10 Year Treasury Note Yield Near 1941, 2008 Lows (1.95%, 2.04%)

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The 10 Year Treasury Note Yield hit a low of 2.09% on August 10, 2011, which is 5 basis points above the low made in December 2008 (2.04%) and 14 basis points above the 1941 low of 1.95% (Robert Shiller's data pre-1953). The yield closed at 2.28% today. Mutlpl.com has the historical chart going back to 1881. The site also has the S&P 500 P/E ratio, dividend yield, earnings, inflation rate and more. A 10Y yield below 2% would be interesting to see.

Historical chart of 10 Year Treasury Note Yield (source table at multpl.com)

$TNX - 10 year Treasury Note Yield (2008, 2011 lows) - StockCharts.com

Linkfest For 8/15/2011

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  • Google (GOOG) to Acquire Motorola Mobility (MMI) for $12.5 Billion or $40/share (12,000 patents) - Google
  • Supercharging Android: Google to Acquire Motorola Mobility - Google Blog
  • ECB buys €22bn in eurozone bonds - FT.com
  • Berlin braces against calls for common 'eurobonds' - Deutsche Welle
  • World Bank's Zoellick Sees 'New Danger Zone' in Global Economy - SF Gate
  • Mutual Fund Brokers Hurt By Lack Of ‘Cash On Hand’ During Down Economy - Inquisitr
  • Zulauf: Own Gold, Treasuries, No Debt & Get Out Of Equities - Pragmatic Capitalism
  • Next Week's Market Charts That Matter (Goldman Sachs) - Zero Hedge
  • Hong Kong Recession Risk is Global Warning: Forecaster - Bloomberg
  • H.K. Apartment Sellers Cut Asking Prices - Bloomberg
  • Singapore Prime Minister: Global Recession Is 'A Possibility' - WSJ
  • Fannie Mae and Freddie Mac's fire sales are crippling metro Detroit communities - Detroit Free Press
  • London House Prices Plunge on Financial Turmoil - Bloomberg
  • Japan's Economy Shrinks but Beats Expectations - WSJ
  • George Soros: Three steps to resolving the eurozone crisis - FT.com
  • Italian unions threaten strike over new austerity - AP
  • Sterling No Refuge as King Eyes Stimulus - Bloomberg
  • Satyajit Das: The Real Debt Crisis is in Europe – Part 1 – “Solvency But Not In Our Time” - Naked Capitalism
  • Denial In Germany & France Only Increases The Risks In Europe - Pragmatic Capitalism
  • German government no longer rules out euro bonds - report - Reuters (?)
  • Warren Buffett: Stop Coddling the Super-Rich - NYT
  • ECB is euroland's last hope as bail-out machinery fails to resolve crisis - Telegraph
  • Eurobonds needed "fast," says German export group - Reuters
  • Are You Ready To Not Fight The Fed…… Again? - The Macro Trader

Secular P/E Ratio Bears vs. S&P Earnings Yield-Treasury Spread Bull

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A look at the bear market and 
monthly MA's from my previous post
Comstock Partners continues to believe we're in a secular bear market in their latest post titled "Lengthy Bullet Points on our Bear Case Regardless of Interim Rallys(8/4/2011):

"Although many on Wall Street believe the market is currently undervalued we disagree. The market expected the S&P 500 to earn $108 in early May of 2008 but due to the bursting of the bubble the earnings came in at $50 for operating earnings (excludes write-offs) and $15 for reported earnings (GAAP). The analysts that are using $100 this year and more next year for the S&P 500 and a P/E of 15 to magically come up with 1500 on the index are guilty of faulty reasoning. We believe we will trade at below 10 times depressed earnings which should take us down to the lows of 2009 or below. It is clear to us that there will have to be a global slowdown in the second half of this year and next. The reasoning for the slowdown is again the debt, but not just the sovereign debt, the private debt is even worse than the public debt." continue reading

John Hussman of Hussman Funds believes this as well. From tonight's note, "Two One-Way Lanes on the Highway to Hell":

Links: Gundlach, Prechter, Nenner, Koo, Whitney, Grantham (Deflation Theme)

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The theme of this linkfest is deflation. The chart is of the 30-year Treasury bond yield since 1997. Is the U.S. turning into Japan?

  • Jeff Gundlach of DoubleLine Capital: Treasuries Could Rally Even Higher - Morningstar video at Pragmatic Capitalism

    "if you're going to address the deficit problem even incrementally, low Treasury bond yields make tremendous sense, because addressing the deficit fairly clearly leads to weaker economic growth.

    Already, we have $350 billion of fiscal drag coming our way in 2012 if policies are not changed with the sunsetting of tax cuts from the Bush era and also from the payroll tax reduction that was put in place at year-end 2010. $350 billion of fiscal drag is a lot, particularly when we're living with de minimis GDP growth to begin with, in the first half of 2011. Let's remember, the first half of 2011 GDP growth was a beneficiary of stimulus. (from Morningstar transcript)

  • "Meredith Whitney discussed how the US banking system is turning Japanese as zombie banks dominate the market" - CNBC at Pragmatic Capitalism
  • "Richard Koo (Nomura) discusses the balance sheet recession and how the U.S. is making the same mistakes as Japan (private sector de-leveraging during fiscal consolidation). - Bloomberg at Pragmatic Capitalism
  • Charles Nenner thinks gold is going to $2,500, the U.S. Dollar remains the world's reserve currency, and says own Treasury bonds not stocks during the deflationary depression - Breakout video #1, video #2

    "I don't see any idea why you should be long the market. What I see is why you should be long the bond market because as you know I've been calling for deflation. And not a recession, I think we could go into a depression during the next couple of years" (Charles Nenner in video #2)

Judgment Day Near For EUR/USD, SocGen and French CDSs Widen (AAA Rating a Risk)

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EUR/USD Judgment Day
Judgment day is near for EUR/USD. It is currently down 1.25% at 1.41699 and inside an important symmetrical triangle. The pair is in a tug of war between slowing economic growth, the sovereign debt crisis in Europe and the recent downgrade of U.S.'s credit rating. France's AAA credit rating is now a worry, which is why
Societe Generale (SOGN.PA) is down 14% at $22.18 and its credit default swap (cost to insure its debt) widened 24% earlier today. Also this is interesting: "French CDS Are Where Italian CDS Were In July" (chart at Business Insider). The French CDS quote is at Bloomberg.

