A Word From the Bow Tie on the Government Shutdown

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“In his latest note to clients, Morgan Stanley head of global economics Joachim Fels relays an idea he says has him increasingly worried these days, even though, in his words, it is “no more than a tentative thesis that still needs to be fleshed out and checked for robustness.”

“In short, I wonder whether just as 1913 marked the end of first Golden Age of globalisation that had begun in 1870, 2013 may mark the end of our age of globalisation, which accelerated since the 1980s and 1990s after many emerging markets opened up to international trade and capital flows,” says Fels. “To be sure, I’m not predicting the world wars, mass sufferings and economic depressions of the three dark decades following 1913, but I do worry about a creeping trend towards a de-globalisation of economic activity and capital flows.”

Fels points to the Federal Reserve’s easy-money policies following the financial crisis, which caused investors to scramble into investments in emerging markets, a trend that is now reversing.

The economist envisions problems down the road as a result, as he explains in his note….”

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Part two talks about the seven stages of an empire along with the process of the debasement of currency. If your interested you may watch here: Part 2

Otherwise the value can be found in part 3:

“Morgan Stanley’s chief U.S. economist Vincent Reinhart published a brief note minutes after the U.S. government shutdown went into effect.

“Dysfunction is not new, in that this marks the seventeenth shutdown in the past forty years,” wrote Reinhart. “About 800,000 government workers will stay home, as federal employees who cannot be paid should not work.”

Here’s the key takeaway from the note:

In addition to finger pointing to assign blame, expect:

• A 15 basis point drag on fourth-quarter real GDP growth, at an annual rate, for every week of shutdown as those furloughed workers do not put in their usual hours;
• Most data releases to be delayed…”

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“Barring some last-minute miracle, it looks like the government is going to shut down at midnight tonight.

The crux of the matter is that the House GOP is not inclined to pass a budget that doesn’t include some kind of delay or defunding to Obamacare. And obviously Democrats won’t agree to that. So, impasse.

Markets are already falling, it would seem, on the news.

But there are reasons to think this would be good.

Goldman explained why this could be helpful in a note to clients last Friday:

It would be a mistake to interpret a shutdown as implying a greater risk of a debt limit crisis, in our view. It would not be surprising to see a more negative market reaction to a shutdown than would be warranted by the modest macroeconomic effect it would have. We suspect that many market participants would interpret a shutdown as implying a greater risk of problems in raising the debt limit. This is not unreasonable, but we would see it differently. If a shutdown is avoided, it is likely to be because congressional Republicans have opted to wait and push for policy concessions on the debt limit instead. By contrast, if a shutdown occurs, we would be surprised if congressional Republicans would want to risk another difficult situation only a couple of weeks later. The upshot is that while a shutdown would be unnecessarily disruptive, it might actually ease passage of a debt limit increase.

This seems kind of vague, but there are three distinct reasons it could be a positive.

1. The market is reacting now….”

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“For Q3, analysts expect both the financials and consumer discretionary sectors to show strong earnings growth. Earnings for the materials and energy sectors are expected to decline overall in Q3.

Throughout 2013, analyst estimates called for slow growth in the first half of the year, balanced out by strong growth in the second half. As the third-quarter earnings reporting season approaches, growth estimates have declined to a more modest 4.8%, down from the 8.5% projection from the beginning of the quarter, as seen below in Exhibit 1. Looking ahead to the fourth quarter, the current estimate is for 11.1% earnings growth, which appears optimistic, given projections for only 1.3% revenue growth.

Exhibit 1. S&P 500: Q3 2013 Earnings Growth Estimates, Current and Beginning of Quarter

Similar to the second quarter, analysts expect the financials sector to lead the way in third-quarter earnings growth, with a 10.4% increase expected. Within the sector, the big banks look to be driving earnings, as they benefit from gains in financial markets. Furthermore, many of these companies’ results will be flattered by weak results from a year ago. This is especially true in the investment banking & brokerage sub-industry, which is expected to report 477% earnings growth, primarily as a result of losses in the year-ago quarter from Morgan Stanley (MS.N) and E*TRADE Financial Corporation (ETFC.O).

