Posts Tagged ‘debt ceiling’

Weekly Recap & Outlook – 09.06.13

Friday, September 6th, 2013

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%!



Debt Ceiling:Fiscal Cliff tracking chart

Monday, December 24th, 2012

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. 

Click for big image


Debt Default Insurance

Monday, August 8th, 2011

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.:

  • Merck
  • Google
  • Coca-Cola
  • Oracle
  • Baxter, Intl.
  • Microsoft
  • Pepsico
  • Colgate
  • United Parcel Service
  • Raytheon (interesting, considering who pays them)
  • Norfolk Southern
  • Wal-Mart Stores
  • Monsanto
  • Nike
  • Consolidated Edison
  • John Deere

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.


Weekly Recap & Outlook – 07.29.11

Friday, July 29th, 2011

Tower Private Advisors

Capital Markets Recap


Top Stories

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.

  1. First, the U.S. government does not face any solvency problem, and there is absolutely no funding pressure on the U.S. Treasury market. This debt ceiling crisis is entirely man-made and politically driven, and has been greatly intensified by the looming 2012 presidential election.
  2. Second, what would happen to financial markets in the event that the gridlock drags beyond the August 2 deadline? … The arithmetic suggests that in the event the gridlock drags behind next week’s deadline, the U.S. government will have absolutely no problem honoring its interest payment obligations. This is the key reason why bond yields are still sitting at less than 3% despite all the default talk.
  3. Third, in the case of no deal being reached after the deadline, the U.S. government will have to cut back on its ordinary payment obligations. This could represent a serious fiscal constraint to the economy at a time when growth is anemic. Hence, the debt-ceiling crisis would prove to be more of a shock to the stock market than the bond market in the near term.
  4. Finally…this crisis will prove to be a temporary irritation to financial markets. Investors should resist any knee-jerk reaction to short-term events or negative news.

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.




Weekly Recap & Outlook – 07.22.11

Friday, July 22nd, 2011

Tower Private Advisors


  • Earnings
  • Debt ceiling
  • Europe