Saving Social Security: Stopping Obama’s Next Bad Deal – As we saw, President Obama and the Democratic Congress could not muster the votes needed to overcome the Republicans and ended up extending the tax cuts for the richest 2 percent of the population. The Democrats will be faced with a similar situation at the end of 2011 when the Social Security tax cut is scheduled to expire, except that, this time, the tax cut in question will apply to an overwhelming majority of working people. Also, the House will be controlled by the Republicans and the Senate will be considerably less Democratic. This raises the possibility, if not the likelihood, that the tax cut will remain in place indefinitely, more than doubling the size of Social Security’s projected long-term shortfall. Before we even get to this juncture, the Republicans will have another opportunity to impose a really bad deal on President Obama. Sometime in the spring, the government will run up against its debt ceiling. This will prevent the government from any further borrowing.
Bond Sales Freeze as Outflows Jump to Record: New Issue Alert Dec 21 (Bloomberg) — Corporate bond sales froze yesterday after investors withdrew the largest dollar amount on record from investment-grade U.S. bond mutual funds last week. The outflows were $2.5 billion in the week ending Dec. 15 amid rising Treasury yields, according to a Bank of America Merrill Lynch report. High-yield mutual funds had $222 million of inflows, following $533 million in the earlier period, according to the report.“Negative net flows in high grade funds tend to follow large sell-offs in rates, which has occurred since the beginning of this month,” Yields on 10-year Treasuries have risen 54 basis points this month to 3.34 percent as of yesterday, after President Barack Obama and Congress extended tax cuts that investors expect to spur growth and increase deficits. U.S. reports this month showed rising retail sales, higher consumer confidence and a jump in industrial production. Corporate bond sales slowed to $1.2 billion in the last two weeks of 2009, compared with $45.1 billion in the prior two weeks."Pretty slow is an understatement,”
New govs take office amid historic budget crisis — New York’s incoming governor, Democrat Andrew Cuomo, says he won’t raise taxes even though he will inherit a budget deficit of at least $9 billion when he takes office in January. Ohio Republican Gov.-elect John Kasich is promising to cut taxes, despite a shortfall of about $8 billion. And in California, incoming Democratic Gov. Jerry Brown — who ardently pursued innovative clean energy and environmental protection programs during his first stint in office, in the revenue-rich 1970s and ’80s — will have to figure out this time how to close a budget gap projected at more than $25 billion. Twenty-six states elected new governors last month — 17 Republicans, eight Democrats and one independent — and now they are going to have to reconcile their principles and campaign promises with some harsh fiscal realities: This is the worst budget climate for the states in at least a generation. Cumulatively, the states face budget shortfalls of nearly $140 billion next year, according to the Center on Budget and Policy Priorities, a Washington think tank. To make matters worse, billions in aid to states from the federal government’s $800 billion stimulus plan is set to dry up early next year.
Portugal Faces Rating Cut, Spanish Debt Costs Rise – (Reuters) – Portugal was put on notice on Tuesday that its credit rating could be cut and fellow euro zone debtor Spain had to pay more to issue new debt, suggesting the currency bloc’s crisis will rage unabated in 2011. China, the world’s new economic powerhouse, urged European policymakers to demonstrate as a matter of urgency that they can contain the euro zone’s debt problems and pull the bloc around. Ratings agency Moody’s said it may cut Portugal’s credit rating by one or two notches within three months, citing weak growth prospects as the government seeks to cut its debt, and climbing borrowing costs, although it said its solvency was not in question
Pimco says ‘untenable’ policies will lead to eurozone break-up – Pimco, the world’s largest bond fund, has called on Greece, Ireland and Portugal to step outside the eurozone temporarily and restructure their debts unless the currency bloc agrees to a radical change of course. Andrew Bosomworth, head of Pimco’s portfolio management in Europe, said current policies are untenable in the absence of fiscal union and will lead to a break-up of the euro. "Greece, Ireland and Portugal cannot get back on their feet without either their own currency or large transfer payments," he told German newspaper Die Welt. He said these countries could rejoin EMU "after an appropriate debt restructuring", adding that devaluation would let them export their way back to health.
