Still Talking Debt Ceiling But PGA Was The Story

With an upward bias, markets continue to be quiet as the debt ceiling gets closer and closer to being hit. The NASDAQ 100 remains the leading index followed by the S&P 500. The Dow Industrials are in no man’s land with the S&P 400 and Russell 2000 being the caboose. Nothing has changed. The market is being led by a handful of stocks that are being powered by the AI craze. Sooner or later there will be a swift pullback in the ones that have run up the most. That’s not groundbreaking research, just how it usually goes.

Over the weekend, I argued with folks about the debt ceiling. Some say the U.S. should be like Europe and remove it altogether. I think that’s absurd. Our government structure is nothing like Europe. We enjoy the single greatest privilege on earth; that is the world’s reserve currency. Most things (and debt) are priced in dollars. That allows the U.S. to run these clinically insane budget deficits year after year after year without consequence. One day, that won’t be the case and I would be very, very concerned.

While everyone knows the debt ceiling will be raised this time as it has all previous times, it is one of the few times where the opposition party has some power. Although these types of negotiations belong in the budget process, the party in power never seems to want the minority to engage at that point because a simple majority wins that vote. It is painful to watch, but it’s still the best system around.

Democrats point to three straight, clean debt ceiling increases under Donald Trump. Republicans counter that Joe Biden and Chuck Schumer are both on record as demanding negotiations and compromise when they were Senators from the minority party. Speaker Kevin McCarthy governs the House with a razor think majority and his tenure as Speaker will not last a clean debt ceiling raise. Neither party is right. But donors and their money matter at extremes. Don’t be surprised if donors pressure their puppets if and when pocketbooks take a hit.

In 2011, markets were in the topping process as the debt ceiling approached. They unraveled as two other major issues contributed. S&P downgraded the U.S. debt and Greece was imploding. That’s not the case today and I do not see a 20% decline in stocks right ahead of us. Again, worst case, I can see a BREXIT type decline, 4-6% in short, sharp fashion. If that occurs, buy it with both hands.

For now, markets are pricing in a resolution with volatility low and sentiment sour. As an aside, I always find it funny when pundits complain that markets are “uninvestable” when the VIX is high and then say something similar when it is under 20. Go figure.

The PGA Championship was held over the weekend at Oak Hill in Rochester which used to be my home away from home in college. Winner Brooks Koepka came back from a serious knee injury to win his 5th major. A year ago, he said he could no longer compete with the young guns as his body broke down. But he didn’t give up, rehabbed even harder and showed he was back last month at The Masters.

Country Club pro, Michael Block, captivated the crowd and became an instant fan favorite as he rolled in a difficult putt on the 72nd hole to finish in the top 15 which gets him an automatic invite in 2024. All this local pro from CA did was compete with the best on earth, yet engaged the crowd at every moment possible. He was genuine, humble, sincere and emotional. He acted like most of the guys I play golf with, always trying to have fun. He even had the CBS crew in tears during his post-round interview. Oh yeah. And Block had a hole in one in the final round to boot. Talk about a Cinderella story. Golf can be boring, emotionless and stiff. But the story lines this weekend were epic.

I head down to the Sunshine State on Tuesday to visit clients and eat well. My plan is to publish on Wednesday, but it may get pushed back.

On Friday we bought RYPMX and levered S&P 500. We sold XLC and some KBE.