SocGen's stock has been trending down for a while now and I don't see support until the March 2009 low ($17.40). SocGen's CEO was on CNBC earlier today, I embedded the video after the jump. More on French bank CDS action at Reuters:

EUR/USD 2 year (freestockcharts)
"BNP Paribas , Societe Generale and Credit Agricole CIB's credit default swaps widened sharply on Wednesday amid fears that France could soon lose its triple-A credit rating.

By 1510 GMT BNP Paribas' five-year CDS had widened 35 bps to 246 bps, Societe Generale's CDS was 65 bps wider at 334 bps while Credit Agricole CIB's CDS had widened 23.5 bps to 265 bps, according to Markit data." (Reuters)

John Taylor, who runs the $8 billion currency hedge fund FX Concepts, told BloombergTV on August 2 that he believes the Euro is going to 1.25 next!

CMA Adds CDS Data On Key Sovereign Debts To Its Free-of-Charge Daily Marketflash

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If interested in following sovereign CDS (credit default swaps), CMA has a free product available.

CMA adds CDS data on key sovereign debts to its free-of-charge daily Marketflash

CMA Marketflash helps subscribers keep up-to-date with changes in sovereign credit risk quality

CMA, the leading source of reliable, independent OTC market data, today announced that for the rest of August it is publishing additional credit default swap (CDS) information on key sovereign debts to CMA Marketflash, its daily email sent free of charge to subscribers. This will help keep subscribers informed of changes in the quality of sovereign credit risk in the midst of increasing uncertainty following the rating downgrade of the United States credit rating and the continued volatility in European sovereign debt risk.

China's 5Y CDS Broke Out To Early 2009 Levels, FXI at 2010 Support Level (Charts/Links)

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China 5Y CDS vs. FXI (see below)
5-year credit default swap spread (CDS), or cost to insure its government bonds (or really credit risk that trades since China can always print Yuan), broke out to levels not seen since early 2009 this week (113 basis points on 8/8/2011). The CDS market is smarter than the rest, so I'm wondering what this means. It looks like FXI (iShares China 25 Index) and China 5Y CDS are inversely correlated, so does that mean FXI breaks through 2010 support at $35? Or will China hold on here. FXI is 50% weighted in financials. See charts below.

Why is China's sovereign credit risk rising? I remember last month Moody's released a report that said China's National Audit Office "could be understating banks' exposures to local governments" by $540 billion and said "these loans are most likely poorly documented and may pose the greatest risk of delinquency". According to The Diplomat (via Business Insider), China's Debt/GDP ratio could be much higher than reported (70-80% instead of 20%). Other than that, global economic growth is slowing, China is slowing, asset markets have been crashing globally, U.S's credit rating got downgraded (China owns $1.2 trillion of Treasurys and have a large portion of their $3.2 foreign reserves denominated in U.S. Dollars), the Dollar/Yuan peg hit new lows, PBOC has been raising rates and reserve requirements to try to curb inflation. So maybe all of this is starting to be priced in. Read all of these articles below on China's economy (and see FXI/China CDS charts).

FOMC Statement: Downside Risks To Economic Outlook, Low Fed Funds Rate Through Mid-2013

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Federal Reserve (Source: Flickr)
Below is the full text of today's FOMC statement released by the Federal Reserve. FOMC members didn't announce QE3, but said ZIRP (zero percent interest rate policy) is expected through mid-2013.

"The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013."

They also see a "slower pace of recovery over coming quarters" and believe "downside risks to the economic outlook have increased".

David Rosenberg's Views On The Stock Market, Economy and Fed Meeting

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David Rosenberg, chief market strategist and economist at Gluskin Sheff, shared his views on the market, economy and tomorrow's Fed meeting on Bloomberg TV last week (8/5/2011). Watch the clip below.

*John Mauldin posted his full "Breakfast With Dave" report at Pragmatic Capitalism which is a good read.

"As we had suggested in recent weeks, a U.S. downgrade was going to likely be more negative for the equity market than Treasuries, and that is exactly how the week is starting off. The reason is that history shows that downgrades light a fire under policymakers and the belt-tightening budget cuts ensue, taking a big chunk out of demand growth and hence profits. It is not just the United States — the problem of excessive debt is global, from China to Brazil to many parts of Europe. And let’s not forget the Canadian consumer." -David Rosenberg [continue reading]

Daily Technical Report By MIG Bank (August 8) - EUR/USD, USDX Featured

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Below is a technical report on currencies and precious metals courtesy of MIG Bank, the first forex broker in Switzerland to become a Swiss bank. I presented their analysis on EUR/USD below, read the rest after the jump. Click here to read the full report on their website.

Source: MIG Bank
"EURUSD remains bearish under resistance at 1.4420.
  • Exited at 1.4205 (Breakeven). EUR/USD’s price activity remains bearish, despite a two-day reactionary bounce which failed in resistance at 1.4420. This confirms another bearish pattern, weighed down by additional failed breakouts from the major “Bermuda” triangle pattern. We prefer to open a trade setup once this pattern triggers a meaningful directional breakout.
  • Our long standing bearish view remains in play while the downtrend (from May) holds. A resumption of lower will target 1.3938 (200-DMA), where a large amount of die-hard trend followers will be watching closely for repeat support or a big squeeze lower. Only a close above 1.4580 will lead to a reassessment of this view.
  • Inversely, the US dollar index is resuming its oversold bounce from key support at 73.50-73.00. We expect this level to hold (as the last point of defence), helping launch a rebound back into 80.00 over the multi-week/month horizon."

