Government Shutdown/Debt Limit - Issues and Timelines for Investors

[CapitalistOppressor]

Thanks for the post CO. This was my concern all week, so even when we had dipped down to low 180's and even to around 178 I was tempted to buy but decided to hold off until this stuff was taken care of. But of course TSLA just seemed immune from it all and continued to rise up. The only thing that makes me think that there is a chance for a dip this week is that the volume seemed fairly low the past week.

I'm pretty sure a last minute deal will be reached and things will be fine till the 15th. I did hedge a little by buying Oct 4 puts and selling some uncovered Dec and Jan calls. At the first sign of any dip I'll probably get rid of all of those and move to a much more bullish position. And if things keep dropping, I'll keep becoming more bullish

I'm reasonably sure that the arch-conservatives who are driving this are pushing for a shutdown right now specifically because they know that ultimately nothing is going to happen over the debt limit. So if they are going to end up caving anyways, now is the time to establish their street cred.

Boehner knows this, but also doesn't want the party to be damaged from a shutdown. So he's been trying to push a "confrontation" over the debt limit instead of a shutdown because once he has a CR to operate the government he knows that the conservatives will be forced to cave on the debt limit and he'll get to have the government operate until the next confrontation in December (or November if the Dem's get their way).

So the conservatives (not that Boehner, or the "rational" caucus isn't super conservative compared to historical norms) have gamed this out themselves and have just decided to go with a shutdown strategy. Because ultimately they are rational... ? ... ???

 

[TSLAopt]

I'm reasonably sure that the arch-conservatives who are driving this are pushing for a shutdown right now specifically because they know that ultimately nothing is going to happen over the debt limit. So if they are going to end up caving anyways, now is the time to establish their street cred.

Boehner knows this, but also doesn't want the party to be damaged from a shutdown. So he's been trying to push a "confrontation" over the debt limit instead of a shutdown because once he has a CR to operate the government he knows that the conservatives will be forced to cave on the debt limit and he'll get to have the government operate until the next confrontation in December (or November if the Dem's get their way).

So the conservatives (not that Boehner, or the "rational" caucus isn't super conservative compared to historical norms) have gamed this out themselves and have just decided to go with a shutdown strategy. Because ultimately they are rational... ? ... ???

S&P Futures are down 14 points right now, just under 1 percent down. That's significant but nothing too catastrophic in my opinion. We'll have to see how the market reacts in Europe and then at the US open...but I have a feeling on a gap down like this it could rebound up catching everyone off guard (markets have a way of doing the opposite of what my emotions tell me, which tell me to sell sell sell on ths news event)

 

[CapitalistOppressor]

@CapitalistOppressor

What, in your personal opinion, is the worst scenario that could happen and how badly could TSLA be affected by it?

The worst thing that could happen is that the Tea Partier's who are driving this either mean what they say about turning this into an apocalyptic confrontation, or else (and this is equally as bad) they lose control and are swept up in the raging storm that they are whipping up in their constituents.

The problem, from their point of view, will be that most of the caucus doesn't want a shutdown or default. That's why Cruz and Lee have been drawing lines in front of the Obamacare-Balrog and declaring "you shall not pa.. err.. be implemented!!" Their public goal is to shape the political climate in the House Republican caucus and make it politically unacceptable to do anything but let the country melt down, if necessary, in order to stop Obamacare.

I say "public" goal, because I doubt that Ted Cruz (or his sidekick Mike Lee) actually want to engineer a default. Cruz undoubtedly wants to be President, and there is zero chance for him to get elected if he actually forces Obama past the limit and destroys the economy.

The problem with this tactic is that Cruz really is shaping the political environment to make it impossible to back off of his threats. He has essentially promised to stop Obamacare, regardless of the cost. And already we are seeing the fury that he has whipped up in the Tea Party blow back on him when the House succumbed to the political pressure that Cruz was putting on them, and passed a CR that defunded Obamacare. That led inevitably to him being forced to make a fool of himself with his 21 hour fauxlibuster.

He now owns this issue totally and he has every appearance of being swept along a raging, out of control current, with nothing but a banner and a fake smile.

