Cut the Debt Ceiling ? And Other Thoughts
Fun filled times with 2 sovereign defaults looming – Argentina and Puerto Rico. That is if we assume that the US will not default and assurances from professionals are that it will just be a technical one at most as it is a matter of time before they can borrow more and perhaps more again because I am under the impression that the debt ceiling cannot Be CUT ?
If they shutDOWN because of Raising the debt ceiling, maybe they will shutUP when they Cut it ?
We all have to start making some changes about the way we think in this world where computer chairs can explode.
Exploding electronics I an understand, but exploding furniture is a new uncertainty in our lives we must now prepare for.
IMF warned about the taper again yesterday and the debt ceiling, projecting that bond portfolios could lose up to $2.3 trillion.
The estimated global bond market is about US 83.8 trillion (20 trillion from the US, 27 trillion in USD). Overall it looks like a 2.75% loss.
The IMF does not deny that interest rate normalisation is necessary, but acknowledges that it will be a bumpy ride and giving warning are part of their job scope. And, to justify their role, foretells success (keep up the optimism) whilst there is a lot of work to be done (covering their ass).
Thus it makes sense that Janet Yellen will be the new Fed chairperson with headlines worthy of celebration and a nice correction in the USDJPY even though as Japanese outflows from the global bond market is the highest number in 5 years (because it means they will be buying next week ?).
Yellen will be tapered in the FOMC with the Fisher and Plosser who will become voting members next year. Plosser was heard lamenting the loss of Fed credibility just 2 days ago on their inaction re the Taper.
The entire outlook is gloomier than we can imagine. Even if the Senate manages to postpone the debt ceiling fight into 2015, as this Bloomberg article suggests, the seeds of dissonance have been sowed and new doubts will arise once the dust has settled. http://www.bloomberg.com/news/2013-10-09/recession-looms-if-treasury-uses-tools-to-prevent-a-debt-default.html
I am increasingly uncertain we can avert a crash before year end and I cannot trust bank reports these days. We should follow the smart money i.e. the individuals with billions to spare and Buffet is one of the latest to express that he is running out of value buy ideas.
All said with a heavy heart on Thursday.