Obama's Statement On U.S. Credit Rating Downgrade (Full Text/Video)

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"THE PRESIDENT: Good afternoon, everybody. On Friday, we learned that the United States received a downgrade by one of the credit rating agencies -- not so much because they doubt our ability to pay our debt if we make good decisions, but because after witnessing a month of wrangling over raising the debt ceiling, they doubted our political system’s ability to act. The markets, on the other hand, continue to believe our credit status is AAA. In fact, Warren Buffett, who knows a thing or two about good investments, said, “If there were a quadruple-A rating, I’d give the United States that.” I, and most of the world’s investors, agree.

That doesn’t mean we don’t have a problem. The fact is, we didn’t need a rating agency to tell us that we need a balanced, long-term approach to deficit reduction. That was true last week. That was true last year. That was true the day I took office. And we didn’t need a rating agency to tell us that the gridlock in Washington over the last several months has not been constructive, to say the least. We knew from the outset that a prolonged debate over the debt ceiling -- a debate where the threat of default was used as a bargaining chip -- could do enormous damage to our economy and the world’s. That threat, coming after a string of economic disruptions in Europe, Japan and the Middle East, has now roiled the markets and dampened consumer confidence and slowed the pace of recovery.

So all of this is a legitimate source of concern. But here’s the good news: Our problems are eminently solvable.* And we know what we have to do to solve them. With respect to debt, our problem is not confidence in our credit -- the markets continue to reaffirm our credit as among the world’s safest. Our challenge is the need to tackle our deficits over the long term.

The S&P 500 Makes New Low In Gold, That Is Not Normal (SPX, VIX, VXX, GLD/SPY)

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SPX:GOLD (see below)
Whether you think the S&P is undervalued or overvalued based on whatever financial metric you look at, the S&P in gold terms broke through the March 2009 low today, which is not normal. The fact that they aren't falling in tandem either is also strange. As noted in my previous
post, the real value of the S&P 500 has been declining since 1999 when priced in gold. The S&P lost 6.66% today and futures are down another 2.25% overnight. Gold (XAU/USD) keeps making new highs. It is currently up 2.75% at 1,745 and broke above 1,700 last night. The VIX closed up 50% today at 48! What is this implying?

I compared the one month performance of VIX, SPX and VXX (VIX ETF) in a chart below. The VIX is up 200% in a month and a few days ago I noted that VIX futures and VXX volume made new highs. This action is interesting because the U.S. credit downgrade was expected and the ECB is buying Italian and Spanish debt (5Y Italy-German Bund spread was down 22% today). People are saying the sell off could be margin calls or a large hedge fund liquidating (BAC/Bank of America lost 20% today).

The market gave back all of its gains since QE2 started in November 2010, when the Fed started buying $600 billion worth of Treasurys to lower credit spreads, mortgage rates and boost asset markets. There is a Fed meeting tomorrow, so I'm wondering if another round of quantitative easing (QE3) is coming to save the markets? In June at a Federal Budget Committee Conference, hedge fund manager John Burbank of Passport Capital said: "I think the biggest thing is QE2 is ending and many investors assume QE3's magically right around the corner. If it's not, asset prices are going to fall. They are going to fall 10, 15, 20% and then the market can start speculating on QE3." That happened... See charts after the jump.

S&P Future Down Over 2% Pre-Open, Watch Peter Lee's Targets (1,120-1,150)

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courtesy optionsxpress
Equity index futures are down more than 2% pre-open after S&P 
downgraded the U.S.'s credit rating to AA+ last Friday after the close. The sovereign debt crisis in Europe is also on the minds of traders (ECB news). Gold broke above 1,700 in USD and the E-Mini S&P 500 Future is currently down 2.48% at 1,168 (around 7am est).

Peter Lee, Chief Technical Analyst at UBS, warned everyone on Breakout last week that a break below 1,250 support on the S&P would hit stops and send the S&P down to 1,120-1,150. The E-mini future hit a low of 1,161 five days later. Amazing call. This chart definitely looks like a bounce is ahead, but it could hit those shoulders from 2010 at some point, which happens to be around Peter Lee's targets. In other technical news, judgment day is near for EUR/USD in the symmetrical triangle. I'm waiting to see if the Dollar or Euro breaks down.

Links: US Downgrade, Goldman Targets, Bill Gross, Hussman, Alan Greenspan - 8/8/2011

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Frankfurt Exchange (Source: Flickr/orb_cz)
Bank of America: S&P May Downgrade US Again in November (
CNBC Fast Money)

Goldman Hikes Its 12 Month Gold Price Target From $1,735 To $1,830 (Zero Hedge)

Goldman Puts The Sell-Off In Perspective (Pragmatic Capitalism)

Goldman Sachs slashes December target for Australian S&P/ASX 100 benchmark index (Australian)

Goldman Sachs upgrades India to market weight (DNA India)

Recession Warning, and the Proper Policy Response (John Hussman)

China official media: U.S. woes threaten global recovery (Reuters)

Yuan Jumps Most Since April on U.S. Downgrade (Reuters)

Bill Gross Tells The Truth: "S&P Finally Got It Right. They Are Enforcing Some Discipline. My Hat Is Off To Them" (Zero Hedge)

Japan rice futures jump in debut amid radiation worries (Reuters)

A.I.G. to Sue Bank of America Over Mortgage Bonds (New York Times)

Alan Greenspan talks about the U.S. Downgrade, Treasury bonds, the U.S. stock market and Italian debt on Meet The Press (video below). When asked how the market will react to the downgrade, Greenspan said:

"It's difficult to say, but the only test we have at the moment is the Israeli market which is open today, and it has tanked. The problem I have with that however is there are real significant protests within Israel at the moment, so I can't tell whether it's one or the other. But considering the momentum at which the market went down over the last week, it is very unlikely, if history is any guide, that this isn't going to take a while to bottom out. So the initial reaction in my judgment is going to be negative."