If the political chaos that Ted Cruz has unleashed results in a default, we will be deep into uncharted territory, and most folks on Wall Street who know anything about the debt market seems to think that a U.S. default will be worse than the financial crisis in 2008. The truth though is that nobody actually knows what will happen.

The minimum (to me) seems to be a major fall in the Stock Market. Everyone will expect Armageddon, and it'll take us awhile before we know if we'll get that, or just a recession. In the mean time, the market will crater, and even if TSLA was holding up for a bit, eventually it'll be dragged down as folks are forced to sell everything to meet margin calls.

I really doubt we get much farther than that. The Republican Party is going to be under intense pressure leading up to a default, and while I really do think they might let Cruz carry them over the line, once the market is crashing they'll disown Cruz and do what they need to do.

But there is a real danger that you can't put the genie back in the box. Nobody really knows what will happen, or what kind of permanent damage can occur, or what might cascade out of all of this.

The obvious danger is a major fall in share price that we've discussed. But this thing could do real damage to the economy, so you are looking at the potential for car sales to be affected. That would do real damage to Tesla as a company, and that in turn will limit the ability of the stock to bounce back.

Honestly, the best protective move we could make for our portfolios is to contact our congresspeople and persuade them to stop messing around with this crap.

 

[anticitizen13.7]

Honestly, the best protective move we could make for our portfolios is to contact our congresspeople and persuade them to stop messing around with this crap.

Done. I don't know if my Representative will read my e-mail, but I'm sure that I am not the only constituent in my district who stands to lose if the markets go into a tailspin because of this fight in Congress. If the S&P tanks on Tues., I guarantee that my rep will be catching hell from angry voters.

 

[fjm9898]

I have a bunch of short term put orders i opened up this morning on about half the stocks in my portfolio. I am still debating leaving those order open to be filled in the morning or not.

 

[CapitalistOppressor]

I have a bunch of short term put orders i opened up this morning on about half the stocks in my portfolio. I am still debating leaving those order open to be filled in the morning or not.

There are already rumblings from some House Republicans who are second thinking the last CR they just passed last night. After the Senate tables the CR the House will have an opportunity to vote on the CR that the Senate passed on Friday. But even if the R's cave it shouldn't be until after the Senate acts (which will be in the morning).

So I would expect market sentiment to be negative at the open, but that will likely turn around hard if the R's instantly signal a surrender.

Personally, I would be shocked if that happens and I'll lose a lot of money. But I am so far up with TSLA that I'm not in any danger of pinching pennies if I get eaten by a freak rally tomorrow. But any short term play like this is just gambling, so if your worried about the size of your bet you should consider taking it off of the table.

Note on Rep Labrador's comments: he certainly has enough R's to pass a clean CR with support from Dem's. But it would require Boehner to allow it, and it seems unlikely he'll do it unless a majority of his conference backs him, even if only behind closed doors.

Thus far, that conference majority has been going along with Cruz, and these guys are all in danger of being primaried if they don't show how serious they are. I still think they need a shutdown to keep from being branded as wussy traitors. Once they have demonstrated their resolve they can hopefully let a clean CR come up for a vote and pass it with mostly Dem's and then deal with the debt limit like adults.

 

[fjm9898]

My Puts i have on order are in non volatile stocks so the short term premiums are very low. (besides in Cree, prems were still pretty high) So if market rally's i will probably gain more then i will lose if my math is correct, but not by alot. So the Puts should protect me from a loss unless the dive is a huge one then the puts will make me money since they are short term. I bought a few Puts on Tesla on friday and should the market go up i think my long calls will pay out but if Tesla dives it will ease the pain.

Solar is on fire so i wouldn't buy puts for any of my solars because even a down market day or two, the solars could still rally, or rally heavy if the shut down doesnt happen.

 

[CapitalistOppressor]

Actually the last shutdown was very positive for the markets. Clinton got serious and accepted welfare reform. With the GOP controlling the purse strings, they had a few years of surplus budgets.

It lead to Clinton and the GOP Congress getting balanced budgets and a huge market rally from 1994-2000.

Lets face it, our national debt is a train wreck. If this is what it takes to get entitlement reforms or more budget cuts, some short term pain is worth it.

