Impending US Default?

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83_gemini
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Impending US Default?

Post by 83_gemini » 08 Oct 2013 07:27

With the inmates running the asylum in our neighbour to the south, any thoughts on measures that could be taken to limit the damage (if that's even possible given all the unknowns)? Or is this just a matter of "assets may be on sale soon?"

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Re: Impending US Default?

Post by tedster » 08 Oct 2013 09:54

Someone should be asking ted Cruz about what he would do if he were President and had an ideological and small body refusing to negotiate with him. I think the GOP will eventually split from the Teapots.

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Re: Impending US Default?

Post by Peculiar_Investor » 08 Oct 2013 10:29

The heavyweights at IMF have a view, IMF Cuts Global Outlook While Warning of U.S. Default Threat - Bloomberg.

Personally, it seems like politicians behaving like politicians and for most everyone not directly impacted by their actions it is much ado about nothing. As such I plan to continue executing my investment plan. As I'm currently at the upper range of cash, I'd welcome a sale on equities.
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Re: Impending US Default?

Post by CROCKD » 08 Oct 2013 13:03

Jon Stewart blames Republicans for 'insane' shutdown

Jon Stewart quotes:

After the Republicans raised his landmark discussion with the President of Iran as a offensive tactic, one which Stewart said only made Republicans look worse:
If President Obama President Barack Obama can make a deal with the most intransigent, hardline, unreasonable, totalitarian mullahs in the world, but not with Republicans, maybe he’s not the problem.'
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Re: Impending US Default?

Post by BRIAN5000 » 08 Oct 2013 13:44

"In 2011 the United States reached a point of near default. The delay in raising the debt ceiling resulted in the first downgrade in the United States credit rating, a sharp drop in the stock market, and an increase in borrowing costs."

" During the 2011 debt-ceiling crisis, consumer confidence dropped by 22 percent. When consumer confidence falls, people are less willing to spend and businesses are less willing to hire. That’s how recessions — or depressions — begin, and that may be the most important consequence of all. "
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Re: Impending US Default?

Post by brucecohen » 08 Oct 2013 14:00

To address the OP's question, one could buy index puts to cushion downside risk. Whether that's worth the cost depends on how soon you'd need the money at risk. This crisis is driven by the temporary state of US politics, not structural weakness.

Here's a good piece on when the shit is likely to hit the fan. In a nutshell, mandated payments due Nov 1 will exhaust the US govt's cash setting in place a formal default on Nov 15 when bondholders are due $31 billion.

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Re: Impending US Default?

Post by Chuck » 08 Oct 2013 15:52

brucecohen wrote:To address the OP's question, one could buy index puts to cushion downside risk. Whether that's worth the cost depends on how soon you'd need the money at risk. This crisis is driven by the temporary state of US politics, not structural weakness.
My back of the napkin math shows 6 SPY NOV 13 put contracts (approx enough to cover $100K US) would cost you ~ $2700US as of today.

So if you really want insurance, that gives you a rough approximation of what it might cost you.

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apater
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Re: Impending US Default?

Post by apater » 08 Oct 2013 19:39

83_gemini wrote: "assets may be on sale soon?"
That is my take on things. I'm sitting on a bit of cash, if there is a bit of a sale, I'll deploy the cash.

If everything goes to hell, I assume that equities will fall a lot more then bonds. In which case I sell the bonds I am holding, even at a loss, to pick up equities at 50 cents on the dollar.

I'm assuming a short term issue. In a month or three, everything will be back to normal.

83_gemini
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Re: Impending US Default?

Post by 83_gemini » 09 Oct 2013 07:27

I agree with broadly with you apater. But if the US is permanently stuck in political dysfunction, the world economy is in trouble.

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Re: Impending US Default?

Post by apater » 09 Oct 2013 11:01

83_gemini wrote:I agree with broadly with you apater. But if the US is permanently stuck in political dysfunction, the world economy is in trouble.
The US has been stuck in political dysfunction for many, many years. Markets have managed to bounce back, time and time again. They are live (cats).

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tidal
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Re: Impending US Default?

Post by tidal » 09 Oct 2013 19:08

‘Yes, we think Congress is doing a good job!’”

