Tuesday, October 8, 2013

Markets waffle while DC fiddles

Dow slid 60, decliners barely ahead of advancers & NAZ fell 35.  The MLP index was up pennies while the REIT index was up a few more pennies.  Junk bond funds were mixed & Treasuries did little.  Oil had a limited rebound while gold was flattish.

AMJ (Alerian MLP Index tracking fund)

stock chart

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLX13.NYM...Crude Oil Nov 13...103.69 Up ...0.66 (0.6%)

GCV13.CMX...Gold Oct 13........1,328.00 Up ...3.20 (0.2%)

Shutdown Merges With Debt Limit as Senate Seeks Strategy

Photo:   Bloomberg

DC politicos began taking the first tentative steps toward a path to raise the gov debt limit even as the rhetoric between the pres & Reps grew more divisive.  Senate Dems are planning a test vote before the end of this week on a measure that would grant Obama authority to raise the $16.7T debt ceiling, probably for a year unless 2/3 of both chambers of Congress disapprove.  That plan emerged as Gene Sperling, the director of the National Economic Council, opened another route toward at least a temporary resolution.  He declined to rule out a short debt-limit extension while reiterating the administration’s preference for a longer-term resolution.  If all Senate Dems along with 6 Reps vote for giving Obama authority, they could send a debt limit increase without policy conditions to the Rep-controlled House with only a few days to spare before borrowing authority lapses on Oct 17.  At least 4 Republican senators wouldn’t rule out that option yesterday.

  • Japan's Finance Minister Taro Aso speaks during a semi-annual parliament hearing on monetary policy at the Lower House of the parliament in Tokyo June 19, 2013. REUTERS/Issei Kato
Photo:   Yahoo

Japan's finance minister pressed the US to quickly resolve its political deadlock over gov finances to avoid a fiscal crisis that could damage the global economy.  The comment from Taro Aso is the latest sign that Japan & China, the biggest foreign creditors to the US, are increasingly worried that the gov shutdown & the standoff over the debt ceiling could wreak havoc on their $Ts of investments in Treasury bonds.  "The U.S. must avoid a situation where it cannot pay (for its debt) and its triple-A ranking plunges all of a sudden," Aso said.  "The U.S. must be fully aware that if that happens the U.S. would fall into fiscal crisis," he added.  A Japanese financial daily, citing unnamed sources, reported that Japanese officials held several emergency telephone conferences with Treasury officials yesterday.  However, the Japanese gov shrugged off the report.  On Mon, Chinese Vice Finance Minister Zhu Guangyao said Beijing had been in touch with DC over the standoff.  Unless Congress raises the debt ceiling, the US would be left on the edge of an unprecedented default, the Treasury has warned.  Obama said he would accept a short-term increase in the nation's borrowing authority to avoid a default.  As of Jul 31, China held $1.28T in Treasury bonds & Japan held $1.14T.  The last big confrontation over the debt ceiling, in Aug 2011, ended with an 11th-hour agreement under pressure from shaken markets & warnings of an economic catastrophe if a default were allowed to happen.

Big Creditors China, Japan Press U.S. to Resolve Debt Row Reuters

The IMF cut its global outlook for this year & next as capital outflows further weaken emerging markets & warned that a US gov default could “seriously damage” the world economy.  Growth worldwide will be 2.9% this year & 3.6% next year, the IMF said, which compared with Jul predictions of 3.1% for 2013 & 3.8% for 2014.  It sees emerging economies growing 4.5% this year, 0.5 percentage point less than 3 months ago, as projections were reduced for China, Mexico, India & Russia.  “Advanced economies are gradually strengthening” while “growth in emerging-market economies has slowed,” IMF said in the World Economic Outlook report.  “This confluence is leading to tensions, with emerging-market economies facing the dual challenges of slowing growth and tighter global financial conditions.”  The IMF’s forecasts factor in a short US gov shutdown & an agreement on the nation’s debt-limit before an Oct 17 deadline.  A stalemate that causes a default “could seriously damage the global economy,” the fund said.  The fund said its forecasts assume the Fed won’t raise its benchmark interest rate, which has been near zero since Dec 2008, before 2016 & that the US central bank will start tapering its bond-buying program later this year.

IMF Cuts Global Outlook While Warning of U.S. Default Threat

The stock market is taking the chaos in DC very well.  But this is a sad state of affairs.  The politicos are getting extra Scotch Tape which will be needed to come up with their "brilliant" solution to complicated financial issues.  In the meantime there is not much to do but wait & hope for the best.  Dow is down about 250 in Oct.  That cold have been much worse. 

Dow Jones Industrials

stock chart

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