Thoughts From Joe - October 4, 2013October 04, 2013 Posted by: Joe Morgan, CFA
The Treasury claims they are incapable of prioritizing bills. On or around October 17th, the Treasury will "run out of money" and people are concerned about default. The Treasury receives about $150 billion per month in revenue and interest on Treasury bonds is just $30 billion. Raising the debt ceiling only allows the Treasury to issue additional debt - they can roll over existing debt without any Congressional approval. Treasury Secretary Jack Lew is declining to speak about prioritization of payments because that would negate the Democrats' threat of potential default. But at a 5-to-1 coverage ratio and considering that interest payments should clearly be the number one priority, the only way we get a default is if the Treasury chooses this to be the case. That would be political suicide for the entire Democratic party.Earnings in the third quarter are likely to disappoint again. Companies have warned about their forthcoming earnings at the second highest rate since 2001 with negative outlooks outnumbering positives by 5.2-to-1. The highest warning ratio of 6.3-to-1 occurred last quarter. It seems companies have wrung nearly all of the potential efficiencies for now. If, however, future growth is significant, we could see a pickup in hiring.
The Italian government looks to remain intact, and may actually govern. Former Prime Minister Silvio Berlusconi was the target of mutiny as twenty members of his party threw down the gauntlet as he attempted to bring down the ruling coalition government. By so vehemently standing against their party leader, and in favor of the coalition, these members of the People of Freedom Party are now wed to Enrico Letta and his success. Could Italy see a period of cooperation as they continue to face their problems? Perhaps we could learn something from this example.The Vatican opened the books to its bank for the first time since its founding in 1887. The bank made about $117 million in 2012, primarily from fixed income trading, including government bonds. The move is the most recent step by the Pope to provide more transparency around Vatican activities. As many government entities move toward increased...Read More