Psychiatrists Deeply Concerned For 5% Of Americans Who Approve Of Congress
... the nation’s psychiatrists announced Wednesday that they are deeply concerned for the estimated 5 percent of Americans who were found in nationwide polls this week to approve of the U.S. Congress. “With numerous members of Congress refusing to negotiate an end to the shutdown in the face of widespread federal furloughs and a looming deadline to avoid defaulting on government debt, we are extremely concerned for the mental health of those Americans who responded, ‘Yes, we think Congress is doing a good job,’” psychiatrist Dr. Donald Levin said in a press conference this morning, telling reporters that the estimated 15.5 million Americans who approve of Congress are likely “very troubled” citizens who may in fact be experiencing psychotic episodes or delusional thoughts. “We’re not entirely sure who these people are or where they come from—perhaps they are psych ward patients, or unstable recluses living in remote huts on the outskirts of society—but what we do know is that they are extremely disconnected from reality and in need of immediate attention if they are not already receiving it. We need to find these people and get them the help they need before their illnesses get worse.” Psychiatrists added that because a number of mental health services are currently furloughed, many respondents would just have to “sit tight and hang in there” until the shutdown is resolved
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Re: Impending US Default?

Post by ig17 » 09 Oct 2013 21:34

Shockingly, this is not an Onion article.

Congress and the Stock Market
Abstract:

We find a strong link between Congressional activity and stock market returns that persists even after controlling for known daily return anomalies. Stock returns are lower and volatility is higher when Congress is in session. This "Congressional Effect" can be quite large - more than 90% of the capital gains over the life of the DJIA have come on days when Congress is out of session. The Effect varies systematically with the public's opinion of Congress: returns are lower and volatility higher when a relatively unpopular Congress is active. Public opinion appears to play a fundamental role in market prices. This is consistent with a mood-based explanation that sees Congress as 'depressing' the average investor. Alternatively, our results can also be reconciled with rational explanations that view Congressional activity as a proxy for regulatory uncertainty or rent-seeking behavior.
Attachments
Congress In and Out.JPG

OhGreatGuru
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Re: Impending US Default?

Post by OhGreatGuru » 14 Oct 2013 10:49

83_gemini wrote:With the inmates running the asylum in our neighbour to the south, any thoughts on measures that could be taken to limit the damage (if that's even possible given all the unknowns)? Or is this just a matter of "assets may be on sale soon?"
a) Either it won't happen: or,
b) if it does, it will be extremely short term, because the wealthy power brokers will finally slap some sense into the Tea Party congressmen.

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Re: Impending US Default?

Post by tedster » 14 Oct 2013 11:01

OGG wrote
because the wealthy power brokers will finally slap some sense into the Tea Party congressmen.
Some big money is behind these people. Who is it? and would they suffer if the US goes into default?

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apater
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Re: Impending US Default?

Post by apater » 14 Oct 2013 19:34

tedster wrote:OGG wrote
because the wealthy power brokers will finally slap some sense into the Tea Party congressmen.
Some big money is behind these people. Who is it? and would they suffer if the US goes into default?
The Koch brothers may have gotten around to a few well placed slaps.

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Re: Impending US Default?

Post by Peculiar_Investor » 15 Oct 2013 08:46

Some more food for thought, Riding Out the Political Storm - NYTimes.com. Personally, this quote from the article,
Buy-and-hold investment strategists say it’s likely — though by no means guaranteed — that long-term investors who stick to a well-thought-out plan can ride out awkward periods like this with few ill effects.

In retrospect, that approach worked well for people with the fortitude to embrace it through the financial crisis in 2008, said Joseph H. Davis, Vanguard’s chief economist. And market downturns, he said, are typically resolved with much less damage.

“Looking back years from now, it’s likely that investors won’t even be able to pinpoint this period on a long-term stock chart,” he said.

But he added an important caveat: there is, of course, no certainty that all details of the conflict in Washington will have a peaceful and prosperous outcome. That creates a problem for investors, one for which there is no entirely satisfactory answer.
probably best reflects my point of view on the matter.
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Re: Impending US Default?

Post by Descartes » 16 Oct 2013 12:49

Much ado about nothing
Democratic and Republican senate leaders completed an agreement that would end Washington’s budget impasse, creating a path to avoid a U.S. debt default...Mr. Reid said the agreement called for reopening the federal government with a temporary budget until Jan. 15 and to extend U.S. borrowing authority until Feb. 7.
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Re: Impending US Default?

Post by j831robert » 16 Oct 2013 12:59

AKA "Kicking the Can Down The Road" :(

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Re: Impending US Default?

Post by Shakespeare » 16 Oct 2013 13:04

What else did you expect them to do?

Rinse and repeat.

Politicians won't make hard decisions until circumstances force them to - like a failed Treasury auction.

Not that the US doesn't have the financial capacity to fix itself by, say, a national VAT.
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Re: Impending US Default?

Post by Insomniac » 16 Oct 2013 13:41

Good news if you like market volatility, I suppose.

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