Let's
Make A Deal
by
Sinclair Noe
DOW
– 129 = 15,843
SPX – 20 = 1782
NAS -56 = 4003
10 YR YLD + .05 = 2.84%
OIL -1.09 = 97.42
GOLD – 9.70 = 1253.30
SILV - .13 = 20.40
SPX – 20 = 1782
NAS -56 = 4003
10 YR YLD + .05 = 2.84%
OIL -1.09 = 97.42
GOLD – 9.70 = 1253.30
SILV - .13 = 20.40
We
have a deal. Bipartisan
budget negotiators, led by senator Patty Murray for the Democrats and
House Republican Paul Ryan, announced last night that
they have reached a deal to settle the federal budget for two years,
and avert a possible government shutdown. We have a deal; it's just
not a done deal. There is pressure from both the left and right, as
Democrats sought to negotiate a further deal on unemployment benefits
and Republicans fended off attacks from conservative pressure groups.
House
Speaker John Boehner lashed out at right wing groups such as the
Heritage Foundation, claiming they were criticizing the compromise
deal before they even knew what was in it. Meanwhile, some Democrats
lashed out at the $1 trillion deal because it did not include an
extension of long term unemployment benefits for some 2.1 million out
of work workers.
Republican
leaders will likely have to rely on House Minority leader Nancy
Pelosi to deliver sufficient Democratic votes to counter any
rebellion among their Tea Party wing, which gives the minority leader
a rare moment of leverage. So far, Republicans have not ruled
out allowing a separate vote to extend long-term unemployment
benefits, but signal they too want more concessions from Democrats
first. There
is also opposition from Republicans in the Senate, who are less able
to block the budget's passage, but are under pressure from a renewed
wave of primary challenges by Tea Party candidates in the 2014
midterms.
The
framework includes $85 billion in spending cuts and non-tax revenue
from new fees to replace the mandatory budget cuts and supply a
modest amount of deficit reduction. As drafted, the bill would
reverse $63 billion in across-the-board spending cuts scheduled to
take effect in the current budget year and the next one, easing a
crunch on programs as diverse as environmental protection and the
Pentagon.
It
would offset the higher spending with $85 billion in savings over a
decade from higher fees and relatively modest curtailments on
government benefit programs.
Nearly
a third of the total savings would come nearly a decade from now, in
2022 and 2023, partly from extending a current 2 percent cut in
payments to Medicare providers. Also, future federal workers would
pay more toward their own retirement, fees would rise on air
travelers and corporations would pay more to the government agency
that guarantees their pension programs.
With
the increased spending to begin immediately and much of the savings
delayed, Congressional Budget Office estimates showed the deal would
push deficits higher than currently projected in the current year and
each of the next two. The CBO said red ink would rise by about $23
billion in this 2014 fiscal year, $18 billion in the next year and
about $4 billion in the one after that.
Though
congressional negotiators may have reached an agreement over the
federal budget, they may not have may not have figured out how they
will get it passed. Still, the fallout from the
government shutdown in October wasn't difficult to understand.
Americans are sick and tired of the dysfunction in Washington, and
another shutdown, or even the threat of another shutdown is
unacceptable. There could be a vote on the deal as early as tomorrow.
On
Wall Street, good news is bad news. The idea that Washington might
actually be able to pass a budget raised the expectations that the
Federal Reserve might be able to scale back it's quantitative easing
stimulus plan. Indeed, the big question is not whether the Fed will
taper, but when. The FOMC meets next week, and the Fed policymakers
will likely debate how best to communicate their plan. It's still
unlikely they will actually start tapering now; that would be a
little shocking, but they might indicate they are going to do it in
the near future, with the caveat that taper proceeds absent some
exogenous catastrophe. So, expect some clarification on the
thresholds for taper and interest rates.
Across
the globe, central banks have resorted
to forward guidance on interest rates in the wake of the financial
crisis to convince markets they are serious about supporting recovery
in the world's top economies for a long time to come.
