of Longview Economics, said of the U.S. government's political impasse. Alasdair MacLeod, head of research at GoldMoney Foundation, agreed saying the dollar's credibility has taken a "very, very bad hit".

if the dollar loses status as the world's most reliable currency, the United States will lose the right to print money to pay its debt and could be forced to pay this debt.
But at least fiscal hostage-taking has been well and truly killed, right? According to CNN, Obama certainly thinks so:
As Obama walked away from a press conference Wednesday night, he was asked whether he thought America would be going through this brouhaha again in a few months.

His answer: "No."
And so do Congressional democrats, According to Felix Salmon:
Democratic aides are confident GOP debt limit extortion is effectively dead. They acknowledge the Cruz-ites will try for another debt limit crisis, but can’t imagine GOP elites will humor this demand next time, when the 2014 elections are underway
But remember, Washington democrats also thought that the GOP would never, ever let the sequester happen. And everybody else seems to think the GOP will be right back for another bite of the apple in three months. From the same CNN article quoted above:
[F]ormer House Speaker Newt Gingrich predicts tea party and staunch conservatives in the GOP will be more energized after not getting the anti-Obamacare amendments they wanted.

"They will be more embittered, more angry. They will find more ways to go after Obama because they can't find any way to get him to negotiate," he said, adding that he expects Obamacare to become the defining issue of the next two elections cycles.
So does Felix Salmon:
The Tea Party doesn’t take legislative defeat as a signal that it’s doing something wrong: it takes it as a signal that nothing has really changed in Washington and that they therefore need to redouble their nihilistic efforts. Take it from me: come February, or March, or whenever we end up having to have this idiotic debt-ceiling fight all over again
So does John Chambers, the managing director of Standard and Poor's rating service:
"We think that we'll be back here in January debating the same issues. This is, I fear, a permanent feature of our budgetary process."
And here is one final bitter dose of the consequences, from Michael Carey of the Wall Street Journal:
The world has lost its faith in the U.S. It no longer deserves to be a Triple-A credit.

This was encapsulated in the nods of agreement that were seen in a packed auditorium at a Washington conference of international bankers on Friday when a visibly angry BlackRock Inc.BLK +2.82% CEO Laurence Fink told the audience that the U.S. is not a “principled nation.”

When men and women who control tens of trillions of dollars in U.S. investments are indicating they’ve lost their faith in America, it goes to the very question of whether the U.S. deserves to be at the center of world finance. So, whether or not Fitch Ratings follows through on the “Negative Watch” status that it placed on its top-notch U.S. rating Tuesday, it’s clear now that the dysfunctional American political system no longer justifies a Triple-A rating from anyone.
Warren Buffet this week called the debt ceiling "a political weapon of mass destruction.". It must be repealed in full.

Wednesday, October 16, 2013

Live Blogging the US Default

Welcome to this special edition of the Bonddad blog!

Today or tomorrow could be extremely important days in the market as we wait to see it Washington actually solves the debt problem (if only for a mere 4-6 months) or lets the nation default.

9:45 pm CDT: The House passes the bill 285 to 144, with 85 republicans joining all of the democrats. Obama signs the bill. $24,000,000,000 was utterly wasted for nothing. And the clock now starts ticking towards the next crisis in three months.

7:20 pm CDT: The Senate appved kicking the can down the road three months by 81 to 18. On CNN, the lesson Gloria Borger draws is that President Obama needs to anger progressives about Social Security and Medicare.

3:00 CDT: After the deal, the DJIA closes up 200 points, completely reversing yesterday's losses. The 10 year treasury closes at 2.66%, down in yield almost 0.09%, not quite at its October low.

Marketwatch at 11:16 am CDT: "Senate leaders agreed on a plan to fund the federal government through Jan. 15, lift the debt ceiling through Feb. 7, and set up a committee to hammer out broader budget issues. The agreement sets a Dec. 13 deadline for a report on a wide budget plan.". Translation: We'll be back here in 3 months.

10:00 AM CDT: Stock vaulted higher with the DJIA up nearly 200 points on word that the Senate was "very close" to a deal, and that the House would be permitted to vote on that deal. Bonds, meanwhile, did sell off slightly, with the 10 year bond yielding as much as 2.748% (it was at 2.62% on October 3). Bonds matureing on October 24, which had been yielding 0% in late September, were trading as high as 0.72%.

