Morning Report – an emerging deal? 10/15/13

Vital Statistics:

Last Change Percent
S&P Futures 1702.7 -1.6 -0.09%
Eurostoxx Index 2994.3 16.6 0.56%
Oil (WTI) 101.5 -0.9 -0.86%
LIBOR 0.244 -0.002 -0.92%
US Dollar Index (DXY) 80.64 0.374 0.47%
10 Year Govt Bond Yield 2.71% 0.03%
Current Coupon Ginnie Mae TBA 105 -0.1
Current Coupon Fannie Mae TBA 104.2 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.29
Markets are flattish after Citi missed and Coca Cola and Johnson and Johnson beat earnings expectations. The Empire Manufacturing Survey came in at 1.52. Bonds and MBS are down
The Senate appears close to a deal on the government shut down and the debt ceiling. The plan would fund the government through mid-January, and extend the debt ceiling until early February. Obamacare would remain largely intact, although Republicans were able to extract a concession that would force the government to verify that people are eligible for subsidies. Democrats also want to delay a tax on existing policies which is on Big Labor’s wish list. This whole thing is designed to take the pressure off and allow the government to enter into budget negotiations. Another round of spending cuts is scheduled to take effect at the beginning of the year, with defense bearing the brunt of it. Of course the problem is not in the Senate, but the House. Will the requirement that the government try and prevent fraud in obamacare enough to get the Tea party onboard? We’ll see.
What date actually matters for the debt ceiling? The government says Oct 17, when the government exhausts its borrowing authority. The Bipartisan Policy Center estimates that sometime between Oct 22 and Nov 1 the government will be unable to pay all the government’s bills on time. And Bank of America is saying that by Nov 15, default is more or less inevitable.
Surprisingly, T-bills make up only 13% of the $11.6 trillion in marketable debt outstanding, the smallest share since Eisenhower was president. This is due to the Fed’s Operation Twist as well as government extending duration to take advantage of low interest rates. Such short supply has had the shorter dated T-bills trading with negative yields for brief periods of time.
Speaking of T-bills, the 1 month T-bill has been getting hammered as we approach the debt ceiling, with the yield increasing from basically zero a month ago to 33 basis points a few days ago. It is heading back down, but it is worth keeping an eye on it. Investors are dumping the short end of the curve as major banks have been discussing which T-bills they may restrict as collateral for repo transactions.

27 Responses

  1. The house is going to move its own bill.

    delay medical device tax for two years,
    install income verification for subsidies
    cancel health insurance subsidies for members of Congress and the presidential Cabinet. Government funding will run until January 15
    debt ceiling will be lifted until February 7.

    on a personal note, i’m scheduled to do to Disney World on the 15th and my wife’s birthday is that weekend in Feb. So thank you congress.


  2. From a tactical standpoint, the House needs to get it’s bill passed and to the Senate ASAP. To bad there’s not a holiday or something where he could send them all home.


  3. the house could adjourn for 3 days without the consent of the senate.


  4. This is complete bullshit.

    Keep in mind the activists are still calling offices pushing for the full defund of Obamacare. The message has not been relayed to the grassroots that the defund option isn’t going to happen no matter how long we hold our breath or how much we wish it would happen.”


  5. The Citizens United Political Victory Fund is endorsing Bryan Smith in the Republican primary in Idaho’s 2nd district. Smith is challenging GOP Rep. Mike Simpson. CU PAC cut a check for $10k.

    This is somehow undermining republican democracy. Also Koch brothers.


  6. Don’t forget to add the new Boogeyman of the left, Ted Cruz


  7. don’t say his name!


  8. This column is two weeks old, but has a nice look at Congress’ new OPM exception for an illegal subsidy.

    I particularly like this paragraph.

    If you just got your hours trimmed because of the employer mandate, Harry Reid isn’t working behind closed doors for you. If you used your Health Savings Account to buy over-the-counter medicine for your children until Obamacare banned this, you probably didn’t get a secret meeting with Obama’s chief of staff on the matter. If Obamacare just outlawed your low-premium catastrophic health care plan, OPM isn’t going to bend the rules for you.



