As most of you know, President Obama gave a speech and held a subsequent press conference this afternoon. While it is likely that many CNBC viewers were disappointed that the President bumped my scheduled appearance today, more generally President Obama’s comments were noteworthy.
In both the strongest tone and most aggressive language we’ve seen, Obama challenged the Congress to “do their job” as it relates to the debt ceiling debate. He also articulated that the deficit solution would require both increased taxes and reduced expenditures. Our read-through is that the next month plus will see heated political debate and increased uncertainty as both sides attempt to negotiated for a common ground, especially given Obama’s heightened rhetoric today. The uncertainty related to the debt ceiling will continue to weigh on markets, as we can see in the sell-off intraday.
In Greece, what seemed like a solution is increasingly being viewed for what it is, an extension of the issue. While Greek equities initially rallied on the austerity news to up almost 3%, they closed on the lows for the day. Meanwhile, the credit market barely budged on the “positive” austerity news. The reality remains, European credit markets continue to signal that a restructuring of some sort will have to occur as Greek austerity will not be enough to narrow the deficit and funding gap.
We’ve outlined our revised levels for the SP500 below and took advantage of the equity strength to add to our SP500 short position today. The other key moves we made in the Virtual Portfolio today include: buying Carnival Cruise Lines (CCL), selling Gold (GLD), selling CIT (CIT), shorting Ralph Lauren (RL), and buying Ameristar Casino (ASCA). No major exposure changes per se, but just taking advantages of some good prices.
As we get closer to The Crossroad for U.S. and European debt this summer, we’ll likely continue to keep the Virtual Portfolio balanced on the long and short sides, and keep our positions moving. After all, no one’s ever lost their job for taking profits.
Daryl G. Jones
Director of Research