The Ceiling and the Floor

As I listen to Laszlo Birinyi  hype irrelevant SP targets for Sept. 2013 (2854 ), the remaining 99.99% of the trading community will try and guess where it will be at 3pm ET. The target is silly only because the capital markets are now about the journey not the destination. In 3 weeks we will hit a different target, well in front of Laszlo's. The floating of 2 week band aids will no longer be tolerated. The debt ceiling is roughly 3 weeks away. The Treasury's deck shuffling will provide a few months of buffer after mid-April. The inability to focus on important domestic issues cannot be dismissed as global crisis triage. Crisis Management for everything is myopic policy and promulgates crises.

I have stated before that I learned economics from Dr. Kenneth Parkhurst and he taught the "Parkhurst Corollary": Concern for public debt is inversely proportional to economic knowledge. The deficit, and thus the budget, is a different animal. With rate structures morphing from "emergency" to "permanent" and QE winding down, the budget should be all over the headlines. The jambalaya of crazy global events has punted this annual political  football right off the page. Prepare for the calendar to force the issue back into the spotlight.

Finally, given the large declines in certain bond markets, US term structures have remained amazingly resilient.  Exploring the short side since Sunday night, the decline is a rounding error in the context of the risks. Relative value trading in the curve and through the stack remains the dominant theme.

Leave a Reply

Your email address will not be published. Required fields are marked *