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President Obama’s Debt Ceiling Deal More Fizz Than Bang

Politics / US Debt Aug 01, 2011 - 06:05 AM

President Barack Obama announced on Sunday that an agreement between Democrat and Republican leaders had been reached which would reduce the U.S. deficit and postpone default, at least for now. The President said that the agreement would cut about $1 trillion over 10 years and therefore would not have an immediate effect on the fragile U.S. economy. There is also another $1.2 trillion to be cut if a joint committee cannot find at least that amount in budget savings.

We need to point out that this deal still has to be passed by both the House and the Senate. Coming hard on the heels of this announcement stock futures rose and U.S. Treasuries futures slipped lower as both gold and silver also lost ground.

Two of the rating agencies, Standard & Poor’s and Moody’s indicated earlier that deficit-cuts in the order of $4 trillion would be enough for the U.S. to avoid losing its prized AAA rating.

As we see it the opinion of these agencies leaves a lot to be desired as they have managed not to warn against a number of train crash type outcomes for some of the organizations that they had also rated as AAA, immediately before their demise. If you are of the opinion that U.S. Treasuries are worthy of the AAA status, then your opinion is totally opposed to ours as we think they are already junk along with the Dead Cat Dollar.

As we write the Hang Seng is up 1.56% and the Nikkie is up 1.84%, so we can see that this announcement has brought some relief to the markets, not exactly euphoric excitement, more of a gentle sigh that says we have some movement on the debt problem that had dominated the headlines for weeks.

Alas there is nothing in this announcement that indicates any real political will to get the debt monster under control, one trillion dollars over ten years is fiddling while Rome burns. Our stance therefore remains unchanged and if anything it hardens our resolve to stay on track. As you are aware we do not own any equities other than in the metals space and we will keep it that way. Our holdings include both physical gold and silver, gold and silver producers , with the lions of our cash being allocated to options trades where the underlying commodity is gold or silver and the leverage turbo charges our investment account.

Hold onto to your precious metals and accumulate on the dips. Try to be in position before the end of August as the fall period is shaping up to deliver a sparkling outcome.

Stay on your toes and have a good one.

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Bob Kirtley Archive

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