Best of the Week
Most Popular
1.What Happened to the Stock Market Crash Experts Were Predicting - Sol_Palha
2.London Housing Market Property Bubble Vulnerable To Crash - GoldCore
3.The Plan to Control ALL Your Money is Now at Advanced Stage
4.Why Gold Is Set For An Epic Rally This Spring - James Burgess
5.MR ROBOT NHS Cyber Attack Hack - Why Israel, NSA, CIA and GCHQ are Culpable - Nadeem_Walayat
6.Emmanuel Macron and Banking Elite Win French Presidential Election 2017 - Nadeem_Walayat
7.Trend Lines Met, Technical's are Set - US Dollar is Ready to Rally (Elliott Wave Analysis) - Enda_Glynn
8.The Student Debt Servitude Sham - Gordon_T_Long
9.Czar Trump Fires Comey, Terminates Deep State FBI, CIA Director Next? - Nadeem_Walayat
10.UK Local Elections 2017 - Labour Blood Bath, UKIP Death, Tory June 8th Landslide - Nadeem_Walayat
Last 7 days
Manchester Bombing - ISIS Islamic Terrorist Attack Attempt to Influence BrExit Election - 23rd May 17
What an America First Trade Policy Could Mean for the US Dollar - 22nd May 17
Gold and Sillver Markets - Silver Price Sharp Selloff - 22nd May - 22nd May 17
Stock Market Volatile C-Wave - 22nd May 17
Stock Market Trend Forecast and Fear Trading - 22nd May 17
US Dollar Cycle : Deep Dive - 21st May 17
Bitcoin Breaks the $2,000 Mark as Cryptocurrencies Continue to Explode Higher - 21st May 17
Stocks, Commodities and Gold Multi-Market Status - 21st May 17
Stock Market Day Trading Strategies and Brief 20th May 2017 - 21st May 17
DOW Needs to Rally Big or Correction is Next - 20th May 17
EURUSD reaches DO or DIE moment! - 20th May 17
How to Get FREE Walkers Crisps Multi-packs! £5 to £28k Pay Packet Promo - 20th May 17
UK BrExit General Election 2017 - Will Opinion Pollsters Finally Get it Right? - 19th May 17
Gold Mining Junior Stocks GDXJ 2017 Fundamentals - 19th May 17
If China Can Fund Infrastructure With Its Own Credit, So Can We - 19th May 17
Evidence That Stocks are More Overvalued than Ever - 19th May 17
Obamacare May Become Zombiecare In 2018 - 19th May 17
The End of Reflation? Implications for Gold - 19th May 17
Gold and Silver Trading Alert: New Important Technical Development - 19th May 17
Subversion And Constructive Synthesis Of Capitalism And Socialism - 18th May 17
Silver: Train Leaving Station Soon! - 18th May 17
Credit and Volatility Signal That Financial Conditions Are Very Overheated - 18th May 17
Another Stock Market "Minsky Moment" or Will the Markets Calm Down? - 18th May 17
WannaCry Ransomware Virus Is a Globalist False Flag Attack On Bitcoin - 18th May 17
Euro, Stocks, Gold Momentum Extremes All Round! - 18th May 17
US Stock Market Slumps on Establishment / CIA Trump Impeachment Coup Plan - 18th May 17
Tory Landslide, Labour Bloodbath - Will Opinion Pollsters Finally Get a UK Election Right? - 17th May 17
The stock market sectors which are breaking out in 2017 - 17th May 17
A ‘Must-See’ Chart for Gold and Silver Aficionados  - 17th May 17
Will the SPX Stock Market Final Surge Fail to Appear? - 16th May 17
Claim your FREE copy of Jim Rickards’ explosive book - 16th May 17
GOP Establishment Elite Plots Trump Removal - 16th May 17
Walkers Crisps Pay Packet Cheats, Shoplifters and Staff Conning Customers - 16th May 17
Gold and Sillver Markets - Silver Price Sharp Selloff - 15th May 17
Gold Stocks Poised to Soar Sharply Higher! - 15th May 17
This One Undiscovered Pot Stock Could Help Investors Cash In On The “Green Gold Rush” - 15th May 17
WIll Trump Tax Cuts Debt Binge Save Stock Market From Double Top Bear Plunge? - 15th May 17
Trump Rally or Geopolitical Meltdown: Currency Management for Dollar Risk - 15th May 17
A Shallow Stock Market Correction? - 15th May 17

