by Charles Cheng, CFA

 

 

For the past few months equity markets have continued to recover from the inflation and rate shock of 2022.  As of May 15^th, the MSCI AWCI Index is up 7.8% year to date and the US S&P 500 is up 8.2%.  While inflation is now coming down and the current rate hiking cycle is nearing an end, looming is yet another impeding showdown in US politics between the Republicans and Democrats over the debt ceiling.  While there is not yet reason to believe that an economic crisis will come out of this, it is always better to address the possibilities beforehand rather than react to events when they occur.

在過去的幾個月裡，股市繼續從 2022 年通脹和利率的衝擊中復蘇。　截至 5 月 15 日，MSCI AWCI 指數同比增幅 7.8%，美國標準普爾 500 指數上漲 8.2%。　雖然通脹水平正在減低，當前的加息週期也已接近尾聲，但共和黨和民主黨在美國政治中就債務上限問題進行的另一場攤牌迫在眉睫。　雖然還沒有理由相信經濟危機會因此而發生，但我們最好事先了解事件的各種可能性，而不是在事件發生時才臨時做出反應。　

 

First, investors should assess the facts around the situation.  The US government hit its debt ceiling in January 2023 and has been funding its obligations with “extraordinary measures.”  US Treasury Secretary Janet Yellen stated on May 15^th that the US could default on its obligations as early as June 1 if action is not taken to raise the debt ceiling.  She also stated that waiting until the last moment to address the issue could “cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States”.   Given the outsized importance of the US economy and financial markets on the world, the impact on the markets of other countries around the world would also be significant. While the price action does not show a significant amount of worry in the equity markets, US Treasury markets are showing some distortion around those dates, implying that they have begun discounting the possibility of things going bad.

首先，投資者應該評估圍繞近期事件的一些事實。　美國政府在 2023 年 1 月已達債務上限，並一直在用“非常措施”為其債務提供資金。　美國財長耶倫5月15日表示，如果不採取行動提高債務上限，美國最早可能在6月1日違約。　她還表示，等到最後一刻才解決這個問題可能“對企業和消費者信心造成嚴重損害，提高納稅人的短期借貸成本，並對美國的信用評級產生負面影響”。　鑑於美國經濟和金融市場對世界的巨大重要性，該事件對世界其他國家市場的影響也將是巨大的。　雖然目前價格走勢並未顯示出投資者對股市的嚴重擔憂，但美國國債市場在這些日期前後表現出一些市場扭曲效應，這意味著他們已經開始計入事情變壞的可能性。　

 

Second, we can look at similar situations in the past to have some understanding of how things may play out.  In 2011, there was a contentious political showdown over raising the debt ceiling. Like the current situation, Republicans had gained control over the House of Representatives during a Democratic administration and demanded significant spending cuts in exchange for raising the debt ceiling.  As the deadline approached, uncertainty led to increased market volatility, a downgrade of the U.S. credit rating by Standard & Poor’s from AAA to AA+, and a temporary decline in stock markets. From July to August 2011, the index declined by about 16%.  However, a last-minute deal was reached between Congressional leaders and President Obama on July 31, 2011 and markets quickly recovered.  In 2013, the US government faced a shutdown as Republicans sought to defund or delay the healthcare law known as the Affordable Care Act, or Obamacare. The debt limit deadline coincided with the government funding deadline, resulting in a combined crisis. The government shut down, resulted in the furlough of thousands of federal employees and the suspension of many government services. The market fell less this time, by about 4%. Eventually, an agreement was reached to raise the debt ceiling without additional conditions after 16 days of shutdown.

