I have no doubt that the Euro will no longer be in existence in the future. Good concept when there wasn't any issues with the economy. Bad when all the countries are falling apart...Greece, Portugal, Ireland, Spain, and Italy...The German and the French can't afford to bail other the other weak countries forever, they can stand on their own...
Depending on how they resolve the debt ceiling I see the $ getting much stronger.
1) They don't raise it, the media finally figures out that all the talk about default was BS as the debt has to be paid, and you see the mother of all risk off trades as the US implements the most contractionary fiscal policy in the history of the world. Very $ positive both because of risk off, and the end of printing money to pay for socialism in the US.
2) They raise the debt ceiling a couple of trillion and offset it with a couple of trillion in cuts. Again a contractionary policy leading to risk off, and less money printing (I do not think the Fed will be able to do a QE III no matter how bad the economy gets).
3) They adopt the plan to raise the debt ceiling and let Obama propose cuts later. Any Republican that votes for this should be kicked out of the party immediately. Anybody who believes the debt ceiling won't be raised and the cuts never passed by Congress is a fool. This scenario sees the $ destroyed with only a temporary reprieve when the Euro disintegrates. If they do this, just get it over with and go all in on gold and forget everything else. Stocks and other commodities will go up, but not enough to offset the decline in the value of the $ they are priced in. BTW, the economy will still go straight in the toilet, and the geezers will be still have their SS cut when they get no COLA's even as the cost of food, energy and healthcare go straight to the moon since everything else that actually counts in the calculation will be deflating.
Preparations for cash management by the Fed in the event of a “default” tell me there is not now, nor was there ever, any real danger of actual default. Ceiling not raised, bondholders get paid. Cuts occur elsewhere.
For an actual default on Treasuries to occur, a deliberate decision would have to be made that yes it is “unthinkable” and unconstitutional, but I am the President and here are my instructions that we will do it anyway. The possibility of the Administration enacting illegal policy is a distinctly different scenario from the lie that not raising the debt ceiling will result directly in a default. All the rest of this is pure theatre.
I agree on your first point in that we will see the "mother of all risk off trades" in the event that they don't raise the ceiling. The markets will plunge.
However, if they raise the ceiling like I expect (either a deal or by deferring to the Pres.), I've got a little different take. The Fed doesn't have the juice left to crank up a charge like they used to (QEish) so we are pretty much on our own now. However, the Fed most certainly is still the keeper of the short-term rates and I think that they have told us in clear terms that they are going to maintain a loose monetary policy for the extended future due to the weak jobs profile and the fear of a housing crash. This means that companies will continue to have access to sweet and tasty cheap money, banks can continue playing with the house's money, company earnings will continue to grow even stronger, profits will continue to rise...and the dollar will initially dip then strengthen over the course of the next year boosted by the Euro mess.
I draw no distinction between Dems or Repubs. Neither party has ever been able to stay within any budget construct. Our political system does not give points for staying within budget...just spending. Also, I'd hate to have any of them (Democrat or Republican that I have ever met so far) as a neighbor.
"The good ole USA won't be what it use to be. You guys are in between a rock and a hard place. the politicians won;t have the guts to offend the sensibilities of the realty-tv intellectuals and super-hero movie junkies. The hard things that need to be done won't be done"...this is very true...the idiotic politicians will kick the can down the road and the US taxpayers are more than happy to accept that because in the short term nobody want to experience the pain that involve with real reform. So one day, America will find itself in a much much poorer financials circumstances as a nation and asking themselves...what the f*** happened?...and by that time, it's way too late.
I for one want to get the pain over with. Rip the bandaid off already. I refuse to invest in anything right now because it is obvious that what is going on is unsustainable and will implode eventually. You want to know why employment is not improving? Because the guys like me see it coming and we aren't going to hire or invest in business expansion until the storm passes. Delaying the storm is not helping anybody but the geezers who will die and succeed in skipping out on their portion of the tab in the meantime. In the end it will just be that much worse for the rest of us.
