US Finally Agrees to kick the can down the road – Again

In the end the pressure was too great and many global leaders had been expressing their concerns over the last few weeks regarding the on-going U.S. debt ceiling disagreement.  We saw leaders from the IMF, Chinese finance ministers; even Warren Buffett expressed his concerns yesterday, and when Fitch but the US on negative watch for its financial strength rating we think that was enough to make them realise they had to stop politicking.

And finally therefore at around midnight they capitulated and raised the debt ceiling to February 7th and confirmed budgets to the 15th January with new negotiations starting Mid December. Although we have not defaulted what we have is the can kicked down the road again in the US regarding the debt limit and the US can now go back to work. The can has not though been kicked far enough to create a relief rally but enough to make us stop thinking the US is going to default.


Now that this problem has been solved, we think that the noise has been removed from the markets and that valuations will be stronger on a 3-6 month period than they are today.  Typically, history has shown that markets rally towards the end of the year.  In addition to the above, Janet Yellen is set to be the next Chairman of the Federal Reserve.  She tends to rank unemployment controls above inflation worries and since Bernanke and Yellen have already worked together, it is expected that the change will not have a big impact on markets. It’s also worth noting that Yellen is more ‘pro-quantitative easing’ than Lawrence Summers who was withdrawn from consideration.

On the subject of new appointments, I would like to make you aware of our growing team here at OCM who you can read more about using the below link!

To summarise the above, we are now more optimistic with regards to the markets for the rest of this year and our portfolios are positioned to take advantage of this.  We think that QE will continue for the rest of the year and this will support valuations.

Please let us know if you have any queries with regards to the above, otherwise have a great day.