Market Oracle FREE Newsletter

Trading Commodity Markets

Debt Doomsday Means Stock and Bond Market Crash 2011

Stock-Markets / Financial Crash Nov 15, 2010 - 05:54 PM GMT

By: Investment_U

Stock-Markets

Best Financial Markets Analysis ArticleMarc Lichtenfeld writes: There’s going to be a massive stock and bond market selloff in the first half of 2011.

Not only that, the selloff could cause a worldwide financial disaster, global market crashes and the destruction of wealth that will make the popping of the dotcom and housing bubbles feel like a mild inconvenience.


Why?

Because, quite simply, America is playing a dangerous game of “chicken” with its national debt. And the ramifications are extraordinary. I’m going to explain the situation and give you three ways to protect yourself from this mess before it’s too late…

Debt Doomsday: Coming in May 2011

America’s debt ceiling currently stands at $14.3 trillion. This is the level that, by law, the government’s debt is not allowed to exceed.

Trouble is, the government’s present debt has swelled to $13.7 trillion.

This means that at the current rate, we’re on course to smash through that $14.3 trillion ceiling around May 2011 (although it might happen a month or two later, depending on what budget cuts are enacted in the next few months and how quickly they’re implemented).

So what will the government do about this? Same thing it’s done almost every year since 1962: Raise the debt ceiling so America can pay its bills.

Congress really has no choice in the matter either. If the ceiling isn’t raised, we’ve got a problem. A very big one.

A Fistful of Dominos

Without Congressional approval for additional debt, the U.S government cannot pay its bills – most notably, interest payments on treasury bonds, bills and notes.

If America defaults on those payments, or even misses them by just one day, the domino effect would be brutal…

•Domino #1: The country would lose its AAA credit rating and those bonds, bills and notes would no longer enjoy their status as the safest investments on the planet.
•Domino #2: In turn, a lower credit rating would mean that the United States would pay higher interest on its bonds in order to attract investors. Result?
•Domino #3: A tidal wave of selling through fixed income markets, driving interest rates higher still.
•Domino #4: Social Security would be hit hard, as its funds are invested in Treasuries. Suddenly, Social Security would have far less resources than just a day or two earlier.
•Domino #5: If money is pouring out of so-called “safe” investments, you can bet that in that kind of environment, the demand for riskier investments would be next to nil. Stocks and financial markets around the globe would plummet.
So why is this year’s Congressional raising of the debt limit different than every other?

To Raise or Not to Raise?

Simple: This year, some members of Congress have said they won’t vote to raise the debt ceiling. And they may be serious this time.

Earlier this year, 38 Republican Senators voted against raising the ceiling. However, they did so, knowing full well that they’d be outvoted and that the limit would be raised despite their “objections.” That way, they could return to their Congressional districts, claiming some semblance of fiscal responsibility.

Their vote didn’t matter so much back then… but with the Republicans having wrestled control of the House of Representatives last week, it sure does now.

It throws up an interesting dilemma. The Republicans – and particularly the Tea Party candidates who ran on a platform of cutting spending and the deficit – will have a very difficult choice to make. Either go back on their word and vote for an increase in the debt ceiling, or vote against it and run the risk of financial calamity.

It’s still early, but some Senators are already threatening to vote “no.”

•Senator-elect Rand Paul of Kentucky has indicated that he won’t vote in favor of raising the debt ceiling.
•South Carolina Senator Jim DeMint said he won’t vote to raise the limit unless it’s combined with some plan to balance the budget, return to 2008 spending levels and repeal President Obama’s healthcare plan.
•When asked if he’d vote against a debt ceiling increase, even if it leads to a government shutdown, Utah Senator-elect Mike Lee answered, “It’s an inconvenience. It would be frustrating to many people and it’s not a great thing, yet at the same time, it’s not something we can rule out.”
•And Republican National Committee Chairman Michael Steele told CNN, “We’re not going to compromise on raising more debt or the debt ceiling.”
This may be a dangerous political strategy…

History Repeating? Not Likely…

In 1995, the Republicans threatened President Clinton with shutting down the government if he didn’t agree to their budget. Clinton vowed that he’d never agree to it, even if his approval rating fell to 5%.