  9. Is it time to short everything?


    • Mark:

      Is it time to short everything?

      It’s not clear what shorting the treasury market would actually signal. For example, if you think the government is going to actually, literally, and for real default on its debt, then yeah, you should short treasuries. Or, alternatively, if you you think a deal is imminent, all talk of default will go away, and the government will re-open (or at least that small portion that is actually closed), then you should also short the treasury market.

      However, if you think talk about an actual default is total bunk, but you do worry about what the short-term effects of reduced government spending on the economy will be, then you should go long the T-notes.


  10. From Juicebox’s interview today,

    BL: The insurance industry is literally receiving a handful of new enrollments from the 36 Obama administration-run exchanges. It’s really 20 or 30 or 40 each day through last week. And a good share of those enrollments are problematic. One insurance company told me, “we got an enrollment from John Doe. Then five minutes later we got a message from CMS disenrolling him. Then we got another message re-enrolling him.” On and on, up to 10 times. So insurers aren’t really sure if the enrollments they’ve got are enrollments they should have.

    Pretty sure that’s not going to be enough.

    Oh oh.

    BL: There’s no evidence of any improvement so far. I say that factually, not as a shot at them. The question then is will they get there in time? Another mistake they made — and given the politics you can understand it — was this thing was really politically secret.


  11. I really don’t have much dealings on the exhange issue. but if the folks running the exchanges are like the others in the admin — they are arrogant know-it-alls that don’t take kindly to criticism. even constructive ideas


  12. “markinaustin, on October 15, 2013 at 11:18 am said:

    Is it time to short everything?”

    I consider this market to be completely divorced from economic fundamentals and at least for now is just reacting to government policy shifts. Given that and absent a reliable source of inside information, I wouldn’t make a big shift one way or the other.


  13. OT: This was something I had not read before from Charles Pierce:

    “The president already has told John Harwood on CNBC that actual increases in the income-tax rates are off the table as far as he’s concerned. That leaves only “entitlement reform” as a basis for any kind of bargain, and we all know where that goes. ”

    Interview and quote being referenced:

    “HARWOOD: An aide to the speaker yesterday, when I asked him, “Where can this get resolved,” ultimately said, “End budget negotiation may be involving replacement of sequester cuts with entitlement cuts.” If you get to that discussion, is it conceivable, or are there any circumstances under which you could make a budget deal with Republicans that does not involve new taxes?

    PRESIDENT OBAMA: You know, I think it is possible for us to— make sure that we are not increasing the income tax rate, that is something that was debated during the campaign. That’s now behind us. I think it is very important for us to continue to cut out programs that are unnecessary, not working— some of them need to be reformed. It is important for us to deal with our long-term entitlement spending.

    But I also think it’s important for us to make sure that we’re investing in the things that are going to help the economy grow. And I’ll just give you one specific example, and that’s our infrastructure. Every business that’s watching this program relies on good roads, airports that function, ports that are working. And we are vastly under-investing in what is critical for our long-term growth. We’ve got to find a way to pay for that. ”

    There’s more back and forth that overran the character limitations, but it looks like President Obama buys into the idea of not increasing marginal tax rates and all revenue will come from closing loopholes.


  14. A former NHS director died after waiting for nine months for an operation – at her own hospital.
    Margaret Hutchon, a former mayor, had been waiting since last June for a follow-up stomach operation at Broomfield Hospital in Chelmsford, Essex.
    But her appointments to go under the knife were cancelled four times and she barely regained consciousness after finally having surgery.

    Read more:
    Follow us: @MailOnline on Twitter | DailyMail on Facebook


    • nova:

      I read the Ace piece on the Hutchon. Ace says:

      I’ll say one thing for the NHS: At least it traps its Ruling Class in its baleful machinery, as well as the smallfolk.

      He’s wrong. For the most part the Ruling Class (along with anyone with money) has private insurance, giving them much greater access than those dependent on the NHS. I’m guessing that the poor optics of a NHS director maintaining private insurance is what kept her from holding it and hence accessing better care.


