The Debt-ceiling death spiral is whirling at increasing speed, all but begging the question: How can I position myself to profit from the potential demise of America's economic system?
Maybe that's not your first thought but eventually, protecting your own financial self-interest will be foremost in your mind. If that weren't the case you wouldn't be here. To help us put aside discussions of democratic ideals and live in the now Breakout welcomed Todd Schoenberger a real life trader and Managing Director of LandColt Trading LLC to the show for insight into the minds of the Street.
First, the news of the day: Standard & Poors' announcement that they would downgrade U.S. debt if no resolution was reached almost immediately. The ratings agency said they may take the U.S. down a notch or two regardless of an agreement if the deal isn't aggressive enough. Schoenberger says "traders right now know that they gotta get a deal done. If it's not done, markets will sell-off."
Ouch. Lock the doors and hide the women and children. In a few more weeks the budget situation is going to be "fully catastrophic, not just for the U.S. but clearly for the global economy."
Schoenberger opines that the President has "punted this economic crisis to Ben Bernanke" who in turn, will figure out a way to jam more money into the system. While most traders and other thinking humans don't believe more stimulus is going to do much to help the economy, they've learned that the Fed is committed to inflating asset prices and it's unwise to bet against their ability to do so.
More stimulus means more dollar weakness leading to otherwise inexplicably strong equities and logically strong commodities such as gold, silver and oil. The gold trade is particularly attractive to smarter money (and me) as it benefits from both a weak dollar and the conviction of others that paper currency is a fatally flawed concept destined to end in not just tears, but inflation not seen since the Carter administration and the final days of the Weimar Republic.
The inevitability of hyperinflation is debatable but ultimately of little concern to the pure trader. A trade works if it appreciates in value. Period. In trading, as in golf, all that matters is the bottom line, there isn't room on the scorecard to detail how you got there. Of course the same could be said of the budget battle, not that it's doing us much good.