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There is little if anything one can say about today's 5 Year auction. It priced at 1.055%, just above the record low 1.015% in September, and well inside the WI 5 Year trading at 1.08%, at a solid 2.90 Bid To Cover, compared to the 2.82 six auction average. The internals were boring, with Indirects taking down 49.3% of the auction, compared to the 40.5% LTM average, Directs declined modestly to 10.4% (in line with the 11.2% average), and Dealer take down unchanged from September at 40.3%. However, one massively notable thing about this auction is that it is the last one, probably ever, in which the US debt/GDP ratio is still under 100% following the auction. Adding today's $35 billion to yesterday's $35 billion in Two year bonds, brings total US debt to $15.010 trillion, with GDP still at $15.013 trillion (granted this number may be revised tomorrow), resulting in a debt to GDP ratio of 99.99%. Tomorrow's historical $29 billion in 7 Year bonds will take America into that uncharted territory of triple digit debt to GDP. But yes, the formal settlement of all bonds will not occur until Halloween, so we can celebrate on several days America's historic transition one step closer to insolvency.
"For the 1 percent of the population with the highest income, average real after-tax household income grew by 275 percent between 1979 and 2007," said the report from the CBO, a nonpartisan budget and tax analysis arm of Congress.
The next-highest 19 percent of earners saw their income grow by 65 percent over the same period. Income grew by just under 40 percent for the 60 percent of the population in the middle, while the 20 percent at the bottom of the scale saw income growth of only about 18 percent, the report said.
Apparently the latest news driving the market is this from AP, which hit the tape 12 hours ago:
This would be wonderful, if only it wasn't refuted 3 short hours later by none other than Reuters:
“Is it possible to get some extra funding from IMF, from BRIC countries for instance,” said Finland’s Jyrki Katainen, using an acronym for Brazil, Russia, India and China.
Italy, with debt of 119 percent of gross domestic product, came under pressure to find more savings to be eligible for European help in fending off speculators.
Merkel made clear that Italy cannot count on unrestricted European support in what she called a “conversation among friends” with Italian Prime Minister Silvio Berlusconi.
“Confidence won’t result merely from a firewall,” Merkel said. “Italy has great economic strength, but Italy does also have a very high level of debt and that has to be reduced in a credible way in the years ahead.”
After a year of wrestling with the ECB over burden sharing for bondholders, Merkel was on the central bank’s side this time, sparing it from a role in financing state deficits.
Among the pills were Ambien (a sedative) and possibly Klonopin (for seizure and panic disorder treatment).
"We took pills and woke up the next day... It was very impulsive and I am glad we woke up", Mrs Madoff said.
"I don't know whose idea it was, but we decided to kill ourselves because it was so horrendous what was happening," she said.
The Institute of International Finance, which represents financial companies, agreed to “develop a concrete voluntary agreement on the firm basis of a nominal discount of 50 percent on notional Greek debt held by private investors,” Managing Director Charles Dallara said in a statement e-mailed at 4:26 a.m. in Brussels.
The latest discussions in Europe are signaling steeper Greek debt cuts than the 21% previously on the table, prompting analysts at Nomura to release a note Wednesday warning that a disorderly default is now the most likely scenario, and will trigger payouts on credit default swaps (CDS).
Those triggers will come from the likelihood that larger haircuts – reports Monday suggested 50 cents on the euro with bondholders getting €15 in cash and €35 in new 30-year, 6% coupon paper for every €100 in Greek debt – will be involuntary. On Greek debt alone the impact is manageable, as Nomura estimates just €50 billion in total losses, “but the impact through rising risk premia in other Eurozone bond markets could be significant,” according to strategists Jens Nordvig, Lefteris Farmakis and Dimitris Drakopoulos.
"It all depends on the facts, but on the straight reading of the clause, if this doesn't bind all of a reference obligation's bondholders then it's not a restructuring credit event,"
There are 206 billion euros of Greek government bonds in private sector hands, so a 50 percent haircut would see banks take a 103 billion hit. Greek companies hold an estimated 80 billion euros, including 45-50 billion by its banks. Those banks hurt by the haircut could need about 30 billion euros of capital from the state to shore them up as part of a recapitalization plan alongside the Greek debt talks, reducing the net benefit to Greece to nearer 70 billion euros. The private sector agreed in July to take a mere 21 percent loss on their holdings of Greek debt, but the outlook has since deteriorated and they have been told they need to take a bigger loss to put Greece on a more sustainable path. 
Many strategists dismiss worries that such a decision would hit the market, insisting that Greece will eventually default and investors who bought protection will get paid – if not in the next few weeks, probably by 2012 or 2013.
