-- Posted Sunday, 6 October 2013 | | Disqus
By Peter Cooper
You might imagine that with the US Government shutdown this week there would be feverish activity on Capitol Hill to resolve the impasse. Not really, the two sides seem to be digging in for a longer battle with only some emergency legislation to pay 400,000 military passed by the house yesterday.
Stocks closed two per cent down for the week amid choppy trading. The VIX fear index is up from 13.12 on September 20th when the market topped out to 16.89. But when Congress last got into a fight over the debt ceiling two years ago the VIX hit 48.
VIX rising
With the debt ceiling scheduled to be reached on October 17th a similar run-up in the VIX seems a fairly easy bet, unless the nation’s politicians suddenly get their act together. That may not happen until they see the deadline much closer and react to rising fear in financial markets.
Insiders say the smart money is either moving off the table or positioning for a correction in financial markets. Shorting the VIX or S&P 500 with ETFs is popular among smaller day traders with more sense than the pack who are still resolutely bullish despite the mounting political storm in Washington.
Besides the US Government shutdown is already blinding investors with an interuption to the flow of critical national statistics. The all-important jobs report did not appear last Friday. They will have to rely on private sector data series instead.
In the stock market the biggest pullback in prices last week was amongst the interest rates sensitive sectors such as housebuilding and utilities. Higher interest rates would certainly follow a failure to raise the debt ceiling on October 17th, something seen as unlikely but then the last US Government shutdown was 17 years ago and it still happened last week.
Global interest rate hikes
Higher interest rates would polaxe the global economy as the International Monetary Fund, US Treasury and President Obama have warned in recent days. Real estate would be particularly hard hit and by default mortgage banks, already reeling from summer rate hikes.
If it all looks like the US Government shooting itself in the foot, perhaps overconfident that a recovering economy can take this hit, then that is about right. Betting on a rise in volatility in US financial markets looks one response, doing nothing until the fog clears is another, and selling everything now might be the best action of all.
That said a bond market bust and collapse of the US dollar could double the price of gold overnight.
http://www.arabianmoney.net/
-- Posted Sunday, 6 October 2013 | Digg This Article
| Source: GoldSeek.com
