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Collision Courses



-- Posted Friday, 7 December 2012 | | Disqus



By: David Chapman

TECHNICAL SCOOP

CHART OF THE WEEK

26 Wellington Street East, Suite 900, Toronto, Ontario, M5E 1S2

Phone (416) 604-0533 or (toll free) 1-866-269-7773 , fax (416) 604-0557

david@davidchapman.com

dchapman@mgisecurities.com

www.davidchapman.com

Source: www.sharelynx.com

 

Overlooked amongst all of the talk about the “fiscal cliff” is the looming debt ceiling. While the collision course to come to an agreement on the “fiscal cliff” would have a negative impact on the US (and world) economy, failure to come to an agreement to raise the debt ceiling could in theory push the US into bankruptcy.

 

The battles between the Republican led Congress and former US President Bill Clinton over the debt ceiling in the 1990’s were almost legendary. Yet for all of those battles the actual increase in the debt ceiling under Clinton was low compared to his two Republican predecessors Ronald Reagan and George Bush 1. Under George Bush II, the debt ceiling was raised 7 times from about $6 trillion to almost $12 trillion. Since then the debt ceiling has gone up another three times and now stands at $16.394 trillion.

 

Under George Bush II the debt ceiling rose with little fanfare but since the election of Republican congress in 2010 debt ceiling battles have been normal. Given the US adds roughly $1 trillion of new debt every year primarily because of the needs that arose out of the 2008 financial collapse the next increase could take the debt ceiling over $17 trillion. US Treasury Secretary Tim Geithner has suggested that the debt ceiling have no limit. Given the polarization between the Republican led congress and the Democrat White House the odds of that happening appear to be extremely low.  

 

Failure to increase the debt ceiling in a timely manner could result in the government being unable to pay its bills including the interest on the debt. Failure to pay interest on the debt and or meet a bond or bill rollover could put the US in default triggering in a bankruptcy. While that appears to be remote congress and the White House remain firmly on a collision course as each presents its differing plans to resolve the “fiscal cliff”. The debt ceiling is hardly garnering any attention but if the debt ceiling is not increased in a timely manner the impact of it could be more immediate then the “fiscal cliff”. The “fiscal cliff” is hyperbole as the effects of failure to reach a deal would only be felt over time and not immediately.

 

But like the “fiscal cliff” a resolution must be found or the unintended consequences could be worse than failure to reach an agreement on the “fiscal cliff”. In the polarized world that is currently the US an agreement is not a given as each will manoeuvre to blame the other for any unintended consequences.

 

The collision course of the “fiscal cliff” and the debt ceiling are ironically playing themselves out against the backdrop of the end of the Mayan calendar. This is not to suggest that the end of the Mayan calendar on December 21, 2012 leads to the end of the world but failure to reach agreement on the “fiscal cliff” and the debt ceiling may feel like it.

 

The collision course over the “fiscal cliff” and the debt ceiling is not the only collision course currently underway. Some are suggesting that the Assad government in Syria is preparing to use chemical weapons against the rebels. If that is correct than it could set a collision course for the Assad government and NATO. The current clashes in Egypt are another potential collision course as pro Morsi supporters and opponents battle it out on the streets of Cairo. The military has stepped in but Egypt could in a worst case descend into civil war. Finally the recent success in Palestine receiving recognition at the UN has triggered reprisals from Israel including cutting off the sending of tax receipts and announcing further expansion of settlements that could divide up the West Bank further.  The Palestinian/Israeli collision course has been ongoing since 1948.

 

Given all of these collision courses, maybe the Mayans are right.

 

Copyright 2012 All Rights Reserved David Chapman

 

 


General Disclosures

The information and opinions contained in this report were prepared by MGI Securities. MGI Securities is owned by Jovian Capital Corporation (‘Jovian’) and its employees. Jovian is a TSX Exchange listed company and as such, MGI Securities is an affiliate of Jovian. The opinions, estimates and projections contained in this report are those of MGI Securities as of the date of this report and are subject to change without notice. MGI Securities endeavours to ensure that the contents have been compiled or derived from sources that we believe to be reliable and contain information and opinions that are accurate and complete. However, MGI Securities makes no representations or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to MGI Securities that is not reflected in this report. This report is not to be construed as an offer or solicitation to buy or sell any security. The reader should not rely solely on this report in evaluating whether or not to buy or sell securities of the subject company.

 

Definitions

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Conflicts of Interest

The technical strategist and or associates who prepared this report are compensated based upon (among other factors) the overall profitability of MGI Securities, which may include the profitability of investment banking and related services. In the normal course of its business, MGI Securities may provide financial advisory services for issuers. MGI Securities will include any further issuer related disclosures as needed.

 

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Each MGI Securities technical strategist whose name appears on the front page of this technical market report hereby certifies that (i) the opinions expressed in the technical market report accurately reflect the technical strategist’s personal views about the marketplace and are the subject of this report and all strategies mentioned in this report that are covered by such technical strategist and (ii) no part of the technical strategist’s compensation was, is, or will be directly or indirectly, related to the specific views expressed by such technical strategies in this report.

 

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MGI Securities permits technical strategists to own and trade in the securities and or the derivatives of the sectors discussed herein.

 

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For Canadian Residents: This report has been approved by MGI Securities which accepts responsibility for this report and its dissemination in Canada. Canadian clients wishing to effect transactions should do so through a qualified salesperson of MGI Securities in their particular jurisdiction where their IA is licensed.

 

For US Residents: This report is not intended for distribution in the United States. 

 

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The materials contained herein are protected by copyright, trademark and other forms of proprietary rights and are owned or controlled by MGI Securities or the party credited as the provider of the information.

 

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MGI SECURIITES is a member of the Canadian Investor Protection Fund (‘CIPF’) and the Investment Industry Regulatory Organization of Canada (‘IIROC’).

 

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All rights reserved. All material presented in this document may not be reproduced in whole or in part, or further published or distributed or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express written consent of MGI Securities Inc.


-- Posted Friday, 7 December 2012 | Digg This Article | Source: GoldSeek.com

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