Jim Rogers: Japan Tried It This Way and Their Stock Market is Down 75%

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Source: Bloomberg
BloombergTV today, Jim Rogers, chairman of Rogers Holdings, shared his views on the U.S. credit rating downgrade and told viewers that money printing, bank bailouts and quantitative easing (QE3) by the Federal Reserve will not work to help the economy. He thinks QE3 will just bring more inflation and social unrest. He also shared his views on gold, silver, EUR/USD, commodities and the fall in equities. Watch the Bloomberg video after the jump.

"The only thing that works is to face reality. Let people who are bankrupt go bankrupt. The Japanese tried it this way, they have not let anybody go bankrupt for 20 years. You remember zombie banks, zombie companies. The Japanese stock market is 75% below where it was 21 years ago. This system doesn't work. The Americans have already had one lost decade, we're going to have two lost decades or three lost decades at the rate things are going"

Since QE2 ended on June 30, 2011, the S&P has given up almost all of its gains since Bernanke's Jackson Hole speech on QE2 (on 8/27/2011),  which sparked the Tepper rally. Many fund managers, analysts, bloggers and twitterers I follow expected this to happen.

ECB President's Statement on Securities Markets Programme (Bond Buys), EUR/USD Reaction

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EUR/USD is trying to digest the U.S. downgrade, ECB bond buying program and slower economic growth.

7 August 2011 - Statement by the President of the ECB

1. The Governing Council of the European Central Bank (ECB) welcomes the announcements made by the governments of Italy and Spain concerning new measures and reforms in the areas of fiscal and structural policies. The Governing Council considers a decisive and swift implementation by both governments as essential in order to substantially enhance the competitiveness and flexibility of their economies, and to rapidly reduce public deficits.

2. The Governing Council underlines the importance of the commitment of all Heads of State or Government to adhere strictly to the agreed fiscal targets, as reaffirmed at the euro area summit of 21 July 2011. A key element is also the enhancement of the growth potential of the economy.

3. The Governing Council considers essential the prompt implementation of all the decisions taken at the euro area summit. In this perspective, the Governing Council welcomes the joint commitment expressed by Germany and France today.

4. The Governing Council attaches decisive importance to the declaration of the Heads of State or Government of the euro area in the inflexible determination to fully honour their own individual sovereign signature as a key element in ensuring financial stability in the euro area as a whole.

5. It equally considers fundamental that governments stand ready to activate the European Financial Stability Facility (EFSF) in the secondary market, on the basis of an ECB analysis recognising the existence of exceptional financial market circumstances and risks to financial stability, once the EFSF is operational.

6. It is on the basis of the above assessments that the ECB will actively implement its Securities Markets Programme. This programme has been designed to help restoring a better transmission of our monetary policy decisions – taking account of dysfunctional market segments – and therefore to ensure price stability in the euro area.

European Central Bank
Directorate Communications
Press and Information Division
Kaiserstrasse 29, D-60311 Frankfurt am Main
Tel.: +49 69 1344 7455, Fax: +49 69 1344 7404
Internet: http://www.ecb.europa.eu"

Source: http://www.ecb.int/press/pr/date/2011/html/pr110807.en.html
Article at Reuters: ECB to buy Italian, Spanish bonds to stop contagion

Tel Aviv 100 Index Down 7% After Growth Warning, US Downgrade and Inflation Protests

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The Tel Aviv 100 Index lost 7.19% today and broke through major support levels after S&P downgraded the U.S.'s credit rating. According to Bloomberg, the Bank of Israel on August 2 lowered its 2011 and 2012 economic growth forecasts and "Finance Minister Yuval Steinitz called the downgrade a “warning sign” for Israel’s economy". You can't see it on the chart, but 1,000 was an important support level to hold (the 6/30/2010 low). TA100 closed at 972 and the trend looks down for now. Also, over the weekend 250,000 Israelis protested the high cost of living. Watch the CNN video after the jump.
Tel-Aviv Index Courtesy of Bloomberg.com

More markets fell in the Middle East:
Israeli Stock Index Tumbles Most Since 2000 (Bloomberg)
Dubai Shares Drop Most Since February (Bloomberg)
Saudi Shares Plunge as U.S. Downgrade Fuels Concern Over Global Economy (Bloomberg)

S&P Downgrades U.S. to AA+ On Political Risks, Rising Debt Burden; Outlook Negative

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Treasury Secretary Tim Geithner Watches
Senate Vote on Debt Ceiling Bill (Flickr)
Standard and Poor's downgraded U.S.'s credit rating to 'AA+' from 'AAA' on Friday after warning on 
July 14 there was a "50% chance of a downgrade in the next 90 days". The Budget Control Act, or debt ceiling bill, failed to hit S&P's deficit reduction target of $4 trillion, which would have prevented a downgrade. The Treasury Department in a blog post on Saturday said S&P made a $2 trillion mistake (hat tip Bloomberg).

"In a document provided to Treasury on Friday afternoon, Standard and Poor’s (S&P) presented a judgment about the credit rating of the U.S. that was based on a $2 trillion mistake. After Treasury pointed out this error – a basic math error of significant consequence – S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit rating decision from an economic one to a political one." (read more at Treasury.gov)

This credit downgrade will go down in the history books, but will the "risk free rate" (Treasury yields) move even lower from here? Futures and currencies will be interesting to watch tonight.

Interesting articles:

  • U.S. Downgrade Will Have Impact on Munis (Bond Buyer)
  • China Tells U.S. It Must ‘Cure Its Addiction to Debt’ (NYT)
  • China state paper says U.S. debt downgrade a "warning bell" (Reuters)
  • Instant view from Analysts: U.S. loses AAA credit rating from S&P (Reuters)
  • U.S. Downgrade Heralds a New Financial Era by El-Erian (PIMCO.com)
  • El-Erian Says U.S. Downgrade Casts Doubt on Other AAA Countries (BusinessWeek)
  • From 8/3/2011: China's Dagong downgrades US credit rating (China.com.cn)

Full text of S&P's downgrade:

"United States of America Long-Term Rating Lowered To 'AA+' On Political Risks And Rising Debt Burden; Outlook Negative


• We have lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.

• We have also removed both the short- and long-term ratings from CreditWatch negative.

• The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.

• More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

• Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon.

• The outlook on the long-term rating is negative. We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

Links: Unemployment Rate at 9.1%, 117k Jobs Added In July, ECB Buys Bonds, USPS Default Warning

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From the U.S. Department of Labor:

"Total nonfarm payroll employment rose by 117,000 in July, and the unemployment rate was little changed at 9.1 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, retail trade, manufacturing, and mining. Government employment continued to trend down."

1-Month Net Change in Nonfarm Payrolls Since 2001 (BLS)

In other news, "USPS posts $3.1 billion loss in Q3, warns of default"!:

"We are experiencing a severe cash crisis and are unable to continue to maintain the aggressive prepayment schedule," Joseph Corbett, the agency's chief financial officer, said in a statement. 
"Without changes in the law, the Postal Service will be unable to make the $5.5 billion mandated prepayment due in September."

And European news (EUR/USD is up 1.28% at 1.42751):

"The big news today is that the ECB will buy Spanish and Italian bonds. Italy is also announcing a balanced budget amendment. The comedy of errors continues." (Pragmatic Capitalism) 

"Explaining How The Just Announced ECB Market Rescue Pledged 133% Of German GDP To Cover All Of Europe's Bad Debt" (Zero Hedge)

S&P Priced In Gold At March 2009 Low (Chart), Apple Priced In Gold At Decade Highs

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Peter Boockvar at The Big Picture blog mentioned that the S&P 500 was back at the March 2009 low in gold terms. I wanted to chart out $SPX/$GOLD going back 13 years, and it wasn't pretty. It's kind of sad that a shiny yellow metal has been the only thing of "real" value for the past 13 years. Well, except for Apple, Netflix and Facebook. Gold priced in Apple is around 13 year lows and actually made a new low earlier this year. Hopefully Gold/Apple can stay below that trend line.

$SPX/$GOLD (S&P 500/Gold) Courtesy of StockCharts.com

$GOLD/AAPL (Gold/Apple) Courtesy of StockCharts.com

Somewhat related from last month: GLD/SPY Ratio Down 16% From March 2009 S&P Low - 7/18/2011

VIX Futures Volume Makes New High, Curve and Options Update (VIX Up 35% at 31)

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VIX (see below for a larger chart)
As you already know, the S&P had a bad day today closing down 4.78% at 1,200. However, the VIX, or Volatility Index, finished up 35% at 31.66! There are VIX futures and options on those futures that trade at the CBOE Futures Exchange. VXX, the short-term VIX futures ETN, had a nice day as well, up 19% on BIG volume (95 million shares, the most I see on the chart).

Below I put up charts of VXX, $VIX, the 
VIX futures curve and VIX term structure ("expectations of market volatility conveyed by S&P 500 (SPX) stock index option prices") to show the backwardation going on (front month value is way above back month). I also embedded two Option Monster Volatility Sonar Reports from yesterday and today. VIX Calls were active yesterday. CBOE said 137,132 VIX futures contracts traded today which is a new single-day record (press release below). So now the question is, where does the S&P find support and premiums on SPX options top out? If you are still confused about what all of this means or want to learn more, visit the VIX and VIX Options FAQ at cboe.com. The VIX measures market sentiment.

1-Month and 3-Month Dollar LIBOR Are Moving Higher, Eurozone Surprise Ahead?

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During the past two weeks, 1-month and 3-month dollar LIBOR (London Interbank Offered Rate) spiked off levels not seen since
March 19, 2010. Yesterday (August, 3), 1-month and 3-month dollar LIBOR were set at 0.206% and 0.268% respectively, which are still very low compared to the levels hit during the 2008 financial crisis (3-month LIBOR spiked to 4.2% on 10/7/2008 after Lehman went bankrupt). From what I remember, and I may be wrong, LIBOR spiked in early 2010 when banks started getting nervous over Greek sovereign debt and demanded U.S. Dollar liquidity. I was just looking at LIBOR charts at the time; the U.S Dollar was already catching a bid. Is a Eurozone surprise ahead? Or is the move higher in LIBOR related to something else. I found a Bloomberg article that explains what's going on. View charts of $LIBOR and $LIBOR3 after the jump.

"Nomura Holdings Inc. advised betting that U.S. two-year interest-rate swap spreads will widen on renewed concern Europe’s sovereign debt crisis will increase demand for dollar-denominated funding in the region." (continue reading)

Drunken Bernanke Talks About The Economy At A Bar (The Onion)

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Source: The Onion
The story of the day comes from The Onion: 
Drunken Ben Bernanke Tells Everyone At Neighborhood Bar How Screwed U.S. Economy Really Is.

"Bernanke, who sources confirmed was "totally sloshed," arrived at the drinking establishment at approximately 5:30 p.m., ensconced himself upon a bar stool, and consumed several bottles of Miller High Life and a half-dozen shots of whiskey while loudly proclaiming to any patron who would listen that the economic outlook was "pretty goddamned awful if you want the God's honest truth." (continue reading)

Lol, I hope Bernanke reads this. Here is a similar story: U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion.

S&P 2007 Bull Market Top, Wedge Breakdown Vs. 2011 Bull Market (SPY Chart)

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SPY (S&P ETF) broke through the rising wedge from 2009 just like it did in 2007. Both had one previous test on wedge support. As noted yesterday, Peter Lee, Chief Technical Analyst at UBS, thinks we see one more bull market rally for the S&P that breaks above the recent highs and peaks out around 1440-1450.

$SPY 2002-2011 courtesy of FreeStockCharts.com (click for larger view)

UBS's Peter Lee: S&P Below 1,250 Triggers Stops, Cyclical Bull Rally Peaks At 1450

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Peter Lee, Chief Technical Analyst at UBS, was featured on Breakout yesterday with Jeff Macke and mentioned important technical levels to watch on the S&P 500 Index. He said if the S&P breaks below 1,250 support, stop loss executions will cause a "fast drop" to 1,120 or 1,150 (decent move, 8-10%). But even if that's the case, Lee sees one more rally in the S&P that peaks out between 1,440 and 1,450, which unfortunately concludes the cyclical bull market. I embedded the video after the jump, or watch it at Yahoo Finance.

