- Pew Research: The public has grown more concerned that failing to raise the debt limit would force the government into default.
- Bill O'Reilly: If the USA defaults on obligations in August, all of us will suffer economically because foreign investors would begin to pull their money out of America and the dollar would plummet, along with stocks.
- Michelle Bachmann: We have sufficient revenue coming in to pay off the interest on the debt and we don't have to default.
- President Obama: I cannot guarantee that those checks go out on August 3rd, if we haven't resolved this issue. Because there may simply not be the money in the coffers to do it.
- Lawrence O'Donnell: It must be raised on a date certain – at a particular time on the clock, or the United States government goes into default.
Would you believe that Bachmann is the only one in this group who has it right? (She's wrong about not needing to raise the debt ceiling, but that's another argument). All the rest, including the president, either don't know what they are talking about or are using scare tactics to LIE to the public.
Let's assume that the debt ceiling - not that it really exists, because when Congress passes a bill, they've already committed the money to it - is not raised. Then Treasury cannot borrow money anymore and with the General fund depleted, it will no longer have access to short-term cash. So it must then decide what doesn't get funded.
So now consider: who gets paid first? In your household, the bills get paid first, right? That's why the mortgage and the rent are due the first day of the month. The bills are debt, and everything else isn't. After you pay them off, then whatever money you have left gets spent on what you want.
Let's say that you are building a new patio, but haven't bought all the wood and cement needed to complete the job. You're waiting for the next paycheck so you can go to Home Depot and buy more stuff. But your hours just got cut, so now you're bringing in less. You get paid less money - not enough to pay for everything. What do you ignore? You don't ignore the mortgage. You don't ignore the electric or the water either. You pay those off first. There's little left to buy patio stuff, so you put off a visit to Home Depot until next month. The patio remains unfinished.
That's the decision Treasury will make. Treasury will pay off the Treasury bonds first, because if it doesn't, credit rating agencies will definitely downgrade the US and rates will go up (like your credit card bill if you don't make a minimum payment). Then there are other obligations - Social Security for example. Yes, grandma will get her check. Who won't get paid is anyone's guess, but consider Uncle Sam's obligations. GI Joe fighting over in Afghanistan will still get paid. However, company X might not get paid for the planes it's building for the military - that isn't an obligation. What happens if company X doesn't get its money? We don't get more planes.
That's all there is to it.
I found it telling that while the TV news media and the politicians were talking about the "debt ceiling crisis" that bond rates went down, not up. That's because investors were aggressively buying bonds. Why would people buy bonds if there's a fear that the US would default on its debt?
Because it won't. There is enough revenue to pay off its bonds, because the bills come first. Ever notice that Treasury Bills are called "bills"?
Some Other Debt Ceiling Thoughts
Bill O'Reilly has been a real ditz on this issue. He keeps bringing up that if the debt ceiling isn't raised, then the market will tank 1000 points. First of all, he means the Dow 30. Secondly, so what? Congressional decisions should not be made to prop up asset prices. The focus instead should be on the bond market. A credit rating downgrade will mean higher rates. Higher rates spell death to housing and business. ... The President should simply state: "I need the debt ceiling raised in order to follow through on obligations that Congress already voted on. Put forth a bill on the debt ceiling and the debt ceiling only and we will deal with the other issues of spending cuts and taxes separately, because they deserve a separate platform. Congress has a tendency to insert a whole bunch of other crap into their bills to get them passed by a small minority who need to be recalled by voters." ... One of the few times I agree with Sarah Palin: she accuses the President of fear-mongering by threatening grandma's Social Security checks. She's right. ... Obama's demand for a long term solution comes from the idea that the credit rating agencies will downgrade the US debt if no such plan is put into place. That stated, both Congress and the President have been unable to make any budgetary headway for several months now. Pitiful. ... This will be the 4th time the debt ceiling will be raised under President Obama (yes, this will pass). Under Bush 43, the debt ceiling was raised 7 times, and House Republicans voted for the ceiling raise with regularity. During Obama's tenure, not one House Republican has voted to raise it. Because of that, the current debt debate feels pretty phony. To help make my point about their phoniness, check the graphic below showing the debt ceiling raises, courtesy of the Washington Post. Also consider that Obama did vote "No" on raising the debt ceiling while serving as senator. (The blue and red should be reversed.) Spells it out quite clearly the games they play, doesn't it? 
I'll try to produce a logarithmic scale next week.
