Tower Private Advisors
- Waiting for Godot (always wanted to use that one) or waiting for a correction that just won’t happen
- Lousy Payrolls report but Unemployment Rate falls to 7.3%!
Tower Private Advisors
This chart overlays the current S&P 500 (think blue line) on top of the S&P 500 during the Debt Ceiling debacle of 2011. My thinking is that, with the same body in charge of resolving the issue as was in charge then, it makes sense that markets might follow the same path. One tenet of technical analysis is that history repeats. One tenet of Congress seems to be that it’s dysfunctional. July 31, 2011, was when Congress approved the debt ceiling increase, so I thought it was appropriate to center that with January 2, 2013, when we will be–in some form or other–past the edge of the cliff. Those dates are shown by the dashed orange line. A few days later in 2011, S&P downgraded U.S. Treasuries; that’s the vertical, dashed red line. So far, the current market path seems uncannily like 2011′s. Hopefully, the similarity ends soon.
The Credit Default Swap market is where one goes to buy insurance against a bond default. There is now more than a handful of companies whose default insurance premiums are less than that of the U.S. government. Here is just a sampling–ordered from most safe to least safe, but all safer than the U.S.:
Effectively, the market has appraised the risk of default for these companies and has judged them to have less credit risk than the U.S. government, which has the ability to levy taxes, confiscate things–including companies and countries.
Capital Markets Recap
There isn’t much to talk about today, other than the elephant in the room, the debt ceiling debacle. The stories, news, and research continue to roll in, but we have a good group of what we like to call strategic partners, but which, in truth, are no more than mercenaries. They give us their opinions, models, and figures in exchange for a lot of money. They’re no more partners with us than your dentist is with you. No pay, no partner. Still, it sounds better. Any way, BCA Research published its weekly Global Investment Strategy piece and had these things to say, amongst others, about the debt ceiling, but not before having this to say,
The dispiriting squabble over the U.S. debt ceiling is certainly not inspiring confidence, and is casting a shadow over equity markets. Unfortunately, there is little insight we can offer on how this debate will evolve, as no one knows what is really going on behind closed doors. Nevertheless, it looks as if the stock market may begin to lose patience as the political gridlock drags on. From an investment viewpoint, a few comments surrounding the debt ceiling fiasco are in order.
We believe that’s the correct response for our clients and have advised accordingly. But here’s what’s troubling about that. I get the sense that most folks are saying that, most advisors are talking people off the ledge. That means there’s reluctantly-patient money in the market. In terms of downside, naturally, if there’s a positive resolution–if things play out like BCA envisions–there’s little downside, but probably a lot of upside. On the other hand, if things go badly, there is a lot of money in the market that didn’t want to be there, but that wants out–and yesterday.
So while one might assign probabilities to the various scenarios, below, as follows…
….one also has to consider the outcomes in those scenarios, which might be as follows.
So that’s a bit worrisome. Financial advisors seem to generally be telling their clients that either the Everything’s fine or Delay scenarios are most likely and, indeed, they probably are. But if we’re wrong…
Here’s how I would characterize our view toward risk markets presently.
And to simplify immensely, here is a major hurdle in each time span.
And here is the biggest risk to that vision, namely, what we had expected to be long-term issues become short-term issues.
No need to put away the sharp objects, however. Don’t worry; be happy. Here is a look at the most popular searches on Google today. Notice, there are no searches for “bomb shelter,” or “dehydrated food,” or “assault rifle.” Relax.