Ad Hoc Commentary – no external default, Republicans sowed the seed of their destruction for 2016

As expected, they did not default externally and did an eleventh hour turnaround:
“…The big issue on everyone’s mind is would the US government default. The short answer for external creditors is no. So China, Japan and the Middle East can rest assured for now. The short answer for domestic creditors is yes…”

The Republicans had just sowed the seeds of their destruction for 2016. Americans that support the Republicans will probably have their votes split between the young Tea Party and the old Republican guards. All this is aligning the stars for Hillary Clinton to take the helm in 2016. A split Republican can never take on the Democratic party.

Our favorite S&P 500 is near recent highs again. However, a word of caution, you might want to put in a trailing stop loss if you had bought the dip. Broadly we are still in a long term bull market for equities. Short term, we did a relief rally but are not out of the woods. The impending domestic default via welfare cuts could be interpreted as negative for disposable income and thus negative for equities. Then the taper could follow soon after, and that could be interpreted as negative for equities too. These are the two major headwinds that we need to conquer first.

On the other side of the equation, we have the IMF openly discussing taxing the rich, 10% of deposits and multinationals:

Click to access fm1302.pdf

Since Germany is still fighting the ghost of hyperinflation, the IMF message would likely fall on willing ears there. That would bring money from Europe across the pond to America. Asia had felt the pain of austerity during the Asian Financial Crisis. Are we as a human race destined to repeat the same austerity in Europe?

Good luck in the markets.