Marketwatch at 8:01 CDT: "[C]learing banks are unwilling to finance paper that matures by the end of year, causing a fairly chaotic environment," said Thomas di Galoma, co-head of fixed-income rates trading at ED&F Man Capital Markets, in a note.

We're already getting preliminary news that the markets are not happy.

From Marketwatch at 7:46 CST: Short-term treasuries are spiking.

From Marketwatch at 7:46 CST: Citigroup has dumped all its short-term treasuries.

NDD here with a brief note: (1) remember that the "best" outcome being discussed right now is that we kick the can down the road for 4 months and then do this all over again. (2) ICSC same store sales last week were only up 1% YoY. That is the worst YoY reading since the recovery began 4 years ago.

From Bonddad: A note on why the short-term treasury spike is so important: there is a market between companies called the repo market. It's essentially a short-term collateralized loan market where one party will essentially give a second market a specific amount of treasury bills in exchange for a short-term loan.  For example, company A needs $10 million because of an unexpected cash short-fall.  They're a large company who just happened to run into a short-term cash crunch.  But while they may be short on cash, they do have Treasury Bills as part of their cash management strategy.  So they give $10 million of T-Bills to a second party who essentially makes a collateralized $10 million dollar loan to the first party.  30 days later, Company A has sufficient cash on hand to repay the loan, so they do so and get their $10 million in T-Bills back.

Here's the rub: this transaction which is incredibly common and a bedrock of modern treasury management requires a "riskless" security to perform.  Enter the T-Bill which is backed by the full faith and credit of the US government.  The T-Bill makes this a routine and standard transaction.  But remove the riskless nature of the T-Bill and you've got big problems in the financial world as this market grinds to a halt, making short-term lending impossible.  That completely cripples trade and commerce, and that is why this situation is so deadly.

From Bonddad: Krugman as a link to a Macroadvisers report which shows that since these budget shenanigans began we've lost GDP.

Senate is taking the lead in budget negotiations. 

Here's a piece on XE on the already negative impacts.

Warren Buffet Calls it like he sees it: this is "asinine."

Senate is real close to a deal:

Top aides to Senate Majority Leader Harry M. Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) are working to finalize plans to raise the debt limit through Feb. 7 and end the 16-day-old government shutdown, after a House Republican effort to forge a solution collapsed Tuesday in humiliating failure.

“We are getting real close,” Sen. Charles E. Schumer (D-N.Y.) said just before 11 a.m., as Republicans began to enter a meeting at which they were expected to finalize the plan. 

As of 12:21 CST, the markets are still rallying.  The SPYs gapped higher at the open and then continued to move up, eventually peaking at 172.  Since then we've seen a slight downward consolidation, but not a panic sell-off.

In addition, it appears the Senate has a deal:

Senate leaders announced last-minute agreement Wednesday to avert a threatened Treasury default and reopen the government after a partial, 16-day shutdown. Congress raced to pass the measure by day's end.

The Dow Jones industrial average soared on the news that the threat of default was fading, flirting with a 200-point gain in morning trading.

"This is a time for reconciliation," said Senate Majority Leader Harry Reid of the agreement he had forged with the GOP leader, Sen. Mitch McConnell of Kentucky.

McConnell said that with the accord, Republicans had sealed a deal to have spending in one area of the budget decline for two years in a row, adding, "we're not going back."

One prominent tea party lawmaker, Sen. Ted Cruz of Texas, said he would oppose the plan, but not seek to delay its passage.

Now we move on to the House, where the results are anything but certain.

Treasuries are also rallying in anticipation of a deal.  From the FT:

It's not just stocks that are rallying as confidence grows that Congress will pass a deal that removes the possibility of a US default.

US government bonds are, too. The yield on the ten-year note fell 8 basis points to 2.67 per cent, echoing gains for longer and shorter maturities.

SPYs Are Remarkably Well-Behaved Considering the Political Backdrop

Above is a 15 minute chart of the SPYs, which covers the last six trading days.  What's really interesting is how remarkably calm the price action is.  We see the big candle up on October 10th and the sharp drop at the open on the 14th, but aside from those events trading has been remarkably calm considering the Washington situation.  