So, even as the Fed is likely to offer a more solid opinion on taper,
they will likely offer a more precise outlook for maintaining Zero
Interest Rate Policy. In
a Reuters
poll conducted this week, 32 economists said they expect the
central bank to wait until March, while 22 looked for a move in
January. Only 12 expected a move next week.
The
"better than expected" figures in the latest employment
data were far below the level of job creation needed to put
unemployed Americans back to work on any kind of reasonable schedule.
It was even below the average monthly job creation during most of the
1990s. The jobs picture is still far worse than many people would
have you believe. The current unemployment rate doesn't include the
workers who have become discouraged and left the workforce, and
workforce participation rates remain at historic lows. The jobs
numbers don't include the underemployed who are working part-time and
prefer to work full-time. The ratio of job seekers to available
jobs remains discouragingly high. There are no jobs for nearly two
out of every three job seekers, no matter how hard they look.
The
employment picture for the long-term jobless remains dismal. And many
of those people were left out in the cold under the budget deal
announced last night. They will fall off the roles, and basically
become invisible for economic data purposes. Of course, they aren't
really invisible; they're still there. But maybe there isn't anything
the Fed policymakers can do to achieve maximum employment. Maybe a
taper is an admission, a clear and honest communication that Fed
policy is impotent in its dual mandate, and maybe the time has come
to amend the Fed's tools so that all that money they've been dropping
out of helicopters falls somewhere else besides Wall Street, maybe
they can toss a little bit over Main Street.
Jamie
Dimon, the CEO of JPMorgan was speaking at an investor conference in
New York today. Dimon said he was
thankful congressional leaders had reached a budget deal and was
"less worried" about the impact of an eventual scaling back
of the Federal Reserve's market-friendly stimulus measures.
Dimon said the budget agreement was good for business confidence and
that he would send thank you cards to congressional leaders. That
makes me a bit more nervous about the deal.
Dimon
said business
demand for loans should rise to more normal levels as confidence
rises, and demand for investment banking services in 2014 would be
stronger than many people expect; and higher interest rates that
would come with a Fed tapering would be good for the bank. He also
said public attention to investigations of the bank by regulators and
law enforcers was "really, really painful." Ahhh, maybe he
should stop breaking the law, and then he wouldn't have all that
painful attention.
Time
magazine named Pope Francis its Person of the Year, crediting him
with shifting the message of the Catholic Church while capturing the
imagination of millions of people who had become disillusioned with
the Vatican. This is the third time the magazine has chosen a pope as
its Person of the Year. Time gave that honor to Pope John Paul II in
1994 and to Pope John XXIII in 1963.
Pope
Francis, who, as archbishop of Buenos Aires was known as the slum
cardinal for his visits to the poor and penchant for subway travel -
beat former U.S. National Security Agency contractor Edward Snowden
and gay rights activist Edith Windsor for the award.
The
new pope's style is characterized by frugality. He shunned the
spacious papal apartment in the Vatican's Apostolic Palace to live in
a small suite in a Vatican guest house, and he prefers a Ford Focus
to the traditional pope's Mercedes. In September, Francis gave a
groundbreaking and frank interview, in which he said the Vatican must
shake off an obsession with teachings on abortion, contraception and
homosexuality, and become more merciful. And in July, Francis told
reporters he was not in a position to judge homosexuals who are of
good will and in search of God, marking a break from his predecessor,
Benedict, who said homosexuality was an intrinsic disorder.
And
a couple of weeks ago he published his apostolic exhortation, The Joy
of the Gospel, which has gained attention for what some are calling
an attack on capitalism, but is more precisely an attack on unbridled
financial speculation and runaway greed. Which may actually be an
attack on capitalism, but he did it without using the actual word
“capitalism”.
Rather
he made an impassioned plea for society and government to protect the
vulnerable from the predations of the greedy, to include everyone in
this prosperity, not by taking from the rich to give to the poor but
by making sure they have a role to play. His call to reject the
“idolatry of money and the dictatorship of an impersonal economy
lacking a truly human purpose” are lessons we've heard for a couple
of thousand years, and that ancient economic wisdom is as valid today
as it was 2014 years ago.
