In short: Psst! The line in the sand really isn't Oct. 17

10-16-2013

It’s been widely portrayed by the media that Oct. 17—tomorrow—is the drop-dead date for Washington’s latest self-made crisis, after which the country will breach the debt ceiling and default on its obligations. Well, it’s not and the government won’t. What Treasury Secretary Jack Lew stated in a letter to Congress first in late August, then early this month and then in congressional testimony last week, Oct. 17 is the day that the Treasury will exhaust the extraordinary measures it has been using to pay its bills. However, it still will have about $30 billion in cash on hand tomorrow morning. What that means in terms of how long the Treasury can continue to function is somewhat unclear, but given that cash and incoming tax receipts, early November seems to be the real drop-dead date. In other words, there’s still time for cooler heads to prevail and take the necessary steps to avoid default. That’s not to say there won’t be some dislocation in the markets if a deal isn’t struck by midnight tomorrow—we’ve already seen some of that on the short end of the Treasury market, with yields on one-month bills trading at 10 times their level just a few weeks ago—but there really isn’t a need to go into full panic mode yet. As we’ve said before, we believe at the end of the day the parties in this conflict will come to a resolution that will prevent the federal government from defaulting, but rest assured we are monitoring events closely and will take whatever portfolio steps are appropriate in order to protect the best interests of our shareholders.


 
 
 
 
 
 
 
 
 
 
 
Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.
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