Mitch McConnell: "This Shutdown Is About To Get A Lot Worse"

Despite assurances from the House that an even shorter-term spending bill that would give lawmakers more wiggle room to negotiate would be a non-starter, Susan Collins and a group of moderate senators told reporters they are taking ideas about a short-term fix to the Republican senate leadership...

Both the House and Senate have reconvened for another rare weekend session.

Meanwhile, House Speaker Paul Ryan took to the Sunday shows to heap blame for the shutdown on Democrats.

"You can't blame Donald Trump for Senate Democrats shutting down the government. They shut down the government with no endgame in sight," House Speaker Paul Ryan said on CBS News' "Face The Nation."

Democrats, meanwhile, have dubbed the stalled negotiations the "Trump shutdown," and say the GOP's control of both the White House and Congress puts the blame squarely on their shoulders, per NBC News.

McConnell has scheduled a procedural vote on a three-week extension bill for 1 am Monday morning. If passed, that bill would need to clear the House. Ryan has said he would support the bill, which would keep the government open until Feb. 8. The original four-week plan offered to keep the government open until Feb. 16.

"This shutdown is going to get a lot worse tomorrow," Senate Majority Leader Mitch McConnell said in a speech opening the Senate floor. "Today would be a good day to end it."

Senate Minority Leader Chuck Schumer called on President Trump to return to the bargaining table. "I'm willing to seal the deal, to sit and work right now, with the president or anyone he designates. Let's get it done."

"This is the Trump shutdown, only President Trump can end it." Schumer said. "We Democrats are at the table, ready to negotiate. The president needs to pull up a chair and end this shutdown."

As NBC News explained, Democrats maintain that the weeks-long spending bill being considered in the Senate is just a stalling tactic that will not lead to a serious legislative debate about immigration reform. Democrats have vowed not to vote for a spending package until a deal to enshrine DACA protections for 690,000 undocumented immigrants is in place.

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Update: Amid reports that Trump hasn't spoken with Chuck Schumer since Friday, Sen. Dick Durban refused to offer a prediction about when the shutdown might end.

"I'm not going to make that prediction," Durbin said on NBC's "Meet the Press."

"We're going to look every minute of every day," Durbin said on Sunday, adding that he wanted President Trump to get involved in the negotiation process.

Durbin added he feels there are "positive conversations" happening amid the negotiations (even if the president and the minority leader aren't participants in those conversations).

The shutdown is set to impact workers on Monday, many of which will be furloughed if they are deemed non-essential by the government.

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While Congressional leaders and the White House have assured the public that the federal government shutdown that technically began at 12:01 am ET Saturday morning could be over within 24 hours, Mick Mulvaney, the director of the Office of Management and Budget and a key player in the White House's negotiations, told Fox News Sunday what many - including us - expect will be the case: The government shutdown could persist for weeks...

Mulvaney said Democrats want to keep the government shut for Trump's Jan. 30 State of the Union address. The beginning of the shutdown also coincided with the anniversary of Trump's swearing-in.

As we've pointed out, both of the two most recent shutdowns lasted for two weeks or longer, per Axios.

 

Mulvaney argued that the present shutdown differed from the 2013 Obama-era shutdown in that the Democrats want to support the Republicans' stopgap.

Global Market Momentum Just Hit Extreme Levels; Profit-Taking Imminent

According to the latest fund flow data, anecdotal speculation of a marketwide melt-up was indeed the case. As a reminder, market optimism among both professional and retail investors had hit the highest level since just before the crash of 1987...

... with a recent E-Trade survey disclosed that 8 out of 10 retail investors - the highest on record - were certain that stocks would continue to rise in Q1. Then, BofA calculated that the 4-week inflows into equities was not only "thundering", it was the largest ever. This is the result of a massive $23.9bn weekly inflow into equities which brings the 4-week inflow to stocks to the biggest ever, $58bn as shown in the below...

and there was even some good news for active managers: the 4-week inflows to active equity funds was at a 4-year high, although the relentless market share theft by ETFs is unlikely to change any time soon, and certainly not if the market keeps levitating with virtually no volatility.

Also on Friday the S&P's Relative Strength Indicator rose to a new all time high, suggesting that as of this moment, the US stock market is the most overbought ever.

Now it's JPMorgan's turn to opine on recent market euphoria, which - in the aptly named weekly "Flows and Liquidity" report, arguably JPM's most interesting publication - it says that as of Friday, "momentum signals have reached extreme levels for the S&P" which to JPM's Nikolaos Panigirtzoglou suggests that "equities are vulnerable to near-term profit taking."

Why? JPM observes that after revisiting the bank's momentum-based indicators, shown in Tables A5 and A7 below which it uses to infer how CTAs and other momentum-based investors are positioned across various commodities as well as equity indices, US sectors, bond futures and currency pairs....

... JPM noted that "momentum was approaching extreme levels in the S&P 500, along with the Nikkei as well as crude oil futures."

The tables reveal, that in the just passed week, the continued strong momentum in risky asset prices saw the z-score of JPM's S&P signal triggering the mean reversion overlay on Thursday after pointing to longs for around a year and a half.

This means that at long last, the market "could be at levels where momentum-based investors would begin to take profit on their positions."