Raising the debt ceiling = kicking the can down the road. Eventually we will reach the point where nobody will lend to us either, and that point may be a lot sooner than anybody thinks, especially if the ratings agencies start downgrading US sovereign debt. I have no reason to think they won't when the plan that gets passed by Congress to raise the debt ceiling includes inadequate backend loaded cuts as it almost certainly will. I'm going to laugh when bond yields soar and the government can't even pay the interest on the debt, and the media is running around wondering why it happened when Congress raised the debt ceiling to avoid exactly that. We live in a country populated by way too many idiots.
The can has been kicked down the road for years.
Scroll down to page 9 of the document.
Briefly, in President Clinton's second term, the debt limit was raised from $5.5 trillion to $5.95 trillion. During the second President Bush's two terms, the debt limit was raised seven times from $5.95 trillion to $11.315 trillion. It's been raised twice more since President Obama took office; the current fight is about the third increase.
No doubt they have been avoiding dealing with this for decades, but now it has become ridiculous and unsustainable. No matter how they deal with it or don't deal with it, the economy is going to get crushed. The only question is when? Same as with Europe, not a question of if but when it implodes too. The really bad part is that the markets will be surprised when it happens, and plunge so far so fast that there really is no point in being invested in them until it happens because years worth of gains will be wiped out in days with little or no warning. Had they fixed the problems 2 years ago I'd have been enjoying the ride up, but instead they did nothing more than smoke and mirrors. Next time will be worse now.
I'm waiting patiently for the plunge because it will happen and when it does I'll make a killing. My old man did it in the 1987 crash. Made $300K in one day on treasury options and took 2 years off. The market had fallen -500 2 days in a row as well before he did it. Then the bottom fell out. We will get a warning like that this time as we did as well in 08' when this one happens, and it might not even happen for a year or 2 longer. I think we all need to strategize and find the best way via options to play it. I think we drop possible back to S&P 800 so it will be a steep drop when it happens and big $$ can be made. After it's all over and buyers step in eventually the US will pull out of this stronger and will make the rest of the world stronger. We can't lose sight of the fact that the US consumes 3/4 of the worlds' goods. The US is crucial to the world recovery. I don't see China taking our spot and the US falling to the Chinese. They have way too many people and will never be able to sustain a "middle" class. Our government needs to pull it off here big time. Whisper now is $4 trillion in cuts coming now. I hesitate to think it's all smoke and mirrors so I will wait to see the actual deal as well as the passage thru Senate. I still think we rally here though and it's just nuts but the last few years run has been nuts so I have learned that nothing is crazy anymore and that I am actually normal. Whoa was that Turtle just entering my body and thru my fingertips typing that? lol
Chem- thanks for the #'s on SLW. I've been watching for a re-entry. Gold to $1650 is not that far fetched and neither is $1700. If silver gets back to $50 then I'm selling all my bullion.
Hum Day Debrief tomorrow. GL everyone. I went long Yesterday at S&P 1302 and 1304. Covered today. One of my better one day actions in a long time.
The earnings have been extremely strong across all sectors and the loose money construct we can expect from the Fed over the course of the next year will even help company earnings more. I'm staying the "long course" and using the TVIX as my hedge.
While I would applaud $4 trillion in cuts as a nice start the fact is it is still only about 1/4 of what they need to cut, and I get the impression they think they will be done after they pass this. We will still be adding $1 trillion/year to the debt if they do that, and it will get worse in the not too distant future. Figure out what the interest is on $20 trillion at 5% (it's $1 trillion). We will have that much debt by 2017 at the rate things are going. When it becomes apparent that it cannot be repaid where do you think yields will go? Wouldn't take too much for the interest payments to consume all the tax receipts. People are correct we aren't like Greece, we are too big to bail out.
Looks like Boehner is doing the old two-step. Despite the collapse of talks with White House royalty, Boehner still “hopes” to see “as much” as $4 trillion in cuts over the next decade.
Oh please. Give me a break. And I keep watching the old Peanuts cartoons, sure this is the time Lucy really won’t pull the ball away.