The problem of breaching the debt limit is precisely the fact that the "pain" it causes is potentially a lot more than "some" and the effect is potentially very long term.

The Republic has been carrying debt for every year except one, and breaching the debt limit could result in permanently higher interest rates. Our grandchildren could be still paying for a breach of the debt limit if we allow it to go through.

Or maybe it'll just cause the kind of severe recession that the instant removal of 4% of GDP and financial chaos can cause.

Or maybe it will only cause the economy to slow down like it did the last time we thought about doing it in 2011.

The point is that nobody really knows, and anyone who says they do is lying.

In fact, the situation is not unlike predicting the likely effects of playing Russian Roulette. There is a range of possibilities, from relatively harmless (high blood pressure), to extremely serious (a heart attack), to catastrophic. The only difference is that there is a lot more uncertainty concerning relative probabilities where the debt limit is concerned.

 

[NigelM]

Mod Note: some posts went here - Politics-Quarantine-Thread

The plait may not be perfect so I apologize for that but please keep discussions here to financial impact only.

 

[tftf]

Oct 1 is just the appetizer in my opinion, regardless of the outcome. The main course will be the Oct 17, event:

(Reuters) - U.S. Treasury Secretary Jack Lew warned Congress on Wednesday that the United States would exhaust its borrowing capacity no later than October 17, at which point it would have only about $30 billion in cash on hand.

http://www.reuters.com/article/2013/09/25/us-usa-fiscal-debt-idUSBRE98O0LU20130925

The dessert however will be the FED changing its monetary policy. This move may be postponed in case Yellen is nominated as chair to replace Bernanke - but it can't be put off forever. The FED moves could also be triggered by large foreign investors (China, Japan, the first has a private shadow banking debt bubble, the latter a giant debt/GDP bubble about to pop) reducing their USD treasury holdings.

We just don't know when the dessert will be served since it was announced in May/June 2013, maybe in 2014-2105 only. If the FED continues to push this out (what is known as "QE Infinity") the effects will be even worse long-term imho.

Imho, the FED changing monetary policy, not the shutdown will have the most negative effects on stock markets around the world. (In a perverse way, the pending shutdown could motivate the FED to prolong the current loose monetary policy, therefore making the problem even more severe longer-term, but propping up stock markets a little longer short-term).

 

[fjm9898]

futures for today already have everything near 1% down.

 

[NigelM]

Mod Note: more posts went here - Politics-Quarantine-Thread


Sorry folks. It's politically interesting, but relevance is an issue and the political stuff gets too passionate, too quickly.

 

[JRP3]

I'm sorry but it looks as if a bunch of relevant and basically politically neutral posts were moved. Starting to stifle discussion here...

 

[CapitalistOppressor]

Mod Note: more posts went here - Politics-Quarantine-Thread


Sorry folks. It's politically interesting, but relevance is an issue and the political stuff gets too passionate, too quickly.

Maybe so.

But the entire premise of the thread is about the potential for the current political situation to affect the share price. Getting early insight into a developing political deal between the parties could give us the tools to make predictions about outcomes ahead of other market participants.

Hence the link to the Charlie Dent interview, and my opinions on what how it relates to the chance of a deal -

Very interesting piece by Greg Sargent at the WP. If we are going to get a rapid resolution this is the dynamic that'll make it happen. And the coalition that is discussed is the same one that will increase the Debt Limit. The question is when this dynamic overcomes the pressure being stirred up by Cruz, et al.

To a certain extent Charlie Dent is cheerleading here, so there is a grain of salt aspect to it as well. Still though, most significant legislation that has passed congress recently has passed with Democrats and a minority of Republicans when Boehner has allowed a vote, with the implicit support of the Republican caucus, who then votes against it while not firing Boehner.

John Boehner doesnt have to let the Tea Party paralyze whole government

Or my previous post about ongoing negotiations over troop pay -

So the Senate delayed action until 2pm EST. Republicans have been making hay about it thinking Dem's might be looking to cave. But my understanding is that they have been discussing whether/how to pass funding for the military, and also talking with friendly Senate R's about ideas for joint actions or statements to pressure the House.