Ten banks and five investment funds, which make up the voting members of the so-called determinations committee that meets under the auspices of Isda, will decide on the fate of Greek cds
Anyone expecting that the events over the last 24 hours will have changed the persistently negative outlook of one of the original skeptics, will be disappointed. The SocGen strategist falls back to that old time-tested principle in complicated situations: math and logic. His summary of events released this morning: "The increasingly frenzied attempts of eurozone governments to persuade financial markets that they can draw a line under this crisis will ultimately fail – even if this week’s measures bring some short-term relief. I have minimal confidence that governments can turn this around within the confines of the eurozone project. You might be surprised though that I feel more bullish! Why? Both Dylan and I have come to the view that the ECB will be forced, by events, to monetise debt in the GIIPS and beyond. And if investors believe the governments in Spain and Italy are bust, then Germany, France, and not forgetting the UK and US, are far, far worse." To be sure, we may see a brief respite as we get the traditional post-TARP knee jerk reaction, only for markets to digest the sad reality of the situation in the proceeding 48 hours. And what will that imply? To Edwards, it will be nothing short of the realization, that even with €1 trillion (or more), the ECB will have no choice but to commence outright monetization as well. And the real question will be whether or not "Germany, will leave the eurozone after being over-ruled on the ECB (again!) and in the face of such monetary debauchery?"
And going back full circle to the most recent events, Edwards redirects to a new and interesting question: not whether this bailout attempt will succeed: it won't; not whether the ECB will be forced to step up to the plate and monetize: it will, but whether or not Germany, after being once again overruled by Europe will say enough, and leave the eurozone.
Probably the only actual news here is that total US GDP is now "suggested" to be $15,199 billion, up from $15,013. What this means is that the moment of 100% debt to GDP for the US has been pushed back from today, following the 7 Year auction, to a point in mid-December.
If anything, judging by prevalent values, even assuming some modest accrued interest, the bond market is expecting a final haircut of about 62%.
# This leaves just ~€200 billion in actual debt to undergo a haircut.
# Apply a 50% haircut to this debt (ignoring the fact that of this about €35 billion is held by Greek pension funds, and once the realization that Greek pensions have been cut in half dawns upon the population, the result will be the biggest riots ever seen in Athens yet).
# Total debt to be cut: just about €100 billion.
# Hence, of the total €350 billion, just €100 billion is eliminated, most of it used to backstop and service Greek pension and retirement obligations
EU pushes banks to find extra €106bn for June
U.S. Supercommittee Flirts With Failure
Japan's Finance Minister Blames Yen Rise on Speculators
China Nixes Rapid Yuan Rise
What drove it? A massive surge in PCE which increased from 0.5% to 1.72% as a portion of annualized GDP: in other words, as consumer confidence hit a near record low, and as the stock market plunged to 2011 lows, somehow Americans spent $130 billion annualized over and on top what they spent in Q2. In fact, standalone PCE was 2.4%, substantially higher than the forecast 1.9% and the previous 0.7%. Where this spending power came from, we would be delighted to know.
The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 2.0 percent in the third quarter, compared with an increase of 3.3 percent in the second. Excluding food and energy prices, the price index for gross domestic purchases increased 1.8 percent in the third quarter, compared with an increase of 2.7 percent in the second.
Real personal consumption expenditures increased 2.4 percent in the third quarter, compared with an increase of 0.7 percent in the second. Durable goods increased 4.1 percent, in contrast to a decrease of 5.3 percent. Nondurable goods increased 0.2 percent, the same increase as in the second. Services increased 3.0 percent, compared with an increase of 1.9 percent.
This is not what you want to see - a shift toward more service consumption. Durables is good for what it is, but most of it was probably autos, given recent numbers, and we'll see if that's maintainable. Many people believe it is. I do not.
Nonresidential structures increased 13.3 percent, compared with an increase of 22.6 percent.
Hmmm... non-residential building? These are big numbers; are they overly optimistic? I believe so, and that could be an ugly snapback if so. If not, this is going to be quite some bounce - but I'm not buying it just as I didn't last quarter. Those sorts of increases are extraordinary in the non-residential side, and should have reflected in employment. They haven't, which leads me not to believe them.
Real exports of goods and services increased 4.0 percent in the third quarter, compared with an increase of 3.6 percent in the second. Real imports of goods and services increased 1.9 percent, compared with an increase of 1.4 percent.
How come I don't see this improvement in the trade balance figures? (Sigh....)
Real gross domestic purchases -- purchases by U.S. residents of goods and services wherever produced -- increased 2.2 percent in the third quarter, compared with an increase of 1.0 percent in the second.
Current-dollar personal income increased $29.5 billion (0.9 percent) in the third quarter, compared with an increase of $145.7 billion (4.6 percent) in the second.
Disposable personal income increased $17.0 billion (0.6 percent) in the third quarter, compared with an increase of $110.5 billion (3.9 percent) in the second. Real disposable personal income decreased 1.7 percent, in contrast to an increase of 0.6 percent.
The personal saving rate -- saving as a percentage of disposable personal income -- was 4.1 percent in the third quarter, compared with 5.1 percent in the second.