UK Economy Continues To Show Improvement

This is at

Tuesday, October 15, 2013

Young Broder in Training falls for the good-cop, bad-cop ransom routine

. - by New Deal democrat

I can only hope that Ezra Klein was not acting as a mouthpiece for the Administration when he wrote this morning that the House GOP's latest ransom note was kinda, sorta reasonable.

The GOP has pulled a classic good-cop, bad-cop routine in the last few days. First, Mich McConnell, the good cop, gets Senate Democrats to agree to an outer edge of the envelope deal, that isn't quite a ransom. Then John Boehner, the bad cop, makes a few additional demands that don't look so different fron what Reid has already consented to. This is a classic nudge, hoping the other negotiating party is so exhausted that they simply throw in the towel for the new, additional demands.

Does the latest House plan reward the GOP for its hostage-taking? You betcha!

Let me put this another way: this deal only extends the debt limit for 4 months. Have you seen anything in the House GOP behavior in the last 48 hours that gives the slightest indication that they won't be back with a new set of ransom demands when next February rolls around? The only way to end the hostage-taking is to call their bluff (if my out-of-the-box proposal is off the table).

We have reached the end of the line. President Obama should announce that he is going to Camp David, where he will remain incommunicado until tomorrow night. At that point he will return to the White House, and there will either be a clean bill on his desk, or the US defaults.

Agricultural Prices Still Moving Lower

From Bloomberg:

Rice stockpiles in Thailand, once the world’s biggest exporter, are expanding to a record as a government program to buy production spurs farmers to plant the most crops ever and add to a global glut. 

Reserves in Thailand will increase 24 percent to 15.5 million metric tons in 2013-2014 as global output rises 1.7 percent to an all-time high of 476.8 million tons, the U.S. Department of Agriculture estimates. The price of 5-percent broken Thai white rice, an Asian benchmark, will drop 12 percent to $390 a ton by April, a five-year low, according to the median of eight trader and analyst estimates compiled by Bloomberg. 

We've seen this type of action in the agricultural sector for the last few years.  Prices spiked in 2011 but have since been declining as the private sector has responded with increased production and governments have instituted programs like those in Thailand.  We see the overall trend best in this chart of the agricultural ETF:

The weekly chart shows that prices are clearly in a downtrend.  Momentum is weak and volume flow is weak as well.  However, notice the buy signal given by the MACD.  My guess is we'll see a slight uptrend take over, moving towards the 200 week EMA.  But it won't be much of a rally and until we start to get a tightening of supply there won't be much bullish sentiment in the Ag markets.

Oil Should Be Moving Lower ...

Oil's chart is pointing lower.  The MACD is declining, the CMF is showing declining volume flow and the shorter EMAs (the 10, 20 and 50 day EMA) are all indicating declining prices.  However, consider this chart in the context of weekly price moves:

On the weekly chart, we have rising volume flow and momentum (despite the shorter term sell signal).  While the 10 and 20 week EMAs are moving lower, the 50 and 200 week EMAs are moving higher. 
The point here is to look at multiple time frames when thinking about price movement. 

Monday, October 14, 2013

Chinese Inflation Comes in Hotter Than Expected

This is up over at

What Are the Effects of Default?

The Washington Post has a really good piece that explains the overall impact of a default.  Here are some of the more important points:

Experts on federal finances say that money might be enough to make payments for a few days, but certainly not for more than two weeks. In any event, they say, President Obama will have to make untested decisions about who and what to pay because daily tax receipts will make up only about 70 cents of every dollar of necessary spending.

Economists roundly agree that no matter which course Obama chooses, a drop in federal spending that large would exert a huge drag on economic growth. And in contrast to what happens during a traditional downturn — the safety net expands to help the vulnerable — assistance to seniors and low-income people could be delayed or reduced if Congress doesn’t raise the debt ceiling.


According to the Bipartisan Policy Center, which has done the most detailed analysis of federal finances in a debt-ceiling breach, administration officials would have to consider delaying or suspending tens of billions of dollars in critical payments to low-income people and seniors.

Under the most alarming scenario, as soon as Friday, payments to Medicare and Medicaid providers, unemployment benefits, Social Security checks and tax refunds would be postponed for one to four days.

Food stamps due to be distributed Oct. 25 could be held until Oct. 30. The same would happen to payments to defense contractors.