It's not clear to the people that I talk to what the end result will be except that they still plan to stiff the House in terms of conditionals on the CR. Dem's also want to pay the troops (as shown by the unanimous vote in the House). If they can negotiate unanimous consent to do it, I suspect we'll see it happen.

They were only interested in that aspect in terms of how it affects Republicans willingness to vote up the Debt Limit. But in terms of the direct bargaining incentives, not paying the troops is more related to the shutdown than the DL. And if paying the troops takes pressure off of the R's to shorten the shutdown then that's fine with the Dem's. They are perfectly willing to give the R's all the rope they ask for.

If the debt limit is breached it won't matter if we promised to pay the troops because their paychecks will be just at risk as the rest of the payments we are obligated to make. So accepting the exemption for the military is good because Dem's like paying them just as much as the R's, and they get the bonus of being able to call the R's hypocrites for not raising the DL. The only problem is that Senate proceedures make it difficult. [Note: calling the R's hypocrites is not good in and of itself. I am more interested in the political leverage being applied to end the standoff]

In terms of TSLA, it's clear that the Europeans aren't fazed by all of this, and nobody wants to get rid of actual shares. It'll be interesting to see how long that dynamic holds up.

This issue was specifically cited in the OP as affecting the timeline, which is key to understanding when we can start expecting additional market volatility. If there is an agreement over troop pay, that removes some bargaining incentives to make an early deal.

The clear implication is that if we fund the troops we are much more likely to have a long shutdown and no serious negotiations until we are bumping up against the debt limit. We already have examples of this kind of tactical deal getting in the way of the parties reaching agreement, when the parties passed food safety and FAA exceptions (among other tweaks) to the sequester. Nobody expected the sequester to last this long, precisely because they expected disruptions at airports and food inspection to force the parties to come to an agreement.

I see the possibility of a deal like that as important investor information. Last night, CNN was reporting this -

8. I won't back down: The good news (for you) is that the men and women in uniform would continue to keep you safe. The bad news (for them) is that they'd be paid in IOUs until the shutdown ended. In January, Sens. Mark Udall, D-Colorado, and Jerry Moran, R-Kansas, introduced legislation that would have protected pay for the troops during a shutdown, but it didn't get anywhere.

Rep. C.W. Young, chairman of the House Defense Appropriations Subcommittee, told the Air Force Times, "All military personnel will continue to serve and accrue pay but will not actually be paid until appropriations are available."

Their mid-October paycheck would be the first affected. In addition, the congressman told the paper, changes of station would be delayed, medical offerings would be scaled back, facility and weapons maintenance would be suspended and most civilian employees would be furloughed until appropriations are available.

This morning, I posted that my sources told me there was a deal on troop pay, and that's why the Senate was delaying action (which was important, because the delay pushed back the news cycle that was affecting market action, and there were suggestions by Republicans that the Democrats might be losing votes, which would indicate potential weakness in the Democratic position).

This afternoon the Senate passed this -

Senate passes bill ensuring military pay during shutdown - The Hill's Floor Action

That series of events represents a material change to this discussion.

I linked to the Charlie Dent piece because its a great interview that explains how this can all be resolved, and then I expressed my skepticism about what he had to say because I have my doubts that the Republicans he is talking about are actually willing to do what he is saying.

I could expand on that by pointing out that Charlie has voted for all of the resolutions that have gotten us to this point, which is an indication that however much these guys don't want to go through with this, they are being coerced into action anyways. Which is also a dynamic that was discussed upthread.

 

[Norse]

Thank you for all the posts as allways capop! Especially for us europeans that dont follow us politics to much this is really useful, and I agree this is the correct thread and subarea.

 

[CapitalistOppressor]

Dana Bash twitted this right after talking to Charlie Dent -

CNN has learned: House GOP moderates who want a clean spending bill working to stage a revolt on the House floor. More on @CNNSitRoom soon

Hopefully Charlie makes this happen tonight, but again, he's been voting for these bills. Talking the talk is one thing. Voting is another.

- - - Updated - - -

More examples from Peter King -

Peter King: 25 Republicans May Vote Against Taking Up Spending Bill With Obamacare Provision

Key quotes -

Rep. Peter King (R-N.Y.) said Monday that he will buck his party leadership and vote against bringing up a government-funding bill that includes a one-year delay of Obamacare. And, he said, there may be as many as 25 other Republicans ready to do the same.

