August 2nd. That is the ultimate, country in chaos, depression eminent deadline for the US to raise the debt ceiling. I'm looking for something to be agreed upon sometime in late July, possibly June if washington's feeling up for a comprimise (not quite as likely). The way I see it, there are three possible outcomes to this scenario:
1. Debt ceiling raised, 2 trillion, with less than 0.5 trillion in budget cuts.
2. Debt ceiling raised 2 trillion, with republicans convincing the democrats go along with larger budget cuts in the realm of 0.5-2 trillion.
3. Default, or stop medicare, social security, military funding, ect.
Option 3 isn't really a realistic option. Option 2 is more realistic, but the political mind is incredibly short-term, and polititians can't be expected to make difficult decisions anytime close to an election year. That leaves option 1. Sooner or later the rupublicans will have to give in and raise the debt ceiling so that they will not be blamed for option 3. This brings me to the point of this post: how to play the debt ceiling decision. Most are of the opinion that the markets will remain relatively unaffected, which may be true of the market in general, but not on a sector by sector basis. Look for large gains in commodities when debt ceiling is raised. Silver seems to experience the largest gains of the commodities when favorable monetary policy provokes the sector. It currently has a great deal of volatility and is coming off a recent dropoff in prices. Oil, a slightly less volatile investment should also see gains. Turmoil and disagreements in policy could be short term bad for financials and other sectors. A default, of course, would cause just about everything to tumble, but of course is not likely. I'll be betting on commodities, maybe short banks. If something unexpected happens i'll have to reevaluate, but we'll save that for a later time.
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