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After all the hype and hysteria, it
looks like our politicians have finally worked out a deal... Not that they
didn't love every minute in front of the cameras.
Late Sunday evening, President Obama
announced that leaders of both parties have reached an agreement to raise the
debt ceiling.
You see, politicians jumped on this
debt crisis like a hungry lion. For both sides, this is still an epic
campaign battle. It's a win-win for everyone, no matter what happens. That
means politicians will milk this debt crisis for months to come.
And that's not good for the country,
no matter what side of the aisle you stand on.
The House is expected to vote on the
bill sometime today.
Now, we don't normally talk
politics... but when politics directly affect the safety of your money, it's
time to take action.
As we come to a close with this debt
ceiling farce, let's see what the government's compromise could do to your
portfolio.
This agreement shouldn't be a big
surprise to anyone.
In a nutshell, this is what the
agreement looks like:
·
Raise debt ceiling by $400 billion
immediately, $900 billion more subject to vote
·
Cut spending by $1 trillion
·
Cut $1.5 trillion from long-term debt
by 2021
What's ironic about these points is
that they are so vague and, to be blunt, wimpy. Both the Democrats and the
Republicans pushed for higher spending cuts in their individual bills. We
will know more details today, but at the time of this writing, everything was
a bit hazy.
The one thing we do know is that this
is only a Band-Aid. It's an extremely short-term solution.
Let's talk about that $1.5 trillion in
cuts... They're not really cuts... They are just more headroom in the debt
ceiling. The New York Times puts it:
A second [debt ceiling] increase of
$1.2 trillion to $1.5 trillion would be available subject to a second vote of
disapproval by Congress. At the same time, a new joint Congressional committee
would be created to find a like amount of cuts.
Wimpy, wimpy, wimpy...
The CEO of Pacific Investment
Management Co., the world's largest bond fund manager, said that this deal
will only provide short-term relief. The rating agencies will probably agree.
Standard & Poor's will downgrade our credit rating anyway. The rating
agencies were looking for $4 trillion in cuts. A paltry $2.5 trillion --
especially when $1.5 trillion aren't even cuts -- isn't good enough.
But the market will receive this news
of a deal very well.
That means traditional safe havens
will take a hit. Gold and other precious metals will see a drop.
Gold was in for a technical correction
anyway. Take a look at this chart.
Consider any weakness in gold and
precious metal prices as a bullish correction. This means that prices are
pulling back, but we think the overall trend of prices will keep rising.
Insiders know this debt ceiling deal
is only a short-term fix. The pullback in gold prices is only for the
short-term, too.
Price could dip all the way back to
$1,550. If you're holding on to slim gains in a gold investment, you might
want to unload and take those profits. That $1,550 could be a point of major
support, and I would consider a correction down to that level a good time to
buy.
Remember,
the fundamental problems in our economy and our budget have not been fixed,
and this half-assed, last-minute deal government leaders just cooked up won't
do anything to change the economy either. That means our dollar is still
under pressure, and commodity prices will continue to climb.
Sara Nunnally
Taipan Publishing Group
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originally published here
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