Strength in the housing market has benefitted the financials sector in recent quarters; however, rising interest rates and more difficult comparisons are expected to provide challenges for third-quarter earnings results for companies with significant exposure to mortgages. Analysts estimate that the thrifts & mortgages sub-industry will undergo a 7% earnings decline, while the regional banks sub-industry will see profits fall by 17%, making it the weakest sub-industry within financials.

The other sector expected to be a major driver of earnings growth in the third quarter is consumer discretionary….”

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“President Barack Obama said recent overtures from Iran may offer a basis for a “meaningful agreement” to resolve the confrontation over the Persian Gulf nation’s nuclear program, one of the primary sources of instability in the Middle East.

The U.S. is “encouraged” that Iranian President Hassan Rohani was given a mandate in his election to pursue a more moderate course, Obama said.

“Conciliatory words will have to be matched by actions that are transparent and verifiable,” Obama told world leaders today at the United Nations in New York. “The roadblocks may prove to be too great, but I firmly believe the diplomatic path must be tested.”

In an address focused on turmoil in the Middle East, including the civil war in Syria and the Israel-Palestinian peace process, Obama vowed the U.S. will use all means necessary, including military force, to protect its “core interests” in the region and ensure the free flow of energy to the world.

He called on the UN to apply meaningful pressure on the regime in Syria to follow through on its promise to surrender its chemical weapons. He said Iran and Russia, Syria’s main allies, must recognize that Syrian President Bashar al-Assad cannot remain in power if the civil war is to be resolved by political means.

The president’s speech comes as Obama has an opening for progress on long-stalled foreign policy issues….”

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Note : The article was Google translated and may have grammatical inconsistencies.

“The Bank for International Settlements (BIS) is the current situation on the financial markets as worse than before the Lehman bankruptcy. The warning of the BIS could be the reason why the U.S. Federal Reserve decided to continue indefinitely to print money: Central banks have lost control of the debt-tide and give up. The decision by the U.S. Federal Reserve to continue indefinitely to print money ( here ) might have fallen on “orders from above”. Apparently, the central banks dawns that it is tight. Very narrow.

The most powerful bank in the world, the Bank for International Settlements (BIS) has published a few days ago in its quarterly report for the possible end of the flood of money directly addressed – and at the same time described the situation on the debt markets as extremely critical. The “extraordinary measures by central banks” – aka the unrestrained printing – had awakened in the markets the illusion that the massive liquidity pumped into the market could solve the fundamental problems (more on the huge rise in debt – here ).

This clear words may have meant that Ben Bernanke and the Federal Open Market Committee, the Fed got cold feet. Instead, as expected, which is now formally announcing the end of the flood of money, the Fed has decided to just carry on as before.

If one is to the BIS experts believe that no single problem is solved.

All problems are only increasing.

Because the BIS but apparently does not know how they get the genie back in the bottle, it pays to listen to those who were part of the system – but now have no official functions and therefore more able to find clear words.

The former chief economist of the Bank for International Settlements (BIS), William White, was also reported to be parallel to the BIS word.

His statements are nothing more and nothing less than an announcement of the big crash.

White warned in unusually clear form of a huge, global credit bubble.

The share of “leveraged loans” or the extreme form of credit risk by mid-2013 at an all time high of 45 percent. This is ten percentage points higher than at the height of the financial crisis in 2007. A year later, in September 2008, Lehman Brothers went bankrupt.

Thus, the current situation is much more dangerous than before the Lehman bankruptcy….”

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So a lame congress threatening to shut down government over budget policy along with the jump in interest rates stemming from the last FOMC meeting allows the Bearded clam to put tapering to bed for the moment. Markets rejoice in full retard tape.

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