Monday, October 7, 2013

Markets decline on DC uncertainty about ending the shutdown

Dow dropped 78, decliners over advancers 5-2 & NAZ fell 20.  The MLP index was off a fraction in the 445s & the REIT index rose 1+ to 267.  Junk bond funds were lower & Treasuries found a few buyers.  Oil dropped the most in 2 weeks as the US neared a breach of the debt ceiling & production from the Gulf of Mexico resumed after a tropical storm.  Gold was higher on the uncertainty in DC.

AMJ (Alerian MLP Index tracking fund)

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CLX13.NYM...Crude Oil Nov 13...102.29 Down ...1.55  (1.5%)

GCV13.CMX...Gold Oct 13...1,323.10 Up ...13.40 (1.0%)

Closed U.S. Treasury Building

Photo:   Bloomberg

The way out of the political morass in DC remains elusive as the US enters the 2nd week of a partial gov shutdown & with a potential lapse in US borrowing authority just 10 days away.  Though Reps & Dems say they want to end the shutdown quickly & avoid a historic default, there’s no sign they’re talking to each other & their demands are mutually exclusive.  The standoff, heightened by Obama’s refusal to negotiate on measures needed to keep the gov running & House Reps’ demand for a delay in Obamacare, means at least one side must make a concession or find a way to describe a concession as a victory.  At least 3 possible routes include a resolution, based on previous deadlocks: the Senate jam, in which that chamber forces the House to accept a bipartisan compromise; the complete cave, where one party buckles under public pressure; & the fig leaf, where one side accepts a partial defeat while claiming a symbolic victory. 

Congress Looks for Elusive Way Out of Government Shutdown

John Boehner said the Rep controlled chamber can’t pass an increase to the debt ceiling without packaging it with other provisions, something the pres has labeled a nonstarter.  “We are not going to pass a clean debt limit,” he said yesterday.  “The votes are not in the House to pass a clean debt limit.”  Boehner said the US might end up in default if Obama doesn’t negotiate.  “That’s the path we’re on,” he said.  The stalemate between the administration & House Reps showed little sign of thawing 10 days from when the Treasury will exhaust measures to avoid breaching the debt ceiling.  This situation remains dead in the water.

Boehner Says House Won’t Vote on Clean Debt-Limit Bill

Moody’s Investors Service CEO Raymond McDaniel

Photo:   Bloomberg

Moody’s said it sees a “very low” chance the US will default on its debt payments as a stalemate between the pres & Republicans showed little sign of thawing.  The impact of the partial gov shutdown on the economy may not be particularly damaging in the short term, & the effect would be seen gradually over time if it was an extended one, CEO Ray McDaniel said on Bloomberg TV.  The impasse may threaten the US’s ability to meet its payment obligations as the Treasury said Congress needs to pass a debt-ceiling increase by Oct 17 or the US will be “dangerously low” on cash & risk defaulting.  “There’s, we still think, a good chance that there will be resolution around the debt ceiling,” McDaniel said.  “Even if there’s not resolution on the debt ceiling, we think that the likelihood that Treasury security payments would be prioritized highly is strong.”  The US has the top ranking from Moody’s & Fitch Ratings, while Standard & Poor’s has it one step lower.

Moody’s Sees Low Chance of U.S. Default as Government Shutdown Persists

Nothing happened in DC & there are no negotiations.  As bad as the gov shutdown is for the economy, just the threat of a debt default carries more risk.  This is not a rude shock to the politicos who have been kicking this can down the road for months.  Nothing has been accomplished, but their vacations were not disturbed.  The first Q3 earnings are coming this week & they probably will not be encouraging.  The outlook for the stock market remains gloomy. 

Dow Jones Industrials

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