Friday, October 04, 2013 - This Is Not A Game

This Is Not A Game

by Sinclair Noe

DOW + 76 = 15,072
SPX +11 = 1690
NAS + 33 = 3807
10 YR YLD + .04 = 2.65%
OIL + .39 = 103.70
GOLD – 5.50 = 1312.20
SILV + .04 = 21.84

The government showdown continues. So, there isn't much actually happening. We don't have a jobs report to analyze. The next jobs report will be so screwed up by the shutdown that it won't be possible to make heads or tails of it, whenever it is reported. We don't need a functioning government to tell us that the job market is lousy. But we do need one to help make the job market better.

It's the first Friday of the month, usually the day we get a bunch of random numbers from the government telling us what we already knew: Good jobs are scarce. This month, the government is too busy being held hostage by House Republicans to give us those random numbers. But there's plenty of evidence already that September was grimly similar to many of the months that came before it in this grinding recovery. With sagging consumer confidence and hiring surveys, September may even have been worse than August.

Whenever Bureau of Labor Statistics workers stop being furloughed by a government shutdown, economists, on average, expect it to report 185,000 new jobs on nonfarm payrolls in September and an unemployment rate holding at 7.3 percent. And if we look at this week's ADP report and the ISM hiring survey, we see diminished expectations; maybe around 170,000 new jobs.

And then the longer this shutdown continues, the worse the labor market will manage. For example, today Lockheed Martin says it will furlough 3,000 employees on Monday due to the government shutdown, and they say the number of employees put on furlough will increase weekly if the shutdown continues.

Earlier this week, United Technologies Corp. announced that it will furlough 2,000 employees by Monday and more than 5,000 if the shutdown continues into next month.

The company said Wednesday that its Sikorsky division, which makes Black Hawk helicopters, would be hit first. It expects nearly 2,000 employees, including those employed at facilities in Connecticut, Florida and Alabama, will be furloughed on Monday.

There are numerous reports that House Speaker John Boehner has told Republican House members that he would cave on the debt ceiling fight. He'll agree to use a combination of Democratic and establishment GOP votes to hike the debt ceiling and avoid damaging America's credit and the economy, and perhaps creating a global financial meltdown.

We don't know it that is true, but if it is, that means the worst case scenario in the current self inflicted financial crisis won't come to pass and the US won't default on its debts in the midst of a government shutdown. Let's be clear about this; the shutdown is continuing. The debt limit problem is separate from the fiscal dispute that’s shut down the government.

The government is shut down because the appropriations that pay for its activities expired at the end of the fiscal year which was Sept. 30, and Congress hasn’t passed a funding bill to keep that money flowing. The debt limit arrives around Oct. 17, when the US hits a legal limit on the amount of money it can borrow, meaning the Treasury can’t pay many debts already incurred. Similar but different; a breach of the debt limit would likely result in a total freakout for financial markets and result in worldwide chaos. That's just a guess because it's never actually happened.

What exactly is the strategy heading into the debt ceiling? That's the funny thing. There is no strategy, other than the fear factor; you know, pass it or there will be a loud explosion. This whole debt ceiling thing is a sort of grand, metaphorical legislative ceremony. Congresses, past and present, have passed all sorts of bills that are now law, those laws dictate that a certain amount of money needs to get spent, and from time to time, in order to make good on what are already ironclad obligations, the "debt ceiling" has to be "raised," in order to maintain the full faith and credit of the United States, and the U.S. Treasury bonds, which the world has essentially agreed to observe as the magical linchpin of what is colloquially known as "the global economy."

This whole process of raising the debt ceiling is really nothing more than an incantation; a loud chant in which our lawmakers profess the desire to honor our sovereign credit. So, Boehner might cave on the debt ceiling. The stories appear to be based on the word of some Republican moderates reporting what Boehner has told them in private. That could be wishful thinking on their part. It could reflect Boehner just telling them what they want to hear. There could still be some partisan fights on the issue, and Boehner might not be able to control certain elements in the GOP. In other words, it's not a done deal.

But Boehner seemed anything but conciliatory when he and other senior Republican lawmakers appeared before reporters this morning denouncing comments from an anonymous White House official who was quoted as saying the Democrats were “winning” in the funding impasse. Boehner said, “This isn't some damn game.”

Meanwhile, not much going on, so President Obama gets together with Joe Biden and they head out for sandwiches with a side of damage control. Obama told reporters that “No one is winning.” and then he ordered a hoagie, and he went on to say the whole shutdown could be over today, if there was a clean CR presented to the House. Yeah, that's not going to happen.

Meanwhile, you heard about the story of the woman who drove her car into the blockades around the White House the other day; she was shot and killed by police. The Capitol Hill Police have been on the job since the government shut down on midnight on Tuesday without any idea of when their next paycheck will come. In the aftermath of Thursday's shooting though, the Democratic and Republican lawmakers they protect joined together to compensate with something even better than money: applause and a big thank you. The police force is largely excepted from the shutdown, meaning they still go to work, they just won't be paid until Congress passes a budget.

Now, if you really want to end this shutdown fast, I mean lightning fast, the Capitol Hill Police could just decide that they stand by their fellow federal employees, and they could refuse to go to work. No police protection for the politicians on Capitol Hill until they resolve the shutdown. The shutdown would be over in a New York minute.

Instead, House Democrats announced this afternoon that they will try to force the House to vote on a measure to fully fund the government -- and end the shutdown -- with a procedural motion known as a discharge petition. Their resolution would fund the government through Nov. 15 at the same levels as the Senate-passed continuing resolution. And, like the Senate bill, there would be no strings attached related to delaying or defunding Obamacare. Yeah, that's not gonna happen.

Anyway, banks  are totally not worried about the U.S. government defaulting, sparking a nightmarish financial panic. Yes, they're stocking extra cash in ATMs to satisfy cash-hungry zombie hordes. But they're sure they won't need it. Bank executives are adding 20 to 30 percent more cash to their ATMs just as a hedge against debt ceiling mayhem. This is all just in case House Republicans pull the trigger on the gun they're holding to the head of the U.S. economy by refusing to raise the federal government's borrowing limit, or debt ceiling. That could cause the government to default on its debts, triggering a crisis that would be make 2008 look like a blip.

At the same time, these banks are telling their clients they think there is a "zero percent" chance of such a crisis happening. Bank strategists and economists all remember the last time we came close to disaster, in August 2011, and politicians managed to pull out a deal at the last minute that time. So of course they expect the same thing to happen again. After all, past performance is a gold-plated guarantee of future results, right?

We've been keeping you up to date on the JPMorgan giant settlement with regulators which some report could top $11 billion, one of the biggest Wall Street deals in history; except of course that it would be $7 billion cash and $4 billion in accounting tomfoolery, and then JPMorgan could write off more than $3.8 billion in tax breaks.

Last week Dimon met with Attorney General Eric Holder to discuss the settlement after his bank’s offer to settle was reportedly rejected. If this sounds unusual, it is; and AG Holder is not instituting a new policy of personal consultations with everybody under investigation by the Department of Justice, but Dimon gets special treatment. And the latest twist in the story is that Dimon will step down as Chairman of the banking unit of JPMorgan Chase. This is a bit of a surprise because there was a recent push by shareholders to split the chairman and CEO roles. Shareholders voted against the measure however and Dimon was able to retain the dual roles.

What does it all mean? We don't know, but Jamie Dimon's halo is tarnished, and he might not carry as much clout as in the past. Most likely he will be spending a little less time in the spotlight, but he could just as easily be spending time in handcuffs for pretty blatant violations of Sarbanes Oxley.