But while most House Republicans aren't inclined to publicly admit they'd support a clean bill, King said as many as 25 of them may join him in voting against the rule to bring up the GOP bill at all. The reason, he said, is because they are worried about the political fallout from a government shutdown, and they don't want to be seen as having voted to cause it. If that block of Republicans holds, they, along with all the House Democrats opposed to bringing up the bill, could potentially sink it.

Note he is just proposing to vote against the rule. He obviously is too scared to vote against the bill itself.

UPDATE: 7:25 p.m. -- House Republican leaders ultimately secured enough votes to bring up the bill, as lawmakers voted 225-204 to begin debate. Notably, House Speaker John Boehner (R-Ohio) was talking to King on the House floor before the vote, as another procedural vote was underway. That measure appeared headed for failure, as dozens of Republicans curiously held off on voting for several minutes. But as Boehner and King finished talking, that vote ultimately passed, as did the vote to begin debate.

There are 233 Republicans in the House.

Any happy talk from moderate R's needs to be taken with a big grain of salt when gaming out how this all plays out.

 

[Palpatine]

I'm sorry but it looks as if a bunch of relevant and basically politically neutral posts were moved. Starting to stifle discussion here...

I agree. The moderators are a bit out of control here. This conversation was fairly tame.

- - - Updated - - -

Any happy talk from moderate R's needs to be taken with a big grain of salt when gaming out how this all plays out.

The republicans have to stick together on the CR for now. If they fail on getting any concessions for the CR then they will also fail on the debt limit. So there is enormous pressure for them to something attached to the CR. It probably won't be Obamacare related. But I suspect they will eventually get something else so they can call it a win. Then Obama can also call it a win because healthcare wasn't affectect.

 

[bonnie]

Ugh. Why is it when someone has a complaint, you jump in and escalate it into something more? Let the parties involved discuss it.

 

[CapitalistOppressor]

The republicans have to stick together on the CR for now. If they fail on getting any concessions for the CR then they will also fail on the debt limit. So there is enormous pressure for them to something attached to the CR. It probably won't be Obamacare related. But I suspect they will eventually get something else so they can call it a win. Then Obama can also call it a win because healthcare wasn't affectect.

Yes, this is pretty much how it as well. Honestly, I don't even have a problem with them shutting down the government as a negotiating tactic. I think its not a smart move politically, but they are welcome to their opinion. The point is that a government shutdown is fairly benign in historical terms.

The real danger to the market (and our economy) is a miscalculation around the debt limit. I don't think it's going to happen, but just the threat is enough to cause a market reaction and slow the economy. And there are plenty of folks in the House who talk like they think a default would not be a big deal, and could accomplish some goals like shrinking the government, or even the idea that borrowing will be more difficult may not be such a bad thing.

My guess is that they are just trying to get leverage where they have none. The danger is if they do too good of a job convincing their voters and then end up being forced into something they didn't intend.

 

[Palpatine]

Yes, this is pretty much how it as well. Honestly, I don't even have a problem with them shutting down the government as a negotiating tactic. I think its not a smart move politically, but they are welcome to their opinion. The point is that a government shutdown is fairly benign in historical terms.

I think they are correct. A govt shutdown is mostly harmless politically. It didn't cost the GOP control of congress in 1996. The GOP continued to control the house and senate until 2006.

The real danger to the market (and our economy) is a miscalculation around the debt limit. I don't think it's going to happen, but just the threat is enough to cause a market reaction and slow the economy. And there are plenty of folks in the House who talk like they think a default would not be a big deal, and could accomplish some goals like shrinking the government, or even the idea that borrowing will be more difficult may not be such a bad thing.

Having a serious debate on spending cuts and reforms is a healthy thing to do. Doing it in conjunction with the debt ceiling makes sense to many people. We still have deficits of $600 billion and projected to start getting larger again. At some point the bond market will decide that we get cut off like Greece, Ireland and Portugal. Will it be at 110% of GDP? 120% of GDP? Seriously, when else will the debate be forced on us as a society if not during a debt ceiling increase? So I fully applaud the politicians that are forcing the issue.