Monthly Archives

June 2013

6/27/2013 Daily US Cash Deficit

By | Daily Deficit

The US Daily Cash Deficit for 6/27/2013 was $7.0B dropping the June 2013 Surplus down to $51B with 1 day left.

06-27-2013 USDD

Tomorrow is going to be polluted with the extra 2012 payments and the Fannie Mae Funny Money in 2013, so this may be the cleanest shot we get at the fundamentals. So from this year’s 51B surplus, I would just subtract the $35B timing benefit to get down to $16B Surplus, a $42B improvement over last year. Not bad at all really. The real question is….what are we going to see next January. In theory, given constant rates, revenues should roughly grow in line with GDP and population growth…so maybe a few percent. If we are posting sub 5% YOY growth next year, lookout!!

6/26/2013 Daily US Cash Deficit

By | Daily Deficit

The US Daily Cash Deficit for 6/26/2013 was $8.7B….and was $3.8B on 6/25/2013, which I did not get a chance to post yesterday. With two days left the surplus is sitting at $58B for the month. With moderate deficits likely over the next 2 days, a $50B surplus would normally be a good estimate….not too shabby. However…supposedly a $60B or so payment from Fannie Mae is to be paid in June….though there seems to be no news on this for over a month. If it does happen, and I have no reason to believe it won’t…(it could be close to $70B with Freddie added in)…obviously the number could come in much higher…exceeding even my last guestimate of a $100B surplus by a healthy margin.

06-26-2013 USDD

Assuming nothing crazy happens(aside from the above)…never a safe assumption, Corporate taxes and withheld tax deposits are on track for 9% growth, while taxes not withheld appear to be honing in on +20%…a big swing from the -20% I was getting all worked up about last week 🙂

Social Security-Annual Change In Retired Workers

By | Commentary

I know it was just yesterday I did a post on Social Security. Today…the SSA released  the June updates…among other things revealing that the number of people in the Retired Worker program increased  97k to 37.4M. This is not unexpected, though there is seasonality involved (more people seem to retire in Jan-Feb) 100k per month in additions is about where we are…though the trend is headed up. Just for fun…I charted the YOY additions (which eliminates the seasonality…and it shows a very interesting picture.

06-26-Social Security Beneficiaries

We start all the way back in 1995 adding about 350k people to the SS rolls a year. It moves around between  a 200 and 400k pace before spiking right around the dotcom  bust. After that it drops back around 350k before heading steadily up to about 600k per year in June 2008. Then…it takes off like a rocket topping out in December 2009 at an over 1.2M rate before declining back to about 1M at the end of 2011. Since then, we have seen a steady increase in the rate…likely driven by the demographics of Boomer retirement.

So the question is….what will this chart look like at the end of 2015? As we chug along in 2013 with a not so terrible economy, we are adding to the program at record rates and the demographics only get worse from here. Even a mild recession could cause a huge spike in early retirement…so just as revenues are being squeezed, we would start adding huge numbers to the Social security program. Just some quick math, adding 1.2M retirees, at $1,267 per month is about $18B per year. (I know yesterday we said $60B…that’s the entire program…not just retirees, and it includes the annual COLA on the entire population.) Each retiree… assuming the same $1267 payment and 20 years on the program….will draw in $304k of payments…ignoring inflation/COLA ect…

So… lets go out on a limb, and assume that of the current population of 37.4M, the average life expectancy is 13 years. (wild ass guess…got some 62 year olds and some 95 year olds). Pencil that out, and if we eliminated SS (retirement only) tomorrow for everyone not on it….we would still be on the hook for $7.4T…roughly (still ignoring inflation).Someday I’ll add in the rest of the population. But as we know…it won’t be eliminated….and there are 60M boomers waiting in the wings.

 

Did Bernanke Really Lose $151B???

By | Commentary

I read Bernanke’s bond losses: $151 billion plus over at money.com with great interest. It has a sensational title, but ultimately comes clean with a solid conclusion…these are just paper losses. It’s a good article…just make sure you read it all the way through:)

So…for a primer, here is how it all works. First, the Fed, using it’s magic wand, creates new/fake money. Then, they go out into the market, and use that money to purchase bonds… $1.9T of treasuries and $1.1T of mortgage bonds according to the article. This is more or less “quantitative easing”

So say I’m a saver, and I just purchased a shiny new $100 30 year treasury bond with a 2% yield. I paid $100, and am really looking forward to getting my $1 check in the mail every six months. Then I get a call from Uncle Ben (Bernanke). “Say….if you want to sell me that bond…I’d be happy to buy it for $101”. So I say ok….take my $1 gain, and replace it with another newly issued bond…this time at 1.99%. Rinse Repeat a few million times. Now…of course Ben’s not really going to call me up with a $1 treat….but his banking buddies…you bet!!

So now Ben has managed to take his imaginary money and push it into the real economy…lowering rates, making his banking buddies rich…maybe even creating a job or two for the Bugatti plant.

Every six months, Treasury cuts him a check for $1…he pays his staff, and sends the rest right back to the federal coffers….where they book it as revenue under “Federal Reserve Earnings”

Got that? Federal reserve creates imaginary money and uses it to finance the federal government (after running it through a third party),. Then, the federal government sends the Fed their interest due….and the Fed turns right around and sends it back as revenue. Hooray for government accounting!!

So, lets just cut through the crap….what is really happening is the Fed is printing money and using it to finance the deficit and lower the interest rates paid by the government. The end.

