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| congress (Photo credit: tomis b) |
Because while banks would write profuse, long-winded essays to explain the logic and rationality of the "deal", now that they are all faced with adjusting their narrative the best they can come up with are two sentence fragments such as this one from Citi's Steven Englander "Problem is that it is the right wing of the Republican Party that wouldn’t give Boehner their support, making it less likely that he could win broad support among Republicans for a compromise with the White House. Also he will have to spend next couple of days negotiating with both his own party and the Democrats without knowing how much he can deliver." The answer: nothing at all. In fact as Scott Rigell said “I’m not sure the people who have been up here 20 or 30 years really understand what the next iteration of this process is”. He is speaking for pretty much everyone else who has now been made a total fool by the Black Swan that is Congress.
Furthermore, now that the leadership of the GOP is in limbo, following the not so silent conservative coup within the GOP, one can not only forget a deal being cut in 2012, but most likely there will be no deal at all until the hard deadline - that of the debt ceiling some time in March, which will be breached next week, but which the Treasury can extend for three months as a result of plundering the G-fund all over again. The implication, as we showed yesterday, is that a 3 month delay assures a US recession, and a ~20% or so minimum correction in the stock market, which has been priced for absolute perfection for months, and which will once again have to be used by Wall Street as a means to get a consensus out of DC. Just as we predicted over a month ago.
Reality finally penetrating through the market's thick skull of complacency has meant a decline virtually around the globe in all asset classes: Asian equities have been volatile but are trading weaker led by a 0.85% drop in the Hang Seng while 10yr UST yields have rallied 4bps to 1.756% as we go to print. Gold continues to underperform and is down to $1642/oz (-0.3%) overnight and is poised to finish lower for four straight sessions in its longest losing streak in more than 2 months.
The point is, however, that stock will be much, much lower by the time it all ends, unless of course, as we also jokingly (but now appears far more probable), Congress simply punts to Bernanke who has no choice but to do QE5 in the next few weeks to avoid what would now be a 5% market crash (where everyone is levered to the gills).
Finally while we may have avoided the Mayan apocalypse, we do have a quad witching and a NASDAQ rebalance to look forward to. Enjoy! ...
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