OK this debt ceiling thing is top of mind again.
Most no all of the investment world wants to puke. Seriously; we’ve been through this one from every which way and Federal Politicians refuse to get it right. Quite frankly they refuse to get it wrong as well. They just keep coming back to the same insane stand-off playing chicken with the US economy, the US investor and the US tax payer. Not to mention they are screwing a lot of other people outside but that probably doesn’t count for much in Washington DC.
So politicians are supposedly finally subject to insider trading regulations and cannot take advantage of their important position in the information pipeline. But that relates to stocks which have definitive lines in the sand about material information. What about interest rates and bonds?
Secretary of Treasury Lew warns Uncle Sam will exhaust its debt borrowing capacity on Oct 17, 2013. That’s a Thursday by the way.
The debt ceiling thing is well-known. The politicians inability to deal with it are well-known. The government’s inability to cut spending for whatever pathetic argument you care to subscribe to are well know. But suddenly the debt crisis is front and center and the only issue worth talking about.
Interest rates are going up as a result. Politicians of all political stripes knew this battle was coming. Their expense account lunch buddies knew the battle was coming. More than one average bond trader knew the battle was coming. All they needed to wait for was a hysterical tipping point with an all too willing business and political media to drop a match on this gasoline soaked rag.
The new insider trading rules do not cover this scenario because everyone can say they could not foresee events. Everything is a wild card. If they are clever enough and a few are; they will disguise their accounts so we can’t even figure that one out.
If you know anything about interest rates the movements can make a stock look pathetic.
Any way good luck with the bond trading. The debt ceiling will be eventually raised. The republicans are ready to shut down government. Interest rates will go up and start to impoverish American Consumers who need low-interest rates but don’t understand their politicians impact on them.
The only question will be: “What will a left leaning White House give the Republicans?” My guess is Obama will keep rolling the dice until something bails him out. In the mean time a few politicians and their staffs are making some coin on interest rates and don’t forget the volatility indices.
Remember to vote next election. It’s important.
George Gutowski writes from a caveat emptor perspective. Follow him on Twitter @financialskepti