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Dear Reader,
Hope you enjoyed the crisis, because now we have a full-blown debt ceiling panic.
Just a few days ago, the S&P 500 Volatility Index (VIX) plunged to 16. Now, VIX is up to the highest level in three weeks - as concerns now emerge that a deal won't get done before June 1.
Markets are starting to tremble.
S&P 500 momentum is red - and momentum for the Russell 2000 is now starting to crater. This decline in the small-cap index comes just a day after JPMorgan Chase & Co (JPM) advised market participants to short small-cap stocks.
How interesting that it was just a week ago that JPMorgan's leadership was calling for short-sellers of banking stocks to be prosecuted. Good times.
It should be illegal to short banks... but not illegal to short small-caps, the engine of economic growth in this nation. What does that tell you about our system?
Now, Republicans are demanding that GOP leadership force the Senate to vote on a bill that they previously passed that called for a reduction in roughly $5 trillion. But the Senate is stalling this... and there is still an effort to either have President Biden do it unilaterally... or to force a vote on the Stop the Gridlock Act, which was a poison pill.
So, what are we doing now?
Make No Mistake: Cash Is a Position
This sudden reversal isn't stunning, but it's quickly setting off a race to cash. The Invesco DB US Dollar Index Bullish Fund (UUP) is now up to its highest levels since the start of March, and it's been on a steady climb all month.
Politicians and central bankers have broken these markets and confidence in their ability to navigate inflation. The White House doesn't want to budge on spending - because doing so could force the United States to balance its budget. However, such cuts would reduce government spending and force this economy into a much-needed recession.
Since a recession is a political doom for those in charge - we'll probably look at a situation where they would instead engage in punishment of American citizens - through a shutdown and cuts to Social Security - even though we have ample amounts of money to pay for entitlements.
Government spending has ballooned in recent years, and since there's so much money in government largesse, no one wants to rein it in except for a small pack of economic literates who understand the instability of massive deficits in the future.
It's not rocket science. Inflation is compounding - it's not going down. The rate might be slowing, but you must build inflation on previous years' numbers to get a real sense of how high prices are moving under government malfeasance. The failure to cut spending will only weigh on your money in the future... impact your budgets... eat into your wealth... and make it harder to climb out of debt.
Right now, I'm largely sitting in cash again - turning to money markets - a…
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.