Breakout

Once Again, Washington Holds the Cards and Wall Street’s Attention

Breakout

In prize fighting, the difference between a great bout and one for the record books often comes to down to the level of hype that preceded it. It's the reason why fight promoter Don King was able to arrange some of the biggest fights in history, rising to the top of his craft, while earning millions of dollars along the way.

Right now, the most anticipated fight in town is not in the boxing ring (or the UFC's octagon), but in our nation's capital, as Democrats and Republicans get set to square up and take on the debt ceiling once again.

Hank Smith, the chief investment officer at Haverford, says in the attached video that the summer of 2011 is still the benchmark for ugliness, calling it a "battle royale" that resulted in a downgrade and coincided with a full fledged correction in the stock market.

"I don't think we're going to see the same thing play out because there's been so much advertising of this," Smith says of the pre-fight promotion. "There's no question they're going to raise the debt ceiling. At the end of the day, the debt ceiling gets raised."

That's not to suggest there won't be any fight at all the third time around. On the contrary, Smith expects there will be all sorts of bartering and negotiations between the factions to see if "Republicans can get something from Democrats and this administration."

Officially, the Treasury Department has said it will hit the existing debt ceiling on October 15th, but a preliminary budget needs to be reached two weeks earlier when the fiscal year ends September 30th. Given the volatility and market worries that exist already, combined with the historic weakness of September, Smith can only imagine how hot things will get once the debt-ceiling debate is thrown into the mix as well.

As much as he expects some sort of 11th hour deal to be reached and a government shutdown averted, he's still troubled by the disproportionate influence that Capitol Hill is having on the capital markets.

"It's a shame. It's a distraction to both the economy and the markets," he says.

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