Morgan Stanley: Here Comes “The Three-Headed Policy Monster”
by Tyler Durden
ZeroHedge.com
Aug 20, 2017
One month ago, Morgan Stanley’s chief cross-asset strategist looked at the current state of the market – “the S&P 500, Russell 2000 and NASDAQ have hit all-time highs. Volatility has plunged back down near all-time lows. Credit is tighter and yields have been stable” – and asked “what rattles this market. What breaks the egg?”
His answer was five-fold, including valuations, inflation, geopolitics and China, but the biggest concern was what is coming in just one month on the US legislative docket:
The debt ceiling worries us most, given that action may need to be taken within as little as seven weeks.
It was “seven weeks” four weeks ago, which means that the D(debt)-day for the US government – now expected ti hit in the first days of October – is ever closer, even as the domestic political situation in the U.S. gets progressively worse.
So where are we now?
Predictably, as Sheets writes in today’s latest weekly Sunday Start, “political risk is rising on our list of concerns, after a limited (negative) impact so far this year”, and while the MS strategist is concerned about the UK, he is increasingly more worried about the US: “In the US, it’s the need to pass a budget and increase America’s borrowing authority so the world’s largest economy can pay its bills. The stakes are high; without the ability to issue new debt, our economists expect that the US Treasury’s dwindling cash reserves could be exhausted by mid-October” meanwhile “in the US, Congress will return Labor Day to face what my colleague Michael Zezas calls a “three-headed policy monster”: Raising the debt ceiling, passing a budget and embarking on tax reform. None are easy, but we see the debt ceiling as the most immediate test.”
The Rest…HERE