He won, too. The government did in fact shut down and the Republicans were the focal point of America’s anger. President Clinton’s approval numbers actually went up.

Flash forward to today. President Obama is likely aware of this history. And while he may be willing to negotiate on spending cuts, he will not repeal healthcare reform, which is the hallmark of his Presidency.

For Obama, though, the situation in 2011 will be much worse than it was for Clinton in 1995. I’m talking about a meltdown in the stock and bond markets.

Bill Busting… Washington Style

Bruce Bartlett, a former advisor to President Reagan and deputy assistant secretary for economic policy at the Treasury Department under President George H.W. Bush, recently stated, “You introduce even the tiniest little bit of doubt into the minds of ultra-conservative investors and that’s potentially disastrous. It hurts our ability to raise money without a risk premium.”

Representative John Boehner, the new Speaker of the House, appears to be more realistic than his colleagues in the Senate. He’s indicated that he’d vote for raising the debt ceiling as long as it accompanies spending reductions.

The bottom line, though, is this: The Senate likely doesn’t have the votes to defeat a bill to raise the debt ceiling, while the House does.

And in the end, it doesn’t matter. The bill doesn’t have to be defeated. A filibuster accomplishes the same thing. Don’t forget, this bill must be passed by the date we hit the ceiling, otherwise the government goes into default. It’s not something that can be put off until later.

So, in fact, a filibuster is even more powerful than a “no” vote. And the mere threat of a filibuster could spook investors badly enough to sell first and ask questions later.

You need to go about protecting yourself as soon as possible…

Protect Yourself From America’s Debt Showdown

There are a few investments that will likely do well in the chaotic environment I just described…

•Gold: The resilient yellow metal should soar as the U.S. dollar sinks and investors flee to safety. If you don’t want to own the metal itself, you can buy the SPDR Gold Shares Trust (NYSE: GLD) ETF, which serves as a close proxy to the price of gold bullion.
•Short Treasuries (Option 1): Consider the ProShares Short 20+ Year Treasury (NYSE: TBF), which aims for a 100% inverse correlation to the Barclays 20+ Year U.S. Treasury Bond Index.
•Short Treasuries (Option 2): If you’re a more aggressive investor, take a look at the ProShares UltraShort 20+ Year Treasury (NYSE: TBT). It seeks to obtain results that are double the inverse daily performance of the Barclays 20+ Year U.S. Treasury Bond Index. So if the index falls 10%, the ETF should gain about 20%.

Remember: From most crises comes opportunity. Investors who are agile and aware of the potential debt ceiling landmine can grab profits by getting into the right investments at the right time.

Additionally, the ensuing volatility may create buying opportunities for some of your favorite stocks, so be sure to put together a watchlist of stocks you’re interested in owning at lower prices.

Hoping your longs go up and your shorts go down,

Source : http://www.investmentu.com/2010/November/...

Marc Lichtenfeld

Editor’s Note: But what if you don’t have the time to put together a stock watchlist for yourself, or don’t even know where to look? That’s where The Oxford Club comes in. We’ll do the work for you, showing you what stocks to buy and when to buy them. Not only that, the Club offers something for every investor – from stock market newcomers to seasoned veterans – and provides ample opportunity to diversify through several model portfolios. Take a look at the full list of benefits that you’ll receive when you become a member of The Oxford Club.

Copyright © 1999 - 2008 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Johnnyboy
11 Feb 11, 19:18
Crash

It won't crash. You guys all make all these predictions...then when it doesn't crash (it's only going to go up in 2011), you either disappear or come up with some unforseen reason why it didn't.


Eric
08 Aug 11, 20:54
debt doomsday and stock crash

You hit the nail on the head!


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife