Wednesday, November 17, 2010

Wall Street knows Republicans are full of shit


I tripped across an interesting read from a bond market trader:

"If we follow the Greek tragedy's storyline: a) Market realizes public finance are a complete joke b) a fiscal resolution is attempted c) the fiscal solution fails as the slowing economy choked by austerity lowers revenues and offsets benefits of entitlement cuts. Note that b) and c) should occur in several iterations until entitlement cuts are no longer tolerated and the country is forced to resort to default. We haven't even tried one yet, so pace yourself, and remember that higher yields in Fixed Income creates risk averse sell-offs in other asset classes which in turn create demand for US bonds as money seeks a safe heaven. That status of safe heaven is not just yet abandoned, even though it will be eventually."

The bottom line of his point - Republicans are full of shit. They will embark on a path of fiscal austerity. Sure, they'll reduce government expenditures. But the resulting revenue loss (more people out of work, higher social services costs, less income tax revenue collected, et al) will overcome the savings from the austerity. The net result will be a sinking economy. There will be an iterative effect that takes place over a long period. We cut, our economy sinks, scared investors move their money into Treasuries, repeat. At some point in the iteration cycle of cuts and sinking economy, investors will lose faith and flee American debt. Our economy will crash and burn.

This trader is in essence suggesting you have to be nimble. Stay with your investments initially into this process, but be prepared to get out. Then, bet big against America once its evident that investors are losing faith in the Republican austerity bullshit that will wind up sinking us into a hell hole.

Anyone else out there but me think that Wall Street bond traders wanted Republicans to take control for nefarious reasons? There is significantly more money to be made betting on the huge crash and burn, than in riding out the moribund fixed income markets that prosperity delivers.

Wall Street bond traders want the idiot Republicans calling budget shots so the traders can make a killing betting on failure. Welcome to America.

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