The Future

When all these things are considered and the consequences of the financial crisis the United States is, it becomes obvious that something needs to be done regarding the current debt level. Pretending debt isn’t a concern and that debt ceilings could be pushed infinitely higher without negative consequences certainly isn’t a wise way of dealing with the problem. Many European countries had to apply some austere policies in order to avoid the worst. It is becoming clear that America will have to do the same to some degree.The Federal Reserve won’t be able to buy Treasuries forever. At some point, interest rates will start rising and it would become increasingly harder for the government to repay what it owes.

For smarter trades subscribe to Tradespoon!

For the time being, we are assisting in the same war we saw in the past between Republicans and Democrats. Obama doesn’t want to see his healthcare program delayed any further and insists on keeping it as it is. However, Republicans are pressing the President and threatening with the possibility of shutting down government due to a lack of funding. The Senate voted in favor of keeping the government running  however, the House decided to allow a government shut down.

The risk of a governmental shut down is due to the fact that both the Republican and Democratic parties felt they could push blame and responsibility off on the other. However, the consequences of their inability to pick up responsibility before it is too late may end up being disastrous for the future of the USD. The international community will perceive the American dollar as weaker than it was in the past and may reclaim higher interest rates to hold Treasuries (by reducing demand). This would either push interest rates higher or tie the Federal Reserve to a QE4EVA program.

At this point it would be  best if Republicans and Democrats would find a balance, working together to find solutions rather than making the problem harder to solve by focusing only on their differences  and put an end to their fight. It is time to start looking at ways of fighting the current debt levels, That means not only cutting on some expenses, but also raising taxes. If Obamacare is to move forward, taxes will have to raise even more. There’s no other option if we want to service the debt.

For smarter trades subscribe to Tradespoon!

Just two years after experiencing one of the worst months in stock market history, the market has the possibility of reviving the period. Republicans and Democrats are continuing to fight each other while the country financially sinks. In August 2011, the debt rating for the U.S. was cut by S&P from AAA to AA+. This […]

The US government currently holds a huge debt pile. It amounts to 105% of GDP and will soon have to renegotiate an increase on the debt ceiling to avoid a default. As soon as the FED stops buying government debt, interest rates will dramatically increase and the government will press the central bank to continue buying debt. There are only two options available: reduce government debt through the adoption of an austerity package (as in peripheral Europe), or let inflation roll and alleviate government debt.

You already know what the decision will be. What can’t be known is the dimension of it. The best thing to do is to prepare a portfolio of stocks that do particularly well within inflation environments. Value stocks, which have stronger cash flows, are preferred over growth stocks, and precious metals are always a good hedge against inflation.

For smarter trades subscribe to Tradespoon!

The debate about the direction that monetary policy is about to take has been on the table for months. In fact, the tapering issue has been prominent since Ben Bernanke publicly stated that the FED would start cutting on the current asset purchase program, effective this year..The purpose of cutting this program is to completely […]

The Power Of A Bear Call Spread The current year has been very profitable in terms of stock market investment. Although there is are still over three months left to go, the S&P 500 is already rising around 19%. However , three months is plenty of time for the market to go even higher. On […]

While Ben Bernanke and all other FOMC members prepare another meeting to decide the future of monetary policy, the range of economic data to digest is huge. This could be a good sign that suggests a mild economic recovery. However, this recovery will lack enough enthusiasm to support the “tapering” decision that the FED would […]

Most novice traders usually trade options in a simplistic way. They examine a stock, evaluate if it’s going to rise or decline, and then they buy a call or a put option to explore the opportunity, preferable an out-of-the-money one to maximize potential profit and minimize initial debits. Unfortunately the prospects for a stock are […]

Since being elected at the end of last year, Shinzo Abe promised an ambitious economic plan to push the Japanese economy out of the zombie state it has been in for the last two decades. Through a stimulus package and by pressuring the Japanese central bank, Abe is willing to push inflation up to a […]

Now that most 13F filings for the second quarter of the year are available, it is time to take a look at them and check what hedge funds have been up to. Particularly interesting, is to check hedge fund holdings and trades regarding precious metals (in this case special gold) and how it closed the […]

From recession to a QE-boosted market The last five years have truly been difficult for the U.S. economy, especially since it has been struggling to fully recover from the latest recession that cut financial assets’ value in half and pushed unemployment from a healthy rate below 5% to an alarming two-digit number. Even if it […]

Nowadays, Stock options are one of the most powerful instruments modern finance offers us to manage risk. Unlike the common belief, options aren’t risky assets, or at least, they don’t need to be. Depending on the strategy you use, options can range from heavily speculative to highly conservative. The final result depends on your decision. […]

UK: Carney Disappoints and Boosts Pound     After an eventful year of Olympic games and Diamond Jubilee celebrations, the Bank of England (BOE) decided to adopt a policy of forward guidance. Committed to keeping interest rates on hold until the unemployment rate falls from the current rate of 7.8% to at least 7%. The […]