Skip navigation

Tag Archives: bonds

The Americans are so into the theatrics, they just love Hollywood, they love to create a Wow factor at the 23rd hour 59th minute………good or bad.

I believe the debt ceiling limit will be raised again, why?  Simply because it was raised twice before during the past 14 months; from US$14Tn to US$15Tn to US$16.9Tn.  However, as responsible people in positions of power and responsibility, they just can’t simply raise it without giving the impression to the public and the world that they have grieved over finding a solution and ‘cracking their heads’, and finally, they have no choice but to resort to raising the limit again.

The basic government revenue model is flawed as the inflows is less than the outflows with each passing year.  The government does not have any proactive revenues, all their revenue stream is the traditional passive; taxes and duties.  Until they solve the basic revenue and expense model, the deficit will never be reduced, unless, there cutbacks in the outflows.

Today, the US credit rating is not in question so far, though both Fitch and Moodys have changed their view to ‘negative watch’ but still ‘AAA’.  If the US doesn’t increase the debt ceiling limit, by the end of November when a huge sum of monies is required to pay for the coupon on the outstanding treasuries held by governments and central banks around the world, will not be honored.  This will have a tsunami effect across global financial markets.  Can the US really afford this to happen, let’s not forget that the backlash to the US will be greater than the pain caused by the US to the rest of the world.  Can the US afford to have a credit rating downgrade?  I do not believe so, the US will defend its AAA rating with its life.  Let’s not forget that Japan and China has majority stake in all outstanding treasuries around the world.  If they dump the treasuries, what will happen to the US?

The American people have been living off credit and borrowed monies for the past two decades, if there are going to be casualties, they can only blame themselves.  I mean the US government is the biggest culprit of living beyond their means and running deficit for the past 10 years.

However, because the the huge uncertainty, it is nearly impossible to work out a strategic potential trade.  Coming up with a risk adjusted trade idea based on fundamentals and or technicals is a better bet than betting on the whims and fancies of politicians……..we are guaranteed to lose………and lose big time.