July 5, 2011
You can't escape the daily stories in every news outlet: concern about the Federal Government's debt ceiling, which, if not increased by Congress, could lead the US to default on its obligations for the first time ever. The ramifications of a default are said to be catastrophic. So let's see: only the Congress stands between a placid summer and looming catastrophe? That's what the media is pitching.
I don't buy it. Last week US stock markets had their best week in two years, up over 5%. The DJIA is up nearly 9% YTD, with more than half coming in the last 5 trading days. Does that make any sense, that investors are buying with the end of the world in sight?
There are a couple of things to keep in mind:
- Markets are perhaps the original form of crowdsourcing - increasingly viewed as a good way to get accurate information within reasonable parameters. As such, markets tend to be leading indicators; good predictors of future events.
- Markets react most strongly to news that is, well, news. A surprise will move markets. Widely expected events tend to elicit a yawn. A Google search of "US Debt Ceiling" gets about 10 million hits.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).