The S&P closed at 1,254 yesterday and the S&P future is currently up 0.6% overnight. I threw some lines on a chart showing the levels to watch. If the S&P does fall to 1,120, will QE3 spark the rally to 1450?

Moody's Confirms US Aaa Rating, Assigns Negative Outlook

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Moody's just released this announcement and it was expected.

US Treasury Building - Wikimedia Commons
"New York, August 02, 2011 -- Moody's Investors Service has confirmed the Aaa government bond rating of the United States following the raising of the statutory debt limit on August 2. The rating outlook is now negative.

Moody's placed the rating on review for possible downgrade on July 13 due to the small but rising probability of a default on the government's debt obligations because of a failure to increase the debt limit. The initial increase of the debt limit by $900 billion and the commitment to raise it by a further $1.2-1.5 trillion by yearend have virtually eliminated the risk of such a default, prompting the confirmation of the rating at Aaa.

In confirming the Aaa rating, Moody's also recognized that today's agreement is a first step toward achieving the long-term fiscal consolidation needed to maintain the US government debt metrics within Aaa parameters over the long run. The legislation calls for $917 billion in specific spending cuts over the next decade and established a congressional committee charged with making recommendations for achieving a further $1.5 trillion in deficit reduction over the same time period. In the absence of the committee reaching an agreement, automatic spending cuts of $1.2 trillion would become effective.

In assigning a negative outlook to the rating, Moody's indicated, however, that there would be a risk of downgrade if (1) there is a weakening in fiscal discipline in the coming year; (2) further fiscal consolidation measures are not adopted in 2013; (3) the economic outlook deteriorates significantly; or (4) there is an appreciable rise in the US government's funding costs over and above what is currently expected.

USD/CHF Pierced 2-Year Channel Support (-2%), Crashed Intraday After Debt Ceiling Bill Passed Senate

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Look at USDCHF's 2-year descending channels and the crash today. To be bullish it needs to take out that near term downtrend line and find support on one of these descending channels. USD/CHF just crashed so the first attempt at finding channel support didn't work out that well. The Senate vote on the debt ceiling just passed, so is U.S. Dollar/Swiss Franc now pricing in downgrade risk? QE3? Or something else. Swiss Franc is a safe haven currency. More from
CNN Money:

"The dollar has become the safe haven currency of last resort," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon. "The fact that it's still weakening against the Swiss franc and the yen immediately raises a red flag."

E-Mini S&P Future Technical Update (QE Trend Line, 200DMA), Senate Vote Tomorrow

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source: optionsxpress
I'm watching the E-mini S&P future (ES) tonight because it's been making interesting moves during this debt ceiling volatility. The Senate votes tomorrow at
noon on the bill, so watch how traders price in the progress. Last night when a "bipartisan agreement" was reached on the budget control bill, ES initially spiked 1.5% overnight and gapped up in the morning to test the 50 day moving average. But after weak economic data hit the wire (see below), the S&P lost all of its gains and closed in the red. So you can't always trust what happens overnight.

ES is currently down 0.47% overnight and pierced the QE2 uptrend line and 200DMA on my chart. I've been watching the S&P during the day and overnight mainly to see when it will start pricing in the next recession, or break bull market trend lines. GLD/SPY, or Gold priced in the S&P 500, has been an interesting ratio to watch recently (posts 1, 2).

U.S. Economy: Manufacturing Almost Stalls as Orders Drop" (Business Week)

"The Institute for Supply Management’s factory index slumped to 50.9, the lowest since July 2009, from 55.3 a month earlier, the Tempe, Arizona-based group said today. Figures less than 50 signal contraction, and the July index was lower than the most pessimistic forecast in a Bloomberg News survey."

Economy grinds to halt as consumers pull back (CNN Money) -from July 29, 2011

"Gross domestic product, the broadest measure of the nation's economic health, rose at an annual rate of 1.3% in the second quarter, the Commerce Department said. 
While that's an increase from the revised 0.4% growth rate in the first three months of the year, it is hardly good news. The government originally reported that the economy grew at a 1.9% annualized rate in the first quarter."

10-Year Spain-German Bond Spread Makes New High Again (374)

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The 10-Year Spain-German Bund Spread made a new high today. Weak U.S. and European manufacturing growth could be responsible (read: Bunds Climb, Italian, Spanish Bonds Drop After U.S. ISM Data), and/or it's related to Spanish credit risk. It is just interesting to see this bond spread keep making new highs after it broke out in early July.

Image source: Bloomberg.com

Watch TimeScapes Trailer To Get Mind Off Debt Ceiling For A Second

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This is the trailer for TimeScapes, a film by Tom Lowe. Visit timescapes.org for more information. He posted this on Google+.

Watch Senate and House Debate, Vote On Debt Ceiling Plan Live (Twitter Conversations)

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Watch the U.S. House debate and vote on the debt ceiling plan live via CSPAN. I also embedded the Twitter conversation on the 'debt limit' as well as House Speaker John Boehner's twitter stream. More from Bloomberg:

"Republican leaders, with no extra time before a default threatened for tomorrow, voiced optimism that Congress will pass a compromise with President Barack Obama to raise the U.S. debt limit by at least $2.1 trillion and slash federal spending by $2.4 trillion or more."

If interested, here is text of the BUDGET CONTROL ACT AMENDMENT (courtesy of Chicago Sun-Times).

