Government Shutdown/Debt Limit - Issues and Timelines for Investors

[sleepyhead]

Yeah with the republicans passing this bill for everything except Obama-care I dont see an end to this, as both sides think they have the public opionon behind them.
What im not sure of tho is how the debt ceiling could impact the stock market. Could you give some pointer to us europeans there CapOp?

If the debt ceiling is not raised then the US Government can't borrow more money. If they can't borrow more money, then they can't make coupon payments on the money they already borrowed in the past (US Treasuries, T-Bills, etc.).

If the US can't make a payment, then that is a technical default and this will also trigger payment on CDS (credit default swap). Each CDS costs $25,000 to insure $10,000,000 of debt. It is kind of like buying insurance or a binary stock option that either delivers you $0 if US doesn't default, or a 400-bagger if US defaults.

On top of that the markets would crash worldwide, the US treasury "safe haven" is gone and no where left to safely park your money.

Basically we might end up in the stone age. Best case would be a major global Recession, poverty, war, famine, etc.

 

[stopcrazypp]

What im not sure of tho is how the debt ceiling could impact the stock market. Could you give some pointer to us europeans there CapOp?

No one is sure how the debt ceiling will impact the market given there was never a point where the debt ceiling was not raised.

And it does depend on how the President and Treasury reacts if that happens.

 

[Citizen-T]

The solution, with respect for this thread, is to at least make a fair effort not to get tangled up in the actual issues (about which I am sure many of us have partisan inclinations), but rather try and just focus as much as possible on the tactics and strategies of the two parties in this negotiation, and how we think that might affect the market.

Republicans present themselves as pro-business. I'm not sure I understand why.

#fail

 

[CapitalistOppressor]

Micro-bills failed. The Republicans were forced to suspend the rules because regular order would have allowed the Democrats to force a vote on the Senate CR (which probably would have passed and ended the shutdown). Because this manuver requires a 2/3rds vote all of the bills failed on the floor despite substantial majorities.

Something like 13 Republicans have publically comitted to supporting a clean CR. 17 are required to make a majority with Dem's. However, considering that most of those R's are voting with their caucus I don't think they would be willing to sign onto a discharge petition (which is a way for a majority of Representatives to force a floor vote outside of normal channels).

So whatever they say, they will likely support the caucus, and caucus strategy is effectively being run by Ted Cruz and Mike Lee (with Jim Demint pulling strings from his perch at Heritage).

Still, that's a lot of Republicans talking compromise, and with the majority of the Senate Caucus also publically signaling compromise there is something akin to an inverse FUD effect in play (Fear Uncertainty Doubt in case non-native readers aren't familiar with the term).

If the media atmospherics around the shutdown start to focus on the imminent collapse or weakness of the Republican position, it could have the perverse effect of reinforcing the confrontational dynamic as it energizes activists to pressure their Reps to hold the line, while also lulling Wall Street into a sense of complacency, which itself will reduce pressure for either side to make a deal.

So to sum up, a deal could come together at any time. The votes are there. But I still think that the bargaining incentives are increasingly aligning for a long shutdown that will blend into a debt limit fight over the next couple of weeks.

The clearest path to a deal that I see would involve a repeal of the medical device tax. It is a relatively minor part of the Obamacare financing structure that both parties have expressed a willingness to repeal.

It was one of the side conditions that Republicans tacked onto the weekend's shutdown bills, and Dem's have publically offered to do a deal. Historically Dem's have been demanding offsets so as not to increase the deficit, while R's have offered to do it with no offsets, or else were unable to agree on which offsets to use (typically Dem's have demanded revenue neutral, while R's have demanded only cuts).

In this case I think Dem's would demand that a deal involving this would have to also include an agreement on the debt limit.

 

[gym7rjm]

The day of Bill Clinton's first inauguration the DJIA was at $3,241.95. At the completion of his second term the DJIA had risen to $10,578.24. An increase of over 320 percent.

The day of George Bush's first inauguration the DJIA was at $10,578.24. At the completion of his second term the DJIA had declined to $7,409.49. A decline of about 30 percent.

The day of Barack Obama's first inauguration the DJIA was at $7,909.49. Today, the DJIA closed at $15,191.70. An increase of almost 200 percent.

Republicans present themselves as pro-business. I'm not sure I understand why.