With huge payments due in early November, the situation would become grimmer. Nearly $60 billion in Social Security checks, veterans benefits and pay for active-duty troops is due Nov. 1. Those could be delayed nearly two weeks, according to the Bipartisan Policy Center’s analysis.

Washington Post floats my proposal to end the government shutdown crisis

- by New Deal democrat

Yesterday I made an out-of-the-box proposal to end the government shutdown / debt ceiling crisis in Washington. It boils down to the GOP agreeing to a permanent repeal of the debt ceiling law in return for Democratic concessions for a debt ceiling increase now.

This morning it was adopted by Greg Sargent of the Washington Post in an article called "A way out of the Crisis."

The trial balloon has now been floated. As Sargent correctly notes:
If Republicans refuse this request, it will be a clarifying moment: It will confirm Republicans are fully intent to use the threat of default as leverage to get what they want in later showdowns. And the refusal to renounce this tactic will become what kills any hopes of a compromise.  “If a deal fails on that basis, it becomes clear that Republicans are intent on using this as a weapon of extortion over and over again.”
A big thank-you to Greg Sargent, and if somebody else forwarded my post to him, a big thank-you to that person as well.

Market Analysis: US

The US did not release any economic data last week, so all we're left with is the performance of the markets.  Let's start with the SPYs:

Remember that the overall daily chart is losing upward momentum.  While we see a rally from mid-November 2011 to early August, we now have prices moving in more od a sideways pattern.  A big key to this chart is the declining momentum in the MACD.  Also note that volume flow has been weaker. 

What is most likely happening is an overall price consolidation as the markets wait to see what happens in Washington.  Notice the red line that connects the lows of late August and mid-October.  This line would be the lower line of a symmetrical triangle consolidation pattern.  Right now a price drop below 164.5/165 would be the key technical development lower, with a move below 162-162.5 being utterly deadly to the bulls.

Bulls would need to move the market about the 178 area for a break-out to occur

Sunday, October 13, 2013

A thought for Sunday: an out-of-the-box proposal to solve the debt ceiling crisis

- by New Deal democrat

On Thursday I wrote a post the thesis of which was pretty straightforward: when the threat by a sovereign to not pay any of its bills - including selective payment of those bills - goes from trivial to non-trivial, based on the increasing frequency of the threat and the increasing brinksmanship associated with that threat, I would expect buyers of that sovereign's bonds to price in the risk of even partial or selective default. Even though, to date, that sovereign had never in history defaulted on any of its obligations. Even if the government of that country chose to prioritize payment of bondholders over other obligations, I would expect the second-class parties to hire lawyers and try to freeze some or all of the payments to sovereign bondholders while they argued their case in court.

In fact, he more I've though about it since, the more it looks like the S&P downgrade of US debt in 2011 - due to that brinksmanship - wasn't political at all (the source of much criticism at the time), it was dowright prescient.

So here we are, only days away from what could be a calamitous economic event, casued entirely by voluntary actions of government, with no apparent way out.

Or is there? Here is an out-of-the-box suggestion:

The number 1 priority of the GOP is to extract one or more real concessions in return for its hostage-taking.

The number 1 priority of the Democrats is to make sure that hostage taking is not rewarded, so that the GOP never takes hostages again.

The parties are at loggerheads, and we have a crisis because these priorities appear to be intractable.

Except actually, they aren't.  *Both* priorities can be satisfied.

The secret is that the debt ceiling law itself is just that - only a law. It was enacted 100 years ago when the US put World War I on its credit card, causing the biggest US inflation of the 20th century.  Now that the US government has many continuing obligations, including Social Security and huge treasury debt payments, this law is a loaded loose cannon on deck, capable of inflicting great damage.  I am shocked that we haven't already seen further downgrades of US debt by credit agencies (but give it a day or two).

So, here is the out-of-the-box solution.  The democrats add a demand: they insist that the debt ceiling act itself be repealed, ending the chances of hostage taking forever.

The GOP rejects this.

Then the two parties negotiate what of the GOP's current demands the democrats are willing to concede, in return for the debt ceiling law itself being repealed.

The GOP gets what it wants - actual concessons for the hostage taking. The Democrats get what they want - the GOP can never take hostages again.

And the US public never have to go through this again.

P.S.: If someone thinks this is worth cross-posting at a political blog, be my guest. But I won't.