其次，我們可以回顧過去發生過的類似情況，了解事情可能的演變軌跡。　 2011年曾發生過就提高債務上限展開了一場頗具爭議的政治攤牌。　與目前的情況一樣，共和黨在民主黨執政期間控制了眾議院，並要求大幅削減開支以換取提高債務上限。　隨著截止日期的臨近，不確定性導致市場波動加劇，標準普爾將美國信用評級從AAA下調至AA+，當時股市暫時下跌。　從 2011 年 7 月到 8 月，大盤指數降幅約 16%。　然而，國會領導人與奧巴馬總統於 2011 年 7 月 31 日在最後一刻達成協議後市場迅速復蘇。　 2013 年，美國政府面臨停擺，因為共和黨人試圖取消或推遲被稱為平價醫療法案或奧巴馬醫改的醫療保健法。　債務限額的最後期限與政府融資的最後期限同時發生，導致了一場雙重危機。　政府停擺，導致數千名聯邦僱員休假，許多政府服務暫停。　那一次市場跌幅較小，約為4%。　最終，在政府停擺 16 天后，達成了無附加條件提高債務上限的協議。　

 

This time, there is no risk of a simultaneous government shutdown in the summer months as the annual appropriations bill takes place in September.  However, the risk of default may be higher this time, due to an increased willingness of certain Republicans to force a default.  Former President Donald Trump is on record in May for being in favor of a default unless Republicans are allowed to have every one of their spending cuts proposals.  The Republican Freedom Caucus, which is closely affiliated to the ex-president, has previously given itself increased leverage to remove the House Majority Speaker, Kevin McCarthy if they are unhappy with his leadership.  The question now is how many other Republicans will break from this view in order to let a potential debt ceiling compromise pass.

這一次，由於年度撥款法案將於 9 月出台，因此不會有與夏季政府停擺同時發生的風險。　然而，這次違約的風險性可能更高，因為某些共和黨人想要強制違約的意願更強烈。　前總統川普在 5 月份曾公開表示：除非共和黨人提出的每一項開支削減提案都得到滿足，不然他就支持強制違約。　與前總統密切相關的共和黨自由核心小組為了增加他們的影響力，表示如果該組織對眾議院多數議長凱文麥卡錫的領導不滿意，他們將使其被罷免。　現在的問題是，還有多少其他共和黨人會打破這種觀點，以使潛在的債務上限妥協方案獲得通過。　

 

Without knowing whatever backroom machinations are going on behind the scenes, investors can only prepare for a range of possibilities.  The most likely scenario, based on the experience of the past is that some sort of deal will be reached.  This is what markets are probably currently discounting.  Alternatively, if a deal is not reached, it’s also possible that the Democrats use alternative methods to avoid default, such as invoking the 14^th Amendment of the US Constitution utilizing a technical workaround via the US Treasury such as minting coins, or even simply ignoring the limit as it is currently contradictory to other US laws. It’s worth noting that in the past crises, the US government did not actually default, and if it did, there would be unknown, possibly severe consequences. 

在不知道幕後發生了什麼暗箱操作的情況下，投資者只能為一系列可能性做好準備。　根據過去的經驗，最有可能發生的情況是雙方最終會達成某種協議。　這就是市場目前可能已經計入的。　另一種情況，如果兩方沒有達成協議，民主黨也有可能會使用其他方法來避免違約：例如援引美國憲法第 14 條修正案，通過美國財政部使用技術變通辦法（例如鑄造硬幣），或者可能甚至乾脆忽略債務上限，因為它與其他美國法律相矛盾。　值得注意的是，在過去的危機中，美國政府實際上並沒有違約。　如果這次發生違約，那麼後果不明，也許會很嚴重。　

 

Ultimately, an investor’s reaction depends on their personal investing style.  A long term buy and hold investor can avoid all the noise.  Someone who is more sensitive to short term volatility can simply reduce risk until this standoff has blown over. However, a philosophy that we agree with is that the opportunity costs of being out of the market are usually more expensive than in the long run than experiencing short term market volatility of events that may or may not happen.

最終，投資者的反應取決於他們的個人投資風格。　長期買入並持有的投資者可以避免所有噪音。　對短期波動更敏感的人可以簡單地降低風險，直到這種僵局結束。　然而，我們贊同的一種理念是，從長遠來看，退出市場的機會成本通常比經歷可能發生或可能不發生的事件的短期市場波動要昂貴得多。　

 

 

 

This article reflects the personal views of the author and not any firm’s and should not be viewed as an investment recommendation.

 

 

 

 

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