Of course the market will go up when you have QE infinity pumping/printing $85 billion into the economy every month combined with historically low interest rates. The market is the only place to store your money and make a return right now.

Realize that there are more factors to the equation than just DJIA and political party controlling the executive branch.

 

[Jack6591]

Of course the market will go up when you have QE infinity pumping/printing $85 billion into the economy every month combined with historically low interest rates. The market is the only place to store your money and make a return right now.

Realize that there are more factors to the equation than just DJIA and political party controlling the executive branch.

Now, let's hear your explanation for Clinton and Bush.

Long term financial performance.

 

[bonnie]

Let's try to keep this on topic of how the current government shutdown will impact investors and try not to get into a political finger pointing exercise.

 

[Jack6591]

Let's try to keep this on topic of how the current government shutdown will impact investors and try not to get into a political finger pointing exercise.

Can you discern between the two for me?

 

[bonnie]

Seriously? You don't see a line between talking about the impact of the current shutdown and talking about Clinton vs. Bush?

 

[Norse]

LOL, this is like talking politics in an irish pub!

 

[CapitalistOppressor]

What im not sure of tho is how the debt ceiling could impact the stock market. Could you give some pointer to us europeans there CapOp?

Nobody knows for certain. Here is a primer though that tries to game out how it affects financial markets -

Meet the new idiots, same as the actually these idiots might be worse | FT Alphaville

and

http://economix.blogs.nytimes.com/2013/09/30/how-a-debt-ceiling-crisis-could-become-a-financial-crisis/?_r=0

- - - Updated - - -

Can you discern between the two for me?

The difference is like the difference between two adult parents discussing what their bratty, out of control kids are doing, while speculating on which of the neighbors will try and get them evicted, vs those same kids standing in front of their parents and arguing their case.

 

[rolosrevenge]

Let's try to keep this on topic of how the current government shutdown will impact investors and try not to get into a political finger pointing exercise.

Here here. I think the Jackl's posts were also more finger pointing than talking about the current crisis.

 

[Jack6591]

Here here. I think the Jackl's posts were also more finger pointing than talking about the current crisis.

Agreed.

 

[AudubonB]

CapOp - Thank you very much for your enlightening post #64, providing insight into the fairly arcane and terribly frustrating procedural elements that are a part of the picture, and for your suggestion of a way out.

Anyone wanna join me for hunkering down here a zillion miles from anywhere while this all plays out? It shouldn't take more than a decade or five.

 

[Palpatine]

Bored Elon Musk ‏@BoredElonMusk30 Sep
Don't stress over a government shut down. Private citizens can often do much more than federal agencies. Say for example, launch rockets.

 

[CapitalistOppressor]

Republicans have reintroduced the micro funding bills under the regular rules.

These will pass as I said before. However, as I also said, that will allow the Dem's to introduce a clean CR.

So there is a possibility that the shutdown could end today, because there are plenty of R's who would prefer it all go away. But only 12-13 are on record, and they need 17. Conservatives are whipping the vote, so I doubt the Dem's will succeed despite what most R's want to do.

In fact, I half way expect that even many of the R's who have come out publically in favor of a clean CR will vote against it when push comes to shove. After all, that's what they've been doing this whole time.

Still, if you are trading on shutdown volatility, you should be prepared to move quickly to take advantage of a possible resolution today.

 

[Norse]

I just saw on CNN that Obama invited the republican house to the white house now.

 

[CapitalistOppressor]

I just saw on CNN that Obama invited the republican house to the white house now.

He's not negotiating. It's just political theater.

His position is still that he wants a clean CR and Debt Limit increase.

 

[Royal TS(LA)]

If the "limit" is getting an ongoing increase, it is logically no limit. This implies a coming state bankruptcy, too. It's just hidden in uncertainty of the point in time. One interesting question would be about what happened if the guys decided to eventually do away with the Debt Limit one day.

 

[Jhall118]

As has been mentioned in this thread before:

I am not worried at all about debt ceiling. I spent this morning buying up everything I wanted (TSLA included) on the dips. Worst case scenario, Obama ignores the debt ceiling and points at the Constitution which obligates him to pay what congress told him to. Meanwhile, all the idiots who shorted based on debt ceiling get squeezed out.

I am sure a negotiation will happen long before that, but I am not sweating it.