2013/01/02: Cal-Perspective and Playskool Politics

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The weekly Report & Event Calendar is available through the link in the right hand column. This week’s Summary Perspective is also now available. Yet there is also a continuing anomaly in the fundamental influences. And it is not just the poor deal that both sides have visited on us with their last minute fix for the Fiscal Cliff…

The odd part is the degree to which the process remains so dysfunctional…

 

 

…and that is something that still holds risk for the equities in spite of today’s sharp ‘risk on’ rally. As we note in this week’s Summary perspective, this is PlaySkool Politics. The US congress and Administration are seemingly very juvenile in their inability to arrive at any sort of agreement before the 59^th minute of the 11^th hour. And that maintains quite a bit of risk that the credit rating agencies (CRA’s) who have already noted they are as concerned about the dysfunction in the process as the overall Brobdingnagian trajectory of net US debt along with the annual deficits.

While it will undoubtedly trigger howls of protest from Washington DC, nobody should be one bit surprised when one CRA or another decides to downgrade the US debt rating. And the problem is the likelihood of primary US government bond yields NOT increasing if that occurs. It is perversely more likely everyone else outside the government (even government-backed ‘agency’ paper) will need to pay more, and the equities will dislike that much more than the US government bond and note market. That may seem counterintuitive, yet it is exactly what occurred during the last US Debt Ceiling negotiation failure into August 2011.

And the President has already got the contention level ramped up by making a high profile announcement today that he will NOT negotiate with Congress on the next Debt Ceiling hike; likely needed by early March at the latest. Well, guess what? He can’t raise it on his own. So whether he likes it or not, he will need to engage Congress on that. And why he would think they’d surrender one of the only bargaining chips they have in the budget cuts debate is beyond any rational observers… unless your rationale is that of a kid in a PlaySkool mood who is content to kick sand at the other kids. Juvenile.

General Market Observations and EXTENDED TREND IMPLICATIONS are all available in the Concise Market View of the Summary Perspective.

Thanks for your interest.