Most Matrix references revolve around the red/blue pill conundrum or Keanu Reeves annihilating cyborgs. Today’s debt crisis blog post, however, boasts a guest appearance from the affable Cypher of first installment lore. Despite knowing exactly what a life in the Matrix meant (we won’t spoil the movie for you if you haven’t seen it- which you should), Cypher bit into a piece of imaginary steak with great zeal, proclaiming, “Ignorance is bliss.”
Flash forward to a government at odds with itself and governmental debt piling up at our doorstep, and you’ll find that the ignorance longed for by Cypher is being aggressively embraced by the markets. There’s no debt deal on the table. Politicians are engaged in what amounts to a high-stakes staring contest, and both sides are good at what they do. The spectre of a government default is floating off of the silver screen and into our living rooms, but you wouldn’t know that looking at the markets, which are giving the best Cypher impression they’ve got.
- Stocks, although down slightly the past few days, remain up near two month highs
- U.S. ten year notes are at close to 8 month highs.
- We were quoted secondary market 30 day Tbills today at negative rates, meaning they are beyond their theoretical highest possible price (where rate is zero). Yes, you read that correctly. You’d be paying the government to hold your money.
- FCMs are pretending like nothing will happen, with no notices or warnings for customers holding T-Bills in their accounts.
- The exchanges, whom the FCMs will take their cues from, are being vague. We called around the CME today, and got this stock answer:
“We closely monitor our markets and broad range of collateral on deposit, and will continue to monitor the liquidity environment and appropriate collateral haircuts as the U.S. approaches the debt ceiling.”
Everyone is moving right along like there isn’t the possibility that T-Bills held in their futures accounts would be worthless, or worth something less than whole. Are they embracing ignorance as bliss, or is it that they are the complete opposite of ignorant? Are they so certain (or at least are willing to bet their hard earned dollars as if they knew full well) that the US government will not allow a default, and all we’re seeing is political posturing? Time will tell.
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