Be prepared for the next great transfer of wealth. Buy physical silver and storable food.
The 3 month t-bill discount rate: the contrast between two debt ceiling confrontations and the big decline in t-bill yields from February to September are both noteworthy – via StockCharts
acting-man.com / By Pater Tenebrarum / October 10, 2013
Only Minor Worries in Evidence
CDS spreads on US sovereign debt have recently shot up – some people likely view them as a worthwhile gamble on the off-chance that a ‘technical default’ will occur, due to the technicalities surrounding CDS contracts. If the insurance becomes payable, the buyer of the CDS must deliver a bond that conforms to the contract specifications, and there can be worthwhile spreads between the levels at which certain bonds trade and par (which is what he gets paid, minus the premiums paid).
The writers in turn are looking at a fairly juicy premium they can pocket at the moment and they are of course betting that the government will do its utmost to avoid even a so-called ‘technical ‘ default. As we have noted previously, we believe this is indeed in the government’s power, since it depends mainly on spending prioritization, but we may A) have overlooked a few technicalities regarding debt maturity schedules and B) cannot predict with apodictic certainty what the political calculus will dictate and what risks may therefore be judged acceptable by the administration.
There was an interesting little note at Zerohedge on Wednesday. Apparently Fidelity has sold all its government debt holdings that would in extremis most likely be affected by a temporary suspension of redemptions or interest payments. This is a prudent precaution from the point of view a large financial institution like Fidelity, since it may otherwise have to explain to its clients why it didn’t take the possibility into account.
Thanks to BrotherJohnF