First POMO Of The Day Closes, Brings Fed’s Treasury Debt Holdings To $999 Billion – Today’s first POMO has closed, with Brian Sack buying $7.790 billion of Treasury maturing between 6/30/2016 and 11/30/2017. Among the bonds purchased was $689 million of PK0, auctioned off less than a month ago, meaning the Primary Dealers continue to flip bonds from auction straight back to the Fed, making a few million in the process each and every time. And while not even POMO matters anymore, in a market entirely dominated by Delta, i.e., Goldman (even Joe Kernen earlier announced on live TV that "Goldman can do whatever it wants in the futures market."), trades, and where the cumulative TICK is now progressively negative, the only thing that may be of relevance is when will the Goldman vol traders decide they have had enough and start unwinding the trade on which they are massively profitable at this point. What certainly does matter, is that total US debt is now $999 billion, just $1.3 billion away from a trillion, a level which will be breached, as we expected last week, during today’s second afternoon POMO in which the Fed will monetize another $1.5-$2.5 billion in TIPS.
The Great Bank Heist of 2010 — This was the year America finally took on the power and greed of the Wall Street banks. And the banks won. They dodged the bullet of real reform, probably for all time. They bounced back to post huge profits, helped by legal theft from the middle class. They completed their takeover of both political parties — and bought themselves a new Congress even more pliable than the old one. Middle-class America is flattened, devastated and broke. The bankers that caused it all have escaped punishment. They’re raking in huge profits. Oh, and the tax cuts just got extended for high earners, too!
Mortgage Lenders Ordered to Appear in NJ Court – Six lenders who have combined to file nearly 30,000 foreclosure actions in New Jersey this year face the possible suspension of their operations next month under a court order announced Monday by state Supreme Court Chief Justice Stuart Rabner. The action follows a report submitted to the Supreme Court that, citing depositions and court filings in other states, paints a picture of systemic abuses in the filing of foreclosures that include so-called "robo-signing," in which employees signed hundreds of documents without checking them for accuracy. In one instance cited in an administrative order, an employee of OneWest Bank said in a deposition that she signed 750 documents a week, taking no more than 30 seconds per document and relying on others to check the documents’ accuracy prior to signing. Employees testifying in other depositions said they were authorized to sign documents despite having no background in the mortgage industry and little or no understanding of what they were signing.
Fueling the Fire: Commodities Hit a New High – Is the stock market topping? Will deflation return soon? Is oil about to tank? As we continue to wrestle with the various policy gyrations that are complicating the macro picture, we’re going to continue to keep our eyes firmly on market activity for clues. Our old friend, the Continuous Commodity Index (the CCI) has made a new closing high today and, if it does not soon turn down, will give traders a powerful motivation to run it up even higher as it will have broken out from a potential double top formation. "Things" are getting more expensive. That is a fact. Energy, metals, and the ‘softs’ (grains and cotton) are all headed higher both in the US and elsewhere across the world.
Oil Imports to China Set to Slow in 2011 as Economy Cools – China’s appetite for oil, which helped drive crude to the highest level since October 2008, may ease next year as the government takes steps to tackle inflation and work on expanding refineries slows. The nation, the world’s biggest oil consumer behind the U.S., may import 5.1 million barrels a day in 2011, up 6.3 percent from this year, according to the average of six analyst estimates in a Bloomberg survey. That compares with a 20 percent jump so far in 2010. China’s inflation accelerated to the fastest pace in 28 months in November, fueling speculation the government will raise interest rates next year. Higher borrowing costs may reduce the country’s sway over global commodity markets, according to Goldman Sachs Group Inc. Chinese gross domestic product will grow 9.2 percent next year, compared with 10 percent in 2010, a Bloomberg survey of 17 economists showed.
Iran oil fields in decline and need enhanced recovery to meet demand – Iran’s oil sector is a key factor in the Middle East and the world at large. Iran is OPEC’s second largest oil producer. The nation now claims oil reserves of 150 billion barrels as a result of a 34 billion barrel discovery in the Persian Gulf. The climate of Iran’s oil industry is clouded U.S. and U.N. sanctions which hamper refinery upgrades. The sanctions also prevent major oil companies from working in the country. The biggest factor holding back the industry is a 13% annual decline rate.
Iraq’s Crude Production to Advance 17% Early Next Year, Oil Minister Says Iraq forecast a 17 percent rise in oil output next year and invited companies from South Korea and Kazakhstan to sign immediately a delayed contract for the Akkas gas field, Oil MinisterHussain al-Shahristani said. “Iraq’s oil production capacity will increase to 2.75 million barrels a day early next year,” Shahristani said in an interview in Baghdad yesterday. The country now produces about 2.35 million barrels of crude a day. Shahristani attributed the expected increase to investments by the international oil companies that have signed contracts to develop Iraqi fields.