Obama's Statement and Fact Sheet of Budget Deficit-Debt Limit Deal

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The S&P future is bouncing off trend line support overnight and using this "bipartisan debt agreement" as a catalyst, for now. The September E-mini S&P Future is up 1.48%, Gold is down 0.90% and Treasury Bond Futures are down 0.51%. The House and Senate still need to pass this bill. Below is more information on the bipartisan debt deal from the White House and House Speaker John Boehner, as well as President Obama's statement (transcript and video). I'm waiting to see how everything reacts. From the White House fact sheet:

Mechanics of the Debt Deal (Source: whitehouse.gov)

  • Immediately enacted 10-year discretionary spending caps generating nearly $1 trillion in deficit reduction; balanced between defense and non-defense spending.
  • President authorized to increase the debt limit by at least $2.1 trillion, eliminating the need for further increases until 2013.
  • Bipartisan committee process tasked with identifying an additional $1.5 trillion in deficit reduction, including from entitlement and tax reform. Committee is required to report legislation by November 23, 2011, which receives fast-track protections. Congress is required to vote on Committee recommendations by December 23, 2011.
  • Enforcement mechanism established to force all parties – Republican and Democrat – to agree to balanced deficit reduction. If Committee fails, enforcement mechanism will trigger spending reductions beginning in 2013 – split 50/50 between domestic and defense spending. Enforcement protects Social Security, Medicare beneficiaries, and low-income programs from any cuts.

E-Mini S&P 500 Future (ES) Is Trading At Important Levels (Technical Update, July 29, 2011)

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This is a technical update on the E-Mini S&P September 2011 Future (ES), which trades overnight. When Republican Leaders cancelled the debt limit vote last night, both the S&P future and
U.S. Dollar (in Euros) initially sold off. ES traded all the way down to its 200 day moving average (red line) and uptrend line from June 2010, where it bounced. ES is still trading under its 50 day moving average (blue line), so I'm thinking the debt limit vote will either be the catalyst for the next "risk rally" (watch QQQor technical breakdown, which would confirm a new bear market. I'm trying to figure out if that is a head and shoulders formation at the top (bearish), or an ascending triangle (bullish). The second chart shows that ES already broke through the bull market trend line from March 2009. If ES breaks through the 200DMA and trend line from June 2010, it looks like 1,200-1,215 is the next area of support (pre-flash crash high). See charts after the jump.

EUR/USD Goes Crazy After Moody's Warns Spain And Debt Limit Vote Gets Delayed

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EUR/USD intraday (courtesy freestockcharts.com)
After,"Majority Whip Kevin McCarthy (R-Calif.) told reporters shortly before 10:30 p.m. that there would be no vote Thursday night on the bill" (
Washington Post)the Euro initially spiked against the U.S. Dollar and hit a high of 1.4361 off the 1.42820 low. However, at 1:20am, when "Moody's placed Spain's Aa2 ratings on review for possible downgrade", EUR/USD retraced the whole move and is now making new lows at 1.42693. So, which sovereign debt crisis wins? Here is more from the Moody's announcement.

"New York, July 29, 2011 -- Moody's Investors Service has today placed Spain's Aa2 government bond ratings on review for possible downgrade. Spain's Prime-1 short-term ratings are unaffected by today's action.

The initiation of the ratings review is driven by the following concerns:

1.) The continued funding pressures facing the Spanish government, which the precedent set for future euro area support arrangements by the official package for Greece is likely to exacerbate, and the resulting increase in risks to bondholders.

2.) The challenges posed to the government's fiscal consolidation efforts by the weak growth environment and the continued fiscal slippage among several regional governments.

Funding costs have been rising for some time for the Spanish government and for many closely related debt issuers, such as domestic banks and regional governments. Pressures are likely to increase still further following the announcement of the official package for Greece, which has signalled a clear shift in risk for bondholders of countries with high debt burdens or large budget deficits. The package has not relieved market concerns over the position of such sovereigns because (i) it sets a precedent for private sector participation in future sovereign debt restructurings in the euro area, and (ii) while an expansion of powers has been proposed for the EFSF, it is not clear when the powers will be implemented.

Moody's views positively that the central government has been successful in meeting its near-term fiscal consolidation targets, but the rating agency nonetheless notes that challenges to long-term budget balance remain due to Spain's subdued economic growth and fiscal slippage within parts of its regional and local government sector." (Continue reading the announcement at Moodys.com)

Moodys: 162 Aaa Local Governments On Review For Possible Downgrade ($63 Billion)

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Source: Kazuhiko Kawahara at GCClark.net/
From a Moody's
announcement today:



EUR/USD Is Back In Descending Channel, GLD/SPY Testing Freedom Level

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Is the Eurozone about to flare up again? Or is this about the U.S. debt ceiling. Yesterday, Greece was downgraded by S&P to 'CC' from 'CCC' on the belief that a "selective default" is likely to occur with a "30%-50% recovery of principal" (link). EUR/USD is currently trading at 1.43513, just above the 50 day moving average (1.43445). It sold off hard today along with other "risk assets". E-mini Dow, Nasdaq and S&P futures are slightly positive overnight, we'll see what happens tomorrow with stocks and the GLD/SPY ratio. The ceiling resistance level to break on GLD/SPY is 1.2065, or the high made in June 2010. Today GLD/SPY pierced through that level and hit a high of 1.215, but ultimately closed at 1.204. There could be some wild swings as August 2 approaches on Tuesday.

EUR/USD (Euro / US Dollar)
Courtesy of FreeStockCharts.com

GLD/SPY Ratio: Freedom = >1.21 (imo)
Courtesy of StockCharts.com

For near and long-term GLD/SPY trend lines to watch, visit my previous post on 7/18/2011: Watching GLD/SPY Ratio, Down 16% From March 2009 S&P Low.

"Raise The Debt Ceiling" Rap Video By Remy

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"Raise The Debt Ceiling" by Remy is probably the hardest finance rap song I've heard in a while (hat tip Zero Hedge).

S&P Cuts Greece To 'CC' On Likely "Selective Default"; Outlook Negative

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March 25 - Greece Independence Day
Img embed source: Aster-oid on Flickr
Here's an update on Greece's soon to be "selective default" status. Read the full report at
standardandpoors.com. A login may be required. EUR/USD is currently down 1.03% at 1.43607 and the S&P fell over 2.03% today with no decision yet on the debt ceiling.

