Cost to Insure U.S. Government Debt Through the Roof

From Oxbury Publishing:

“While the Bernanke hearings were underway, CNBC decided to take a break in the coverage and shoot over to America’s most recent gladiator for free markets: Rick Santelli; the bringer of truth (only in the past couple of weeks) and tea parties.
“Santelli had an interesting bit of news to share with the world’s viewers of cable television. He reported that for the first time the cost to insure U.S. debt with credit default swaps had risen to 100 BP. In other words, it will now cost you $100,000 to insure $10 million worth of Treasury debt for 5 years against default. That figure has increased 5-fold since shoes started dropping in September of 2008. Prior to financial markets going from beauty to beast after the collapse of Bear Stearns, the cost to insure government debt against default was near 1 BP; what can you say about a 10,000% increase in a few short years?”

Here is the full story.

$11.6 Trillion and Counting

From Bloomberg today:

"The U.S. government has pledged more than $11.6 trillion in the past 19 months on behalf of American taxpayers to bail out banks and stimulate economic growth...
"It hasn’t been enough to stop banks from collapsing. Regulators seized 14 lenders this year, including eight this month. Last year, regulators shuttered 25 banks, including Washington Mutual Inc., the biggest bank failure in U.S. history.
"The S&P 500 Banks Index slumped 9.9 percent today, halting a four-day advance of 30 percent spurred as concern eased that banks would be nationalized and Obama’s first budget proposal asked for more financial-bailout funds."

Here is the full story.

More alarming, perhaps, than the amount of the total tab is that it continues to grow with no end in sight!

Another Down Day for Stocks, But It Could Have Been Worse

Given the magnitude of the negative news today, today's lower close could have been much worse.

S&P 500 Hits New Intraday Low

Obama's War on Wealth!

Pres. Obama has effectively declared war on wealth, broadly and aggressively expanding the size and grab of government on private assets, in his new administration. A recessionary period is usually considered to be the worst possible time to raise taxes and expand government, but that is precisely what the new President is doing. This is an extremely risky strategy, effectively doubling down his bets on expanding government at the moment of greatest vulnerability for the U.S. economy.

Perhaps he senses that there is a backlash building, and so he wants to cash in on his political capital while he still has it, and before the backlash crushes the goodwill he has. Apparently, he doesn't care. He is more interested in his agenda of expanding the scope of government, than in effectuating an economic recovery that will bring jobs to the American people.

4Q GDP Shock: Worse Than Expected, Down 6.2%

What is even worse about this number is that since it is a preliminary number, the government almost always revises this figure downward in later revisions. Based upon past history, it is almost certain to be revised even further downward in future months. It's bad, and it's going to get worse!

U.S. Government Converts Citi Preferreds, Clobbers Stocks

This may well be a day for the record books!

Staggering Deficits Beyond the Pale

It is easy to miss, but look at the last histogram graph at the far right of this chart. It puts into perspective the current year's budget deficit compared with past years. Wow! The deficit this year alone amounts to more than $25,500 for every taxpayer in America. For every $1 in tax revenue the government receives, it will spend $2. These amounts are incomprehensible!

From Bloomberg:

The U.S. is borrowing so much that it may have trouble paying the money back, said Jaemin Cheong, a bond trader in Seoul at Industrial Bank of Korea, the nation’s largest lender to small- and mid-sized companies.

“Yields are headed higher,” Cheong said in an interview. “More issuance will be needed to support the economy. The possibility of default is more and more as time passes.”

Here is the full story.

Already, we are beginning to see interest rates start to rise. The increasing risk of U.S. government default is forcing investors to demand higher rates to accept that risk.

Stocks Turn Red

The financial markets today are stressing over the size and breadth of the budget deficit announced today, including the cost of President Obama's health care bill. We've now slid into negative territory for the day, with one hour to go to the end of trading. And of course, we all know that anything can happen in the last hour of trading.

Either Way, We Pay

There are ultimately only three ways that the U.S. government can pay for its spending:

1. Print/create more money. By printing money, we ensure that inflation is the natural result. Inflation is defined as "a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency" (source: Dictionary.com). Inflation is considered to be a "hidden" tax because it robs the middle class of its spending power by devaluing the currency. Congress loves it, because while its spending is the primary cause, it can insulate itself from the blame or the consequences!
   
2. Raise taxes. This pays the bill, and is the most responsible way to pay for government spending, but it also stifles economic activity at some point.
3. Borrow the money. Even if the government borrows the money needed to pay for a deficit, that borrowing must also be repaid at some future date. That borrowed money can only be repaid by -- you guessed it -- (#1) printing more money, or (#2) raising taxes.
   

Stocks Give Up Rally Following $3.55 Trillion Budget Announcement

The Dow has given up 100 points of its 120-point rally following the announcement of his budget by President Obama. The part the blew my mind was that the deficit amounts to nearly 50% of the entire budget -- $1.75 trillion! Wow!

Gold Plunges $75 From Recent Highs

New Home Sales Lowest in 45 Years!

Crude Oil Surges Well Above $43

Crude oil has surged to well above $43/barrel today. This story has been lost or ignored with the slate of other news. This is a nearly 25% increase in one week from the lows near $34 in recent days! Ugh! That is going to hurt at the gas pump!

Stock Traders Accept Today's Bad News With a Shrug

Despite a deeper plunge in durable goods orders, record numbers of new unemployed, and an announcement that GM is still facing bankruptcy, investors have decided this morning that the fresh round of bad news is "already priced in". Now that's news to me!

Think Speculative Traders Are Bad for Commodities? Think Again!

The following comment was placed by a farmer in a forum on Agweb.com:

Illinois/Wisconsin border: If the CBOT ever vanished, we would all be in serious trouble. How else would you be able to offset your risk? That’s the job of the futures market...to allow me to put off my risk onto someone else (think speculators). If you want to call the CBOT a "legalized gambling center" with "manipulated markets" and "insider trading" then that’s your business. But just remember, those "gambling market manipulators" gave you the option to sell $7 corn through 2010 and $6.50 corn for 2011. In my opinion, you lose the right to complain if you are given an opportunity but don't take advantage of it. I certainly didn't sell all my crops at those prices but I can't blame anyone but myself because the opportunity was there.

What would happen to farmers and agriculture commodity prices without the current futures markets? This farmer gives a stark view of what would happen! Here's a hint: Think higher!

The Yen and the Yang! What Goes Up....

After rising strongly during last Fall ('08) and into the New Year, the Yen has been falling sharply over the past month on weakness in the Japanese economy. Japanese exporters will no doubt be happy!

Don't Fall Off the Stock Market See Saw!

What a day to trade stocks! I keep very tight reigns on my trades on a day like today! Treasuries likewise, but today, I have restricted myself only to shorting treasuries.

Mixed-Up Soy Complex

What an odd day for soybean traders! The complex was extremely mixed, with soybean oil sharply higher, soybean meal solidly lower, and soybeans mostly flat!

Soybeans -- marginally flat to lower
Soybean Meal -- sharply lower
Soybean Oil -- sharply higher

U.S. Guzzles Gas Unexpectedly

A surprising drop in gasoline inventories, despite continued rising crude inventory, is causing gasoline futures to rise rapidly today.