  15. Our single payer will be better.



  16. Scott, that NHS director showed commitment



  17. ” NHS director maintaining private insurance is what kept her from holding it and hence accessing better care”

    RIP #HeroOfTheSovietUnion


  18. Heh.

    @TheH2: It’s precious that folks who love the fed monetizing ~$85b of debt every month are worried about “the market”. You keep using that word …


    • McWing:

      Good one on the Tea Party for you today in the WSJ. Shouldn’t be behind the firewall, but if it is let me know and I will e-mail it to you.

      Many frustrated liberals, and not a few pundits, think that people who share these beliefs must be downscale and poorly educated. The New York Times survey found the opposite. Only 26% of tea-party supporters regard themselves as working class, versus 34% of the general population; 50% identify as middle class (versus 40% nationally); and 15% consider themselves upper-middle class (versus 10% nationally). Twenty-three percent are college graduates, and an additional 14% have postgraduate training, versus 15% and 10%, respectively, for the overall population. Conversely, only 29% of tea-party supporters have just a high-school education or less, versus 47% for all adults.

      Although some tea-party supporters are libertarian, most are not. The Public Religion Research Institute found that fully 47% regard themselves as members of the Christian right, and 55% believe that America is a Christian nation today—not just in the past. On hot-button social issues such as abortion and same-sex marriage, tea partiers are aligned with social conservatives. Seventy-one percent of tea-party supporters regard themselves as conservatives.

      Nor, finally, is the tea party an independent outside force putting pressure on Republicans, according to the survey. Fully 76% of its supporters either identify with or lean toward the Republican Party. Rather, they are a dissident reform movement within the party, determined to move it back toward true conservatism after what they see as the apostasies of the Bush years and the outrages of the Obama administration.


      • Another good one, this time for jnc, on Jamie Dimon. Unfortunately this one appears to be behind the firewall, but here is a taste.

        Before there was Jamie Dimon there was Rick Scott.

        Mr. Scott, during his leadership in the 1990s of the Columbia/HCA hospital chain, annoyed a lot of people with his criticism of HillaryCare, his championing of for-profit hospitals and his zealous pursuit of cost-cutting and consolidation.

        Eventually he would be driven out of the company he built by his own board when he proposed fighting Medicare fraud charges. His replacement would be a political ringer, Dr. Thomas Frist Jr. (brother of a U.S. senator), the new Mr. Clean who quickly put the company on a path to pay $1.7 billion and plead guilty to 14 felonies.

        Only near the end of its nine-year war would the Justice Department, in a 104-page amended complaint, acknowledge the obvious. What the government had decided were fraudulent billing practices at Columbia/HCA largely had been imported with its 1994 purchase of Hospital Corp. of America, run by Dr. Frist.

        The point had been made. Mr. Scott had made himself unpopular with politicians, organized labor and an undiscerning media—never a good idea when half your customers are supplied by various government programs, a fact that also rendered his idea of fighting the charges a nonstarter.

        Some on Wall Street see the government’s legal war today against the biggest banks as a crypto solution to “too big to fail.” They give Washington too much credit. The right way to understand the legal jihad is by reference to the periodic torments that come to defense contractors, Medicare providers and other large government dependents.

        The right way is to remember Mr. Scott. Even today, Medicare underinvests in fraud prevention. After all, Medicare providers are influential in every congressional district. Once in a while, though, Washington distracts itself with a theatrical crackdown on a large and unpopular player. (Mr. Scott, interestingly, has become a politician and now serves creditably as governor of Florida.)

        J.P. Morgan JPM -0.76% may have avoided the worst of the subprime fiasco. It may have stood ready at Washington’s behest to help rescue failing institutions. But Mr. Dimon, the bank’s chairman, mistook himself for an independent actor free to criticize government policy.


  19. Thanks Scott, that’s a good article. I smell Koch Brothers though.

    TED CRUZ!!!1!!1


  20. Scott I don’t dispute that Dimon seems to be the new whipping boy. I also concur with this description of Chase along with the rest of the large Too Big to Fail Wall Street Banks: “other large government dependents. “


Be kind, show respect, and all will be right with the world.

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: