Blog with MAE Capital

Market Reaction to Debt Bill

August 3rd, 2011 11:20 AM by Gregg Mower

Well it appears the pundants will be right about raising interest rates..... Oh wait rates have dropped again for the 4th day in a row.  Yep, as the equity markets take it on the chin short term, interest rates have gone down due to the flight to quality. Wait? I thought the signing of the bill was going to be bad for interest rates?  The markets are working typically and the media has just over blown this interest rate thing, for now.

There are a ton of questions as to where the markets are going, and to me it is obvious.  As investors anticipate a "double dip" recession (or at least the news of what they know already to be true).  In the mean time investors move their money to what has been traditionally "safe", bonds and wait for the equity markets to calm down.  Once, the world realizes that this whole debt debate was a political game again, played at the expense of the world, the markets will gain back the losses it took over the last week while this debate was going on.  Then once the markets stabilize again money will move back out of bonds and back into equities.  At this time the politicians who were touting interest rates rising will have been right in the prediction, however what they won't tell you is that the rates have just come back to equilibrium with the markets, as it was prior to the debt debate.

What we as Americans have to look out for is the long term effects (long term meaning over the next 3 to 7 years) of the rising debt with nothing other than "good faith" backing the dollar. 

As usual your thought are welcome

Posted in:General
Posted by Gregg Mower on August 3rd, 2011 11:20 AM

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