"LONDON (Standard & Poor's) July 27, 2011--Standard & Poor's Ratings Services today lowered its long-term sovereign credit rating on the Hellenic Republic to 'CC' from 'CCC'. At the same time we affirmed the short-term rating at 'C'. The outlook is negative. Our recovery rating of '4' for Greece remains unchanged, indicating an estimated 30%-50% recovery of principal by bondholders, including on those bonds subject to a 20% reduction in net present value (NPV) as estimated under the Institute for International Finance (IIF) proposal.

Following review of the European Council's (EC's) July 21 statement, Standard & Poor's has concluded that the proposed restructuring of Greek government debt would amount to a selective default under our rating methodology. We view the proposed restructuring as a "distressed exchange" because, based on public statements by European policymakers, it is likely to result in losses for commercial creditors. Moreover, the objective of the debt exchange/rollover is to reduce the risk of a near-term debt payment default and to give the Greek government more time to undertake fiscal consolidation and policy reforms. Under our criteria, we characterize a distressed borrower as one that would--in the absence of debt relief--fail to pay its debt on time and in full."

Watch Wingsuit Proximity Flying, Avalanche Cliff Jumping Videos

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Entertainment Break: Watch skiers jump off cliffs in the French Alps with an avalanche behind them (hat tip KS on Google+).

"Matthias Giraud and Stefan Laude capture some of the most incredible content seen by GoPro as they hit the Alps like true heroes skiing the French backcountry while escaping a large avalanche on their tails!" - (GoProCamera on Youtube)

After that watch wingsuit proximity flying by by Jokke Sommer and Jeb Corliss.

Links: Treasury Futures, Downgrade Risk, Marc Faber, Andy Xie, Repo Market, Soros Closes Fund

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img source: financeintelligencer
U.S. Faces Losing AAA Debt Rating, BlackRock, Loomis Sayles, Templeton Say (

"BlackRock Inc., Franklin Templeton Investments, Loomis Sayles & Co., Pacific Investment Management Co. and Western Asset Management said the U.S. faces losing its top-level debt rating as officials struggle to raise the $14.3 trillion borrowing limit and reduce spending."

U.S. Downgrade May Cost $100B a Year: JPMorgan (Bloomberg)

"A U.S. credit-rating cut would likely raise the nation’s borrowing costs by increasing Treasury yields by 60 to 70 basis points over the “medium term,” JPMorgan Chase & Co.’s Terry Belton said"

The $1 Billion Armageddon Trade Placed Against the United States (betting on downgrade of AAA (Jack Barnes at Money Morning)

"In one moment, an invisible trader placed a single trade that moved the most liquid debt market in the world. The massive trade wasn't placed in bonds themselves; it was placed in the futures market. The trade was for block trades of 5,370 10-year Treasury futures executed at 124-03 and 3,100 Treasury bond futures executed at 125-01. The value of the trade was about $850 million dollars." (betting on downgrade of AAA rating)

Marc Faber: The Debt Fight Is Meaningless, As Governments March Toward Hyperinflation (Business Insider / interview at King World News)

"Well when the reset comes it will be say a hundred dollar bill will be exchanged for a one dollar bill or something like this. Before we have the Great Reset, the government they will increase the war effort under whatever excuse that will be but I think that is the likely course of action..." (he also talks about gold)

Nomura: US Downgrade May Cause Repo Market Liquidity Freeze (Zero Hedge)

Andy Xie: US debt crisis may force China to consider faster diversification in asset allocation (Reuters Insider Video)

What Triggers a U.S. Treasury CDS "Credit Event" (Credit Default Swaps)

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5Y US Treasury CDS (Bloomberg)
As you already know, the U.S. faces the risk of
running out of cash to pay bills on August 3 if Congress doesn't raise the debt ceiling. As noted by Christian Post's math, there will be enough money in August to cover interest payments on the debt to prevent a default, but $21 billion will be left unpaid.

It gets more interesting. There are currently $4.8 billion (net) U.S. Treasury Credit Default Swaps outstanding that insure against a "credit event", or missed interest payments on Treasury bonds. If the U.S. Government decided not to pay interest on its debt next month, it would trigger the "credit event" and holders of Treasury CDS would be made whole by the sellers at par (Treasury bond). 5Y Treasury CDS is currently trading at 58 bps in euros and trending higher. It spiked to 99 bps in February 2009. I remember doing a post on Treasury CDS in September 2008 when S&P said "pressure is building on the pristine "AAA" rating of the United States after a federal bailout of American International Group Inc". There are $9.3 trillion Treasury bonds held by private investors, so the CDS number is tiny.

David Geen, General Counsel at the International Swaps & Derivatives Association (ISDA), explained what would trigger a "credit event" for Treasury CDS. Watch the Bloomberg interview after the jump ("ISDA Says Missed Payment Would Trigger U.S. Debt Swaps").

"There doesn't seem to be a lot of fear reflected in the pricing, as it hasn't been reflected in the Treasurys itself. If Treasurys are still trading at par or close to par that means that the CDS settlement, if there was a credit event and there was an auction, then the settlement would not be at large amounts and therefore protection holders are not going to receive large payouts if anything."

More on Treasury CDS and debt ceiling updates:
  • U.S. has 3 days grace before CDS triggered: ISDA (Reuters)
  • Step Aside UniCredit And Italy: The US Is Number One... In Monthly Spike Of Default Bets (Zero Hedge)
  • Betting $4.8 billion on a U.S. default (CNN Money)
  • S&P warns against prioritizing debt payments: report (Reuters)
  • Is default deadline truly Aug 2? Analysts say no (Reuters)
  • U.S. Downgrade May Cost $100B a Year: JPMorgan (Bloomberg)
  • U.S. likely to lose top rating: economists (Reuters)
  • Treasuries Decline as Obama Threatens to Veto House Speaker’s Debt Plan (Bloomberg)
  • Treasuries Fall, Gold Gains on U.S. Debt Rift (Bloomberg)