Moving on….What has happened recently is that interest rates have risen on the fear that the Fed will not only stop the money printing, but also start selling the $1.9T they have accumulated. The problem, of course, is…who has $1.9T to lend to Uncle Sam?? Not me…not for that deadbeat, and surely not at 2%!!

So now Ben has my old $100 30 year bond paying $2 per year. but nobody is willing to pay him the $101 he paid, or even $100, or $98 because I can buy a brand new one paying say $3 of interest per year….for $100. In order to get the same 3% yield I could get with a new bond….all I am willing to pay for the old bond is $67….good for a $34 loss if Ben wants to sell it back to me. Obviously, I more or less made up the numbers for simplicity and to make a point, but these mechanics are how the authors of the story came up with the $151B paper loss. I’m sure their math is right, but as the article mentions, these are paper only losses, and the Fed doesn’t have to actually recognize them until they sell their $101 bond for $67. They could hold them all to maturity and never book a loss. Now, I have a lot of problems with this entire program, but not with this.

Say I agree to loan a friend $100 at 5%. A week later, interest rates have doubled to 10%. While one could argue that had I waited a week I would have got a better rate and made more money….I shouldn’t have to write down the value of an asset just because I  kinda sorta maybe missed out on a higher rate. If rates drop, I shouldn’t write up the value either. I understand the arguments for….just the very idea of constantly marking assets up and down based on market whims kinda grinds at my accounting core….which yearns for stability. If my company purchases a work truck for 40k….and a shortage of trucks creates a surge in the market value of trucks….doubling it to $80k….I don’t write the value up and recognize a $40k gain….I recognize the gain or loss only if I actually sell the vehicle.

Moving on again…I know this is getting long. How does all this affect the deficit. First, QE enables the deficit…making the money available in the first place, at a lower  (manipulated)interest rate, and even lower rate still once you net out the interest paid to the fed and remitted back….and that’s the part I want to finish on. Looking Back to 2007, the fed was contributing about $30B per year to federal coffers. This spiked all the way to an $87B per year rate by mid 2011, but has since slid down a bit to about $78B… as revenue, this is a direct reduction in the deficit…if it went away tomorrow, our annual deficit over the next 12 months would be $78B higher.

This, it seems to me, is the risk to the cash deficit. First…If these losses are recognized…even if over many years, one would think that this would result in a further decrease to these payments. Say they dropped $50B….that’s a new $50B hole….in perpetuity. Second…even if there were no losses…should the Fed ever start selling these and winding down their $3T portfolio…that would slow the payments anyway…probably back down to the $30B or so we saw back in 2007….and that is ignoring any losses they incurred along the way.

In my own forecast, I have this revenue continuing indefinitely, growing at a 3% pace. from 2014 on. I have it there because I do not believe at this time that the fed can ever unwind it’s $3T portfolio of imaginary money without blowing up the entire economy….in fact it will probably continue to grow, since there is nobody else with the ability to absorb the $12T or so of additional debt the US will need to issue over the next 10 years (assuming we make it that far). So…while I acknowledge the “revenue” associated with these cash payments from the Fed now appear to be in Jeopardy, I am not quite convinced the Fed can or will ever actually start unloading it’s $3T portfolio. That said…I’ll keep watching because you never know when something crazy might happen.

6/21/2013 Daily US Cash Deficit

By | Daily Deficit

The US Daily Cash Surplus for Monday 6/24/2013 was $12.6B….again on higher than expected (by me) “tax deposits not withheld”. I’m just going to get out and own this…I jumped the gun earlier this week when it appeared like we were going to see a 20% decrease in taxes not withheld….which would be a very bearish indicator for the rest of the year and beyond. By this time in 2012…taxes not withheld had slowed to a trickle at less than $1B per day. Today…we actually see an increase…from $5B Friday to $8B. Lesson learned…patterns don’t always hold. So anyway…this is good news, and the $8B of receipts pushes the YOY to a positive 10%…with 4 days to go, we could see even bigger gains, but I’m done guessing for now:)

06-24-2013 USDD

So with four days left we have net cash Revenues up a bona fide 10%…not shabby.

Outlays are down $48B, and while a good chunk of this, about $35B is timing, the rest of it looks legit so far… kinda makes me wonder if treasury is “slow paying” vendors or something. Interestingly….the end of the month should see this apparent decrease in outlays get even better. We’ve been talking about it all month….how about $35B of June 2013 cost got sucked into May because of how the weekend fell. June 2012, on the other had had the opposite issue…$30-35B of July 2012 payments went out in June….creating a temporary $65-$70B delta between the two years. We haven’t seen it yet because it happened on June 29….so it hasn’t crept into our charts yet. We’ll catch the other end of this next month…when July 2013 should end up quite a bit higher in outlays.

Fortunately, there is an easy way to filter all of this out….all you have to do is ignore the months and look at a YTD. I don’t typically post these, but I’ll throw them out there today. Through June 24, 2013 has increased revenues 13% vs 2012, while outlays are down 1%. Due to this… the deficit over the same period has dropped from $520B in 2012 to $326B in 2013, a $194B improvement. Looking forward, if the trend follows, we could see a bit more improvement on outlays, but not much…maybe 1-2%, but it’s not a sure thing. Revenues appear to be petering out….the 13% is buoyed by an extremely strong April, as the months go by, April’s weight will drop, and the average will drop. How far…I have no idea at this time. A few days ago, the data was looking like we might be headed down to 5-7% growth. Now…that is looking pessimistic….back to 10-11%?? I guess we’ll just have to wait for the data to find out.