To The Moon

Revised "X-date" is 05 Jun 2023

And just like that, the “x-date” or drop dead date to approve & raise US debt limit has been “officially” revised by Treasury Secretary, Ms Janet Yellen by an “additional” 4 days to 05 Jun; bringing the much needed “relief & pressure” off the negotiation that is still a “work-in-progress”.

The current debt limit handling is worse than the Aug, 2011. There is just too much at stake now:

• Collapse of US govt. payment

• Collapse of US stock market

• Contagion effect on the Rest of the World.

(1) US Government Payment - 01 Jun to 15 Jun

• The pace in which monies needed to be paid by US government between 01 Jun - 15 Jun is almost a daily affair running into Billions of dollars.

• The US govt is living from hand to mouth; akin to living on borrowed time, using borrowed money.

• Is this the tradeoff for being the beacon of “freedom” and “world peace” (as Ms Universe beauty contestants would say)?

• Topping it off, whom to be paid “first”, paid “last” and not paid (delay) a contentious topic has not been planned yet. It will be a headache in itself.

(2) Collapse of US Stock Market?

JP Morgan's veiled outlook and advise?

• Is it necessary to read in-between the lines for the “hidden” message, when referring to above post on what US #1 bank has said?

• As a national financial institution, it cannot possibly be “seen & regarded” as anti-establishment.

• With such “warning” coming hot on the heel of another US Top 5 investment bank’s message (refer below headlines), should mere mortal investors like us, sit up and take note of it seriously?

If it is not Bull market, it must be Bear market then !

(3) Interest Hike & Contagion Effect.

If the fallout effect from (a) US Debt Limit crisis and (b) US Stock market “collapse” doesn’t sink us further into “red” in investment, the final nail to the coffin might just seal the deal. (See below).

I was puzzled initially why IMF would:

• Publicly “issue” such feedback about US.

• During such a time when, US faces mounting internal “turmoil”.

To get to the bottom, need to understand IMF’s key functions:

1. Surveillance of the international monetary systems.

2. Monitor its members' economic and financial policies.

3. Provision of IMF’s resources to member countries in need.

4. Delivery of technical assistance and financial services.

What IMF has done was apply above (item #2) to US; given this member’s clout and influence worldwide.

Under Article IV of IMF’s Articles of Agreement, it has a mandate to exercise surveillance over the economic, financial and exchange rate policies of its members in order to ensure the effective operation of the international monetary system.

Followings are IMF’s MD Kristalina Georgieva overview:

• Economy remains resilient despite significant fiscal & monetary tightening.

• Growth is expected to be approx. 1.2% this year, with momentum picking up in 2024.

• Unemployment to rise (slowly) to 4.5% by end 2024.

• Strength in US demand & labor market means a persistent inflation problem.

• Core Inflation continues to fall in 2023 but remains 'above' 2% Fed target throughout this year and next.

• Vital for central bank to communicate carefully on policy path.

• Interest rates will need to be higher for longer.

• US needs to do more to lower the public debt.

• IMF is keen to see a US debt ceiling resolution as soon.

Probability of a Jun 2023 interest hike ?

The probability of a June 2023’s interest zoomed up to 64.2%, following IMF’s announcement on US.

As mentioned in my previous post, number of Fed members vocalizing “for hike” is more than those “against hike” currently.

Will have to wait and see how this all plays out in the coming FOMC meeting in Jun, 13 - 14 FOMC.

Assuming the hike is imminent, quite certain that US stock market will again be “affected”.

The other worry is how the other world economies that are “sensitive” to interest hike brought about by the Fed?

Will it lead to further degradation of their economies & banking sector respectively?

What I Would Be Doing (For Me):

• Monitor closely the Debt Limit progress (in Congress) and its possible impact on (a) stock market sentiment and (b) Wall street expectations.

• Heeding experts’ warnings I would be lying low for now.

• Have a Plan B on hand, always be prepared for the unexpected turn of events.

Did the 2nd Half of 2023 just look a “tad” dimmer & gloomier now?

• Do you think the “end” is insight for all 3 depressing gloom factors?

• Do you think the Fed will heed IMF’s advise and hike interest again?

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