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Thursday, October 3, 2013

Market Thought... President rarely addresses market dynamics, listen

The last time the President specifically addressed market dynamics just prior to the start of the multi-year rally which started in March 2009.
Profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal - March 3, 2009 President Obama.

The President directly addressed wall street again the other day. He told the players to be concerned, very concerned.

There maybe legitimacy within his concern. His political machine knows how many votes are needed. They see the day-to-day interaction. Whether you like President Obama or not, his reputation as a straight shooter is firmly intact, and he just warned each and every investor of a shit-storm potentially brewing.

The market is in no way discounting for a debt disruption via the treasuries. Not by a mile.

If the debt ceiling is not passed, and the US has a default on its debt (the only risk-free modeled debt still in existence) the markets will collapse. They will collapse hard. Let me repeat that:

Treasury default = collapse of equity markets.

It will create so much havoc on the markets equity investors do not see, that everything will get fucked up.

There is no such thing as a "technical" default either. The US already experienced an inadvertent "technical" default in the late 70s. The mistake was quickly fixed, but rates remained elevated for a long time.  Given that a default would not be fixed very quickly, and the economy (especially the emerging market economies) are currently relying on low rates, a "technical" default will be very bad.

Expect a 15-20% drop in equities if the US defaults, a persistently discounted market thanks to elevated rates, and a global economy that may actually contract.


  1. US will not default even if they don't increase the debt ceiling. Obama has the authority to prioritize and the debt must come first. Govt takes in 230 B a month and the debt service is 30 B. Other expenses might not get paid, but that doesn't constitute default. Not saying I want that to happen--just that it's an alternative that's not being discussed

    1. This I did not know, and made for eye-opening research last night. Apparently President Obama's options would be constitutionally questionable, but given congress would leave him with 'bad' choices, his hands would be tied. Good stuff. Thanks.