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Did Gun Control Shoot Puerto Rico's Chances At Debt Relief?

|Includes: DIA, SPDR S&P 500 Trust ETF (SPY)

On June 21, John Lewis (D-GA) and a number of Democrats conducted a sit-in protest in an attempt to force Republican leadership to allow a vote on a gun control measure. As the day wore on, Republican nerves wore thin and at 3:30 AM today, Speaker Paul Ryan (R-WI) adjourned the House until July 5th (his date). Why should US markets care about this? Because Rep. Lewis and Speaker Ryan just raised the stakes in the Puerto Rico crisis.

For those who need a brief civics refresher, both the Senate and the House must pass the same bill for it to go to the President's desk for signature. The House amended the Senate bill prior to passage on June 9. The House language must be agreed to by the Senate without any changes. If the Senate makes a change, a House vote is required to pass the bill. Under normal circumstances, a conference committee is formed to hammer out final language for both houses to agree to. Due to the July 1 deadline, there is not time for this.

Senator Harry Reid (D-NV) stated today that he would have issues going along with the current language and would need amendments to get to the 60 votes to bring the Senate Bill 2328 (PROMESA) to a vote. The issue here is that any additions or changes on an approved bill has to be agreed to by the House, which is in recess. Should the Senate amend the bill, President Obama COULD call the House back into session and it would be the first time since 1948 when yet another do-nothing Congress adjourned with 6 months left on the term. The issue would be the time that it takes to gather a quorum of the House that could vote and approve the bill. According to House rules, a quorum requires a majority of the membership or 218 members. Given that this is considered the House 4th of July recess, how fast can members go back to Washington? How many stayed in DC have districts within easy driving distance (4 hours)? Answer, about 115 if you tally all the states within a 200 mile distance from DC. Given Democratic resistance to this bill, I can't see that the President's party would be in much of a rush to arrive in DC.

Given the stakes, I think we are the knife's edge. My advice would be to get out of the market or at least take profits regardless of the Brexit vote. If President Obama resists calls to call back the House, I'd sell. There is too much risk from US politicians who are known to dither away time.

Disclosure: I am/we are long SPXU.