May 24th, 2021
As we approach the June 1st deadline set by Treasury Secretary Janet Yellen, the two political parties still seem miles apart on resolving the looming debt crisis. Although the markets are taking it all in with a degree of “we seen this movie before” attitude, and assume the problem will be resolved, before that drop dead date.
Even if it is resolved in the coming days, the damage has been done to the credability of the American pledge to honor all debts on a timely manner. Fitch rating service has announced today that it is placing the United States’ AAA credit rating, on a negative watch alert. What that means, is that interest costs for the Country will go higher, as investors become less willing to trust the full faith of American financial promises.
Despite occassional pockets of market strength, in the usual handful of big capital stocks, such as AAPL and NVDA, the broader market indexes, continue to show relative weakness. Compare the relative weakness in the equal weighted S&P Index symbol RSP, to the capital weighted index SPY, which is touching a year long high.
I continue to believe that increasing consumer weakness and tightening lending standards are going to lead to a downward demand for autos and housing over the coming months. I see negative price action for Macy’s, Ford, and General Motors.
Even Warren Buffett’s BRK.A is starting to look a little toppy.
Although this is not investment advice, I can see darkening financial clouds ahead, and continue to think 3 month and 6 month T Bills may be a safe place to hide during the storm. Of course, if the country does default, what will happen to these Treasury Bills when they are presented for payment? Will you have to stand in line with the Country’s other creditors?