As an investor and/or Trader of the Stock Market YOU need to consider whether Obama and Congress get come to terms by the appointed "Debt Ceiling & Default" date and how this may affect your portfolio. First a little background then my thoughts on the effect to the Stock Market.
Following the passing in the first quarter of 2012 of the American Taxpayer Relief Act of 2012 to avoid the projected "fiscal cliff", Politicians & Media needed a new topic to get votes and rating so they shifted their focus to the "Debt Ceiling". The Ceiling is a limit set by Congress on the amount the America government can barrow for public spending. The limit was set at $16.4 trillion as of 2011. This is similar to your own household budget set at "x" dollars. Your banker uses your credit standing and tells you what your limit is and then you choose how much of this to use to "finance" your home, car and whatever else you choose. In the case of the Government they reached their "credit limit" or "debt ceiling" on December 31, 2012 and at that time the Department of the Treasury went to extraordinary measures to increase the ceiling or limit so the American Politicians could keep right on spending. It would be like your banker raising your credit limit so you could get an even bigger house, or a second house!
According to a letter from Treasury Department Tim Geithner to Congress on January 12 2013 the newly available credit line would be all used up by March 2013. This is like you winning the lotto in December 2012 and blowing it all by March 2013.
Now you know there are credit services which rate YOUR credit. Well there are also credit rating services which rate whole countries Namely in this case Fitch Ratings Services. Fitch has warned in the past the limiting of the ceiling would be reason for them to downgrade the United States ratings. Weird Right. When YOU get a greater line of credit with no additional method of returning the debt YOUR credit rating is downgraded. But, in this case NOT allowing more credit for the U.S. would result in a downgrade. If the same rules were applied to you then your credit rating would go up if you could be awarded larger and larger lines of credit with no additional means to pay it back. !!?? Just go ask your banker if you can do this. First off he/she will laugh and say no. Secondly this is because the debt you owe would be held by your banker and he/she would clearly see if you could not pay your bills with your current income and spending habits how will more debt solve your overspending and limited income issues? Nah.. it wouldn't!
Well unlike you the "credit line" according to President Obama in a press conference held January 14, 2013 must be raised in order to prevent "delays in payments" including benefits and government employees salaries and lead to default of Government Debt. This is like you telling your banker you need credit to pay your bills. Ben Bernanke of the "Bernanke Doctrine" as the Fed Chairman supports this idea of raising the debt Ceiling. But, folks like Speaker of the House John Boehner and State Minority Leader Mitch McConnell as well as other republicans are arguing the debt ceiling should only be raised if accompanied by cutting spending. This is like your banker telling you..."ok we'll raise your credit limit but you have to cut up all your credit cards and curb your spending. Reasonable, right? Republicans continue to argue debt default and downgrades of the U.S. Credit rating can be avoided by prioritizing interest payments on Government Debt over other obligations. Some like Democratic House member Peter Welch have suggested simply giving an open ended line of credit to the U.S. or has he put it "remove" the debt ceiling "altogether. This would be like your banker giving you a book of checks and telling you no matter how much or how many checks you write they'll be "covered" by the bank. A survey conducted by the University of Chicago found 84% of economist polled agree that separate debt ceiling periodically increased would lead to a poor fiscal outcome.
After a freeze or "suspension" on the debt ceiling due to politician's inability to find middle ground, and then a "stair down" and finally a compromise over a budget palatable for both parties, the debt ceiling was raised provisional to "budget cuts". This is like you and your banker deciding to raise your credit line but cutting up only SOME of your credit cards.
Nonetheless, the results have been the money is still spent and the bills are still due. The spending habits are still beyond the current "means" of the Government. Thus, a NEW threat has been issued from the Treasury. On August 26, 2013 The Treasury Department informed Congress failure to raise the debt ceiling would result in debt default by the end of October 2013. This is like you telling your banker the credit line was not enough and your will be unable to pay him or anyone else if you don't get more credit again.
NOW, here we are. The current deadline for congress to meet NEW middle ground and agree on credit limits and budget proposals is September 30th so the October debt implosion can be avoided.
My guess and it's only a good guess is the Market's drop down for a day or so and then start to "climb the wall of worry" into the current deadline. By Friday September 27, 2013 people will begin to worry that not only will the Sunday September 3oth deadline not be met but the U.S. credit rating would be threatened. This would likely lead to a move down in stock market price action while the political parties come to terms and in turn cause at least a minor correction to the stock market by the first week of October as tensions rise to meet the ultimate October 30th Treasure Deadline.
After Tapering talks, Syria issues and a host of other hurdles placed in the path of the stock market bulls that failed to stop them, frankly I doubt the debt ceiling issue will really stop them either. But, a temporary minor correction is something I will be anticipating until the news breaks that low and behold the ceiling is yet again raised and new and better promises for budget and repayment schedules have been made.
So, watch my market forecast video at TIDETRADERS™ web based market radio show and see how the technical evidence coordinates perfectly with some political deadlines. Also learn what I intend to do with the evidence and information with regard to investing and trading my own portfolio. To watch my weekly video you must be a member at TideTraders.com. But, if you're not a member perhaps this is the best time to take the two week free trial and become a member so you can watch the video. Join me each day as I provide live moment to moment commentary and coverage of the U.S. Stock Market on our FREE LIVE daily broadcast.