U.S. Default… Possible?
While we believe the chances of a hard U.S. default remain minute, the continued dysfunction in D.C. means that there is a possibility that the U.S. may voluntarily move past the debt deadline and defer payments to agencies, contractors, social security beneficiaries, and Medicare providers but almost certainly stay current on bond payments.
In a world where the sanctity of the U.S. financial bond with its investors is questioned, we think this represents a headwind for the U.S. dollar and a tailwind for alternative stores of value such as precious metals.
In this week’s update, we will review the continued narrowing stock market breadth and why we don’t own U.S. bank or technology stocks. We will also review what we believe the credit markets are trying to communicate about the debt ceiling and the assets that may benefit from the fiscal austerity that may be required to pass a debt ceiling agreement.
Key Takeaways
- Credit markets are pricing an unusually high risk of U.S. Default
- There are no attractive policy options → weakening the U.S. dollar may be the least painful political option.
- Gold and other commodities may thrive in a weaker U.S. dollar environment.
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