Stock Market Thoughts
Conoco Phillips (COP) will split into two companies - one that does refining and the other on E&P. COP jumped 8% in the morning, only to sell off. It's that kind of market. People sell the rips - yours truly included. I took my profits and ran. When COP splits, it will become the largest independent oil and gas company in the US. This could spark some M&A activity in the sector so that others short on capital can compete. ... Great earnings from Google (GOOG) that led to a pop to $600. What is even more noteworthy is that Google+, GOOG's recent effort into social networking, has generated tremendous buzz. It's still in beta, but millions of users are already testing it. If it catches on when it goes live, it could steal away significant market share away from LinkedIn (LNKD) and Facebook. ... Low interest rates are losing their attractiveness to homeowners looking to refinance. Refi's hit a 10-week low. This petering out makes sense considering that absent job growth. ... So much for debt crisis. The ten year note yield fell for the second week in a row and is now challenging support. With the rate being at 2.908%, it's slightly below the 3% sweet spot. From a longer-term perspective, it looks like yields are trying to reverse its downtrend, but until yields can stop making new lows, equities are the place to be. ... Fed Chairman Ben Bernanke may have retracted his hints of QE3, but the Freudian slip is quite obvious. It's only a matter of time before QE3 comes in some form. Bottom Line: This remains a choppy market. Though the S&P bounced off its 20 day moving average (you have a clear definition of short term support), you must view any buys as a trade. That is, until the debt ceiling gets resolved. Once Congress raises the debt ceiling, then we will see if the market will rally or drop in response.
Current Positions: ABV, SLW, BIDU
One share: BAC, AAPL, COP, LULU, PLG, KSU
70% cash.
Stuff That Might Only Interest Me
Prosecutors in the Roger Clemens perjury case pulled a Bill Buckner by throwing the case during opening arguments. They were told not to introduce inadmissible evidence and they did it anyway. Thus, mistrial. Since the trial had already started, jeopardy is probably already attached. Spend all that money and blow it in the first inning. Someone should fired for that. ... A new study found that the size of the fork used to eat is inversely related to the amount you eat . That is, the smaller the fork, the more you eat. Kinda makes sense. When doing the yard work, the bigger the pitch fork you use, the less work you actually do. Or feel like you must do. ... A recent study shows that the number of A's given in universities have increased significantly over the last five decades . Private institutions have shown an even and even steeper "A" rate increase. Is it grade inflation or simply better performance? If this data reflects the latter, then it runs contrary to the contention that students aren't performing any better throughout the years in high school. If the former is correct, it simply highlights that colleges are businesses constantly in search of more customers. It should give an employer pause to hire someone from a private university, also. In addition, it should raise a red flag whenever people consider making public grade school education more consumerist. ... I have been having trouble finding any coverage on FOX regarding News Corp's phone hacking. Could be because News Corp owns FOX News. I'm sure when it does come up, the explanation will be that it all originated from one rogue operator. ... People have it wrong when they state that the economy will fix itself when housing resumes its upward trend. The health of housing will move with the rest of the economy - or not. What matters is not housing. It's the economy. And what breeds a health economy? Job and wage growth. We haven't had wage growth in over a decade. And we all know about job growth. Everything else is cosmetic. ... Sunoco, a gas-retailer, is testing beer-filling stations, called growler bars, at some of its convenience stores in Buffalo. You get a 64 ounce jug of micro-brewed beer for anywhere from $8 to $17, plus $4 for the glass jug. This is also being tried at other establishments - Sonic, Burger King, and Starbucks for example - with great success. In fact, some New York pharmacies sport growler bars - the best kind of medicine. I wonder if Budweiser is in the generics aisle. ... Jeff Stone, a Riverside Republican, thinks California should separate into two states - North and South - because it's too much to govern. That idea seems contradictory to being Republican. Republicans by nature are hands-off, laissez-faire. To govern less is to govern effectively, right? So how is California too big? ... This is not a new idea, but the old argument was that they needed each other. The South needed the North's agriculture, livestock, and raw materials. The North needed the South's finished products. Since NAFTA, that dynamic has changed. Both North and South now get much of their needs filled by Mexico. So maybe the argument should be to annex Mexico into California? Nah. ... I checked Jeff Stone's website . You aren't a politician unless you have your picture with high school kids to show you care about education. Nothing on it about California separating into two. In fact, not much on anything else. All I could gather is that he's anti-graffiti. On the right side of his homepage - would have to be since he's right-wing - there's a "Report Graffiti" link. I bet he ran unopposed on that issue. "Vote for me, b/c I'm against tagging!" ... A recent study of Kenyan baboons revealed that alpha males stressed out more than betas. By analyzing their poop, they determined that alphas were exposed to higher levels of stress long-term, with spells only during times of peace. They theorize that the alphas may get more women, but also have to repel more challengers. Thus, their stress levels are as high as those in the lowest ranks. Consider the analogy to humans: We already know that Al Gore couldn't carry Bill Clinton's luggage. Does anyone think that Joe Biden could stand the heat as well as Obama has? For me, that would mean being vice-principal has more perks than being principal. ... Articles
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