we'll be back to record low rates in a month or so when the debt ceiling crisis is front and center. In between we'll be getting earnings reports that will drive growth expectations following the debt deal.
jeez ybf - just look back at the last debt ceiling crisis ... or a week ago when Congress was debating the tax issue. Stocks will fall and the flight to safety will begin anew.
This debate is likely to be more more polarizing. Obama and the Dems seem unwilling to cut anything or touch entitlements and expect additional 'revenue' concessions from the repubs. Even the moderate repubs are saying 'NO to any new taxes/ revenue and that they've already had that fight. The tax deal resulted in $350 Billion LESS than Boehner was offering 2 weeks ago and are saying NOTHING ELSE while Obama and the Dems are saying they won't consider ANY cuts or entitlement reforms without significantly more revenue concessions (and I'm not sure that they'll consider anything more than a CPI adjustment even with additional revenue concessions).
Look - we can argue about who is right in this debate (and we all know your position), but the reality is that it won't matter. We've seen this movie several times over the last couple of yrs.
There is going to be a gigantic fight because the participants - at this point - aren't even in agreement as to the rules of the game. Moderate dems will say they are willing to consider some cuts and entitlement reforms if the repubs will agree to some additional revenue but - as stated above - the repubs (even the moderate ones) will say that they already had that fight and already made their concessions.
How will it end? I don't know, but what I do know is that there is going to be a mighty brawl because the participants will be even more polarized in their positions and the mkts are going to react accordingly. The only question is how much medium to long term damage to the real economy results from the upcoming crisis. In the meantime - when there is the anticipated 'flight to the supposed safety' of treasuries, mbs and other gov't backed debt - the FED will still be in there buying with both hands - leaving little left for the gun shy public that will want to be on the sidelines during the crisis. And - by the way - the gov't eliminated the transaction 'guarantee' that allowed companies and hedge funds to park large amounts of cash in otherwise non-guaranteed accounts - which will only intensify the scramble for treasuries and mbs backed MMFs.
Debt Ceiling has been raised 91 times since 1940 and will be again. Always messy and always eventually done. Earnings reports for fourth quarter may shed some light however the first quarter earnings is what the PPS will be based on right now. The Mreits will need SPO's to purchase higher rate MBS.