What we’ve been hearing and reading in the media about the debt crisis may only be partially correct. However, the panic activity that is been considered with extreme measures is utter nonsense. I don’t want to belittle the crisis – it is certainly a game-changer – but it is something that has been building for years. Only by kicking the can down the road by both parties have decided to play this out at the deadline. I don’t know how responsible that is but the trust of lawmakers to do the right thing past long ago. A rush to passage is never in the best interest of the people – but I digress.
What do we know about next week? Virtually nothing, but our politicians and media would have you think we are facing some armageddon scenario of economic disaster. Our country has had its back up against the wall more times than any country in history yet always seems to find a way to fight back. Now is not a time that I would bet against the USA. So, let’s say the Congress can’t agree on what to do next week – does that mean nothing will ever get done? Is this a nuclear attack on the nation? Hardly so. What really takes a hit (if it hasn’t already) is reputation and credibility. The leader of the free world would have a setback but nothing that could not be overcome. Interest rates may rise over time but let’s remember they are more a function of inflation and economics. The yield curve is now flattening in response to the dismal GDP from the first half of the year. Ten year yields are under 3%, considered a safe haven of sorts vs other assets. Wouldn’t you expect a blowout in rates if bondholders were abandoning the markets en masse?
The damage from this crisis to the sterling reputation of the USA will be long-lasting. The latest fiasco puts it on par with the ineptitude during the financial crisis of 2008. Wouldn’t you think they learned from that disaster? Apparently not. Time may pass and perhaps much of this circus will be forgotten but not entirely lost. The rest of the world is watching and paying close attention to how our affairs are handled. Is the USA deserving of a leadership role when our politicians cannot move our country forward?
Fear of the Unknown
I’ve always seen fear as an opportunity. The reaction is short-lived on the spectrum of emotions (greed being the 0ther extreme). Fear results from the unknown and uncertain outcomes. The general response is to get out of the way until the dust settles. That is a natural move of safety but is very often wrong. That is where the opportunities exist when selling stocks hits a crescendo. We saw that early Friday which spilled over from Thursday evening. The market tanked early but bounced back significantly. Buying chance, and you made money if you had the courage to buy with blood in the streets. Until the debt mess is resolved we may see more of these.
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