U.S Debt Ceiling Deadline 2nd August 2011:What will Obama possibly do?

World markets ahead of the 2nd August United States (U.S) debt ceiling deadline looks slightly nervous. The social mood also looks bearish and so called "market experts" and self-proclaimed great traders are preparing themselves for a big sell off.

This may be a little long to read, but is still worth and thought provoking market newsletter you must read on closely to understand the market trend in the days ahead..

World is going ga-ga-ga over the U.S debt crisis and wondering what will happen on 2nd August 2011? Will The Republican Freshmen (Tea Party) agree to raising the debt ceiling, will the bill be passed? Will they agree for the massive spending cuts? What can President Obama do if opposition party votes for No?

Raising debt ceiling is a routing for the U.S government. In a speech. Obama noted that raising the debt ceiling had become a routine matter. He cited statistics showing it was extended 18 times under Ronald Reagan and seven times under George W Bush.

Back in 2006 when Obama was in opposition, he opposed the idea of raising debt ceiling when the Republicans were in power. Another time he voted Yes for raising the debt limit when the Democrats were in power. You may read about it here: For Reid, Durbin, and Obama, a (very) partisan record on debt ceiling

However I would like to credit the Freshmen Tea party for standing on principle. In 2010, seated after the last election are actually holding fast with their promise to curtail government spending. The old politics would involve making promises to voters and then selling out to the party establishment on Capitol Hill. That was called politics.

Obama must agree to the Tea party demands on cutting government spending. I mean come one! The world knows that how freely the U.S government spends money on things which can be compromised without giving too much of a heck!

House Republicans have taken a pledge not to raise taxes. Republicans ruled that out even before they won their elections in the year 2010. Higher marginal tax rates at any income level simply cannot pass the House.

1. He can allow the nation to default and then instruct the Treasury Department to pick and choose which of the nation’s bills they pay and risk themselves to a credit downgrade by the rating agencies like the Standard & Poor 500.
2. He can raise the debt ceiling on his own relying on Section 4 of the 14th Amendment.

I dont really see a major problem for the debt limit to be raised on 2nd August. And from what I have seen and re-read the news from overseas, I am convinced and continue to believe and maintain that Obama will keep the Wall Street happy. However, this things are going to leave implications for the U.S government election in 2012.

Last week markets were all about RBI and SEBI. The Reserve Bank of India surprised the streets with a 50 bps hike and SEBI came up with positive take over code.

In our mid-week market newsletter, discussing the RBI stance on rates and economy. Even before the RBI rate hike, on 20th July, we updated about the market trend newsletter and mentioned Nifty technical levels along a view that break below 5540 will make the market test 5450-70 on Nifty Futures. Friday's low was 5455.

The markets are clever and are clever than you and me. If the debt ceiling was such a big problem, then by now the global markets would have witnessed much higher volatility and that has not been the case.

It seems to me that social mood is pretty poor at this point, economic data has not been great, RBI hiked interest rates, earnings have been pretty solid except for some big names like BHEL, and headline risks are plentiful. To the max the only selloff I see possible is in the Treasury bond market (U.S) and possibly the U.S. Dollar.

In either case, equities could rally and it would be a surprise to most investors and traders. Market will punish as many traders and investors as possible and the majority are leaning bearish, thinking of creating short positions or buying index put options, they all are likely to be burnt.

Deven Sharma, president of Standard & Poor’s, told a congressional committee the credit ratings agency does not think the United States will default on its debt. “Our analysts don’t believe they would,” he said.

The president of another rating agency, Standard & Poor’s, also said that deficit-reduction plans currently being considered in Congress could be sufficient to allow the United States to keep its triple-A credit rating.

Bottom line: Don't panic, dont give too much value to those who are talking negative about some nasty sell off's. Its not going to open, I maintain my contrarian view of being a bull in market as of now and use the fall as opportunity only to long, not short.

Original article posted at Winfromus - 2nd August U.S Debt Ceiling, what will happen to markets?