Additionally, the continued sell-off in bond markets has seen z-scores for US Treasury futures shift further into negative territory, "but they remain some way away from extreme levels." Finally, for oil, momentum retraced some of the recent strong gains after Brent oil prices declined from a peak of just over $70 per barrel, though as Chart A39 in the Appendix shows speculative.

To recap: CTAs and other momentum-factor based investors are now at and beyond levels where they traditionally take profits. This could start happening as soon as next week, especially should the market be spooked by the uncertainty surrounding the government shutdown, which as Goldman said yesterday "could last a few weeks", and near the date of the US debt ceiling D-date, some time in early March, by which point stocks will really sell off if there still is no funding deal.

Draghi’s Membership in Murky G30 Financial Group Under Fire

A private club for central bankers, regulators, and bankers.

On Wednesday, ECB President Mario Draghi suffered the rare ignominy of being criticized in public by the EU's Ombudsman, Emily O'Reilly, whose job it is to arbitrate public complaints about EU institutions. The complaint against Draghi was that he had compromised his public role by regularly attending the Group of 30, a secretive club of corporate and central bankers.

In her response to the complaint, O'Reilly recommended that Draghi should suspend his membership of the group for the remaining duration of his term.

"The implied closeness of the relationship through membership – particularly between a supervising bank and those it supervises – is not compatible with the independence obligation of an institution such as the ECB," O'Reilly said.

Previously called the Consultative Group on International Economic and Monetary Affairs, the Group of 30 (or G30) is a Washington DC-based private group whose members consist of central bank governors, private sector bankers and academics. Membership is by invitation only.

Its current membership list reads like a Who's Who of global finance. It includes current and former central bankers, many of whom now work or worked in the past for major financial corporations, such as:

• Mario Draghi (ECB, Bank of Italy, Goldman Sachs)
• Ben Bernanke (former Chairman of the Federal Reserve)
• William Dudley (New York Fed, Goldman Sachs)
• Timothy Geithner (Warburg Pincus, former US Treasury Secretary, New York Fed)
• Mark Carney (Bank of England, Bank of Canada, Goldman Sachs)
• Axel Weber (UBS, ECB, Bundesbank)
• Haruhiko Kuroda (Bank of Japan)
• Christian Noyer (Bank for International Settlements, Bank of France)
• Jaime Caruana (Bank for International Settlements)
• Agustín Carstens (Bank for International Settlements, former Chairman of Bank of Mexico)

It also includes senior representatives of financial corporations with subsidiaries supervised by the ECB, including:

• Gail Kelly (UBS)
• Tidjane Thiam (Crédit Suisse)
• E. Gerald Corrigan (Goldman Sachs)
• Jacob Frenkel (JP Morgan Chase, Bank of Israel)
• Philipp Hildebrand (BlackRock, Former Chairman of the Governing Board, SNB)

And it includes economists such as Lawrence Summers, Paul Krugman, and Kenneth Rogoff.

While the group prides itself on being a well-intentioned forum for "deepen(ing) understanding of international economic and financial issues," its abject lack of transparency makes it an ideal setting for the trading of insider information or favors.

"The transparency standards of the G30 fall below the standards applied by the ECB in the context of other fora, or even the transparency standards applied by the G30 at the time of the Ombudsman's first G30 case in 2012," notes the Ombudsman's report. Of the G30's board of trustees only the identity of its chair, Jacob A Frenkel, the chairman of JPMorgan Chase International, has been made public.

At a G30 meeting last year, Draghi apparently met with representatives of Credit Suisse, Deutsche Bank, BridgeWater Associates, BlackRock, Morgan Stanley, Munich Re, and AXA. If they were given indicators of future ECB policy or actions, they would have huge risk-free opportunities to enrich themselves as well as huge advantages over all other market participants, including their biggest rivals. This is what prompted the Brussels-based NGO Corporate Europe Observatory (CEO) to lodge a complaint with the EU Ombudsman against Draghi's membership of the Group of Thirty.

While O'Reilly said there was no evidence of sensitive information being shared at the G-30, there could still be "a perception that, through the participation of members of the ECB's decision-making bodies, the ECB could be open to influence in the shaping of new regulatory practices." And it's not as if the ECB hasn't already got into hot water over sharing sensitive information with market players in other settings, such as when hedge funds at a London conference were warned that the ECB would be ramping up its QE program hours before the rest of the market.

For the ombudsman, the mere perception of impropriety is cause enough for concern. "Any lack of transparency could create a public impression of secrecy, which would reflect negatively on the image and reputation of the EU's decision-making bodies, including the ECB," O'Reilly said.

In light of this risk, O'Reilly not only requests that Draghi immediately end his membership of the G-30; she also calls for a complete ban on all future presidents of the ECB taking up membership of the club. The mere fact that the ECB has allowed its membership of the G-30 to taint its perceivedinstitutional independence is tantamount to maladministration, she said:

"The ECB takes decisions that directly affect the lives of millions of citizens. In the aftermath of the financial crisis, and in consideration of the additional powers given to the ECB in recent years to supervise member state banks in the public interest, it is important to demonstrate to that public that there is a clear separation between the ECB as supervisor and the finance industry which is affected by its decisions."

While the EU Ombudsman's recommendations are non-binding, they do carry a certain amount of weight. The fact that someone with some degree of influence in Brussels' corridors of power has cast a spotlight on the potentially pernicious influence of fora like the Group of 30 on the workings of supposedly independent central banks like the ECB is at least a tentative step in the right direction