Oct 17. Treasuries rally on debt accord, surprising the shorts
I want a girl with uninterrupted prosperity
Who uses a machete to cut through red tape
-CAKE
The chart below looks like a penny stock that some charlatan has perpetrated a pump-and-dump scheme on, but no, just the Oct 24 T-bill during gov’t negotiations…
Oct 17. The gov’t passed a bill to avert debt default. Gold is up $27 this morning, back above 1300 at 1309. TYZ is close to making a new high for October, but back month eurodollars are easily making new highs to levels not seen since last June in the midst of the taper sell off. New low made yesterday in red/green pack spread at 83 bps. Highest one-yr calendar spread on the curve is EDZ15/16 which settled yest at 107, though Sept’15/16 is trading below 100 bps this morning. The fight resumes in January as funding only goes to the 15th of that month with a new debt ceiling until Feb 7.
–IBM reported the 6th quarter of declining sales, partially blaming emerging markets. China is also citing a slowdown in SE Asia as a reason for slowing exports. Taper/tightening fears of early summer exposed EM problems and spurred capital flight, the effects of which are still being felt due to loss of confidence. At the same time, there is more press on upcoming EU bank stress tests and the possibility of more depositor bail-ins. Weidmann continues to warn that banks are carrying too much sovereign debt of their home countries. Is it any wonder that treasuries find support in this environment?
–There’s an article on Reuters that sums it up pretty clearly with this headline: Washington is the Biggest Risk to the Economy (due to continuing uncertainties and lack of resolution to structural problems). It’s amazing that this gov’t, so intent on protecting citizens from any possible malfeasance from the financial industry can single handedly sabotage the entire economy. For example, I saw a blast from MNI that said the Fed was considering imposing penalties on banks for owning physical commodities. Good, let’s reinforce disinflationary tendencies. Moral hazard? Look at DC…no risk to wrong decisions, and rules for the rest of the populace don’t apply. It’s the best example of moral hazard in the country. Look at the attached chart of the Oct 24 t-bill. Trades like a penny stock. And when critical mass is reached in a population that feels it has no voice, a void is created which gives rise to, for example, Le Pen, whose party won elections in France and assures us the EU will collapse like the Soviet Union. Her party strikes a nationalist chord by rejecting Brussels’ control over France.
–News today includes Jobless Claims expected 330k and Philly Fed 15.0.
