Regarding the debt ceiling, Congress loves to kick the can down the road for future generations.
For a group of people who constantly talk about how we have to save the future for our children (whether it’s climate change or another big issue), they sure have no problem leaving future generations saddled with a level of debt that will take decades to unwind.
So, it’s no surprise that Congressional leaders and the White House are taking their time with the debt ceiling crisis. We’re now about 20 to 27 days away from the U.S. defaulting on its debts and running out of money.
What will happen? And how should investors prepare?
I’m glad you asked these two questions…
What Wall Street Expects Around the Debt Ceiling
The following graphic comes from Bloomberg, with a key take on the timing of debt ceiling discussions and when the government might run out of money.
Janet Yellen warned earlier this month that the Treasury would effectively run dry around the first week of June.
Banks from Citi to Barclays have forecasted the Treasury Department’s General Account and came up with scenarios that suggest that we’ll hit a default in the second week of the month.
Congress had three months to prepare for this crisis. As I explained to Tactical Wealth Investor subscribers last week, Democrats have a nuclear option. They would try to force a bill through Congress called the End the Gridlock Act that’s been intentionally stalled in committees for months.
By forcing a vote on this bill, it would give the media an opportunity to say that one side isn’t taking the debt ceiling crisis seriously – even though the GOP did pass its own bill a few weeks ago.
The question now is what will actually occur.
Most people tend to think in terms of absolutes. The general idea is that there will not be a default. However, politicians like a battle… and they like compromise to suit their self interest.
So, consider an alternative from what you’ve heard from the banks above. Consider a plan that would fund the government for six more months – carrying us back into a debt ceiling debate in October.
That’s where I anticipate the stock market will be under pressure from a drop in consumer spending, a recession, and a big drop in economic growth – coupled with a possible extension on our banking crisis.
Printing more debt is – by definition – inflationary. By punting this issue out a few months, it gives leaders additional time to examine economic data.
And it gives Yellen more time to try to convince them that another $18 trillion in debt over the next 10 years is somehow a good idea.
With the Producer Price Index (PPI) seeing a slowdown in the rate of increases over the last year – and the Consumer Price Index (CPI) now under 5%, we’re hopefully trending in the right direction and getting it under control.
There’s just one more issue that we have to deal with. We expanded the money supply by 35% in recent years, but inflation has only compounded up to around 16% to 17%.
There’s still nearly 18 percentage points of inflation left to go – and it will take some time for it to filter through our system.
If Congress does authorize a debt ceiling expansion, look for the Treasury General Account to dry up, and for the markets to face some additional pressures.
This is a very difficult time for traders. And this is why I encourage people to start taking a more long-term approach and buying companies that will ultimately recover when this is resolved.
Do yourself a favor, and sign up for Tactical Wealth Investor. My newest pick is a company I consider the ultimate inflation-buster.
To your wealth,
Garrett Baldwin
P.S. This Wednesday at 1pm ET, Celeste Lindman will reveal how traders can target consistent monthly income from an ancient $119 TRILLION market by taking ONLY two trades a month! Register here for this free event.
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
Market Momentum is Red
We’re still red, and we saw large reversions on the S&P 500 ETF (SPY) this afternoon. The markets continue to see wide crowding into the big names in tech like Apple (AAPL) and Meta (META). However, the rest of the market is under pressure. Typically, when we see this sort of crowding, it can produce sizable selloffs for the S&P 500 once we hit overbought territory. Be very cautious, and remember that cash is your friend.
