George Maniere: After Debt Ceiling Agreement – What’s Next?

InvestingAdvicebyGeorge – Before I begin I want to say to my readers that I believe our founding fathers believed that serving in the government was a privilege not a profession. Sadly, when I look at our government I see people in elected office that by any measure have no practical experiences in life. I look and see people that have groomed themselves for a life in the political arena and for the most part their careers have been carefully orchestrated to lead them down that path. As with any generalizations there are exceptions. I am sure that there are members of Congress that had a life in business before they ran for political office. I will use a random example of Speaker of the House John Boehner.

John Boehner was born in Reading, Ohio, the son of Mary Anne and Earl Henry Boehner. He was the second of twelve children in a family of German and Irish descent. He grew up in modest circumstances, having shared one bathroom with his eleven siblings in a two-bedroom house in Cincinnati. His parents slept on a pull-out couch. He started working at his family’s bar at age 8, a business founded by their grandfather Andy Boehner in 1938. He has lived in Southwest Ohio his entire life. All but two of his siblings still live within a few miles of each other; two are unemployed and most of the others have blue-collar jobs.

Boehner attended Cincinnati’s Moeller High School and was a linebacker on the school’s football team. Graduating from Moeller in 1968, when U.S. involvement in the Vietnam War was at its peak, Boehner enlisted in the United States Navy but was honorably discharged after eight weeks because of a bad back. He earned his B.A. in business administration from Xavier University in 1977, becoming the first person in his family to attend college, taking seven years to graduate as he held several jobs to pay for his education.

Shortly after his graduation in 1977, Boehner accepted a position with Nucite Sales, a small sales business in the packaging and plastics industry. He was steadily promoted and eventually became president of the firm, resigning in 1990 when he was elected to Congress.

I believe my job in writing these articles is to report the facts as I see them and keep my political opinions to myself. I want it made clear that I am not choosing sides here and this is not meant to be an endorsement of Mr. Boehner. Having said that, in my opinion, I believe Mr. Boehner is an example of what the founding fathers envisioned for the type of person that would make a good representative of the people of this country.

As I write it is painfully obvious that there will be an agreement reached on the debt ceiling. While the media is doing what they do best, reporting doomsday scenarios and peddling their fear mongering stories that are carefully crafted to keep people “tuned in” all in the name of selling soap and toaster ovens.

The probability of whether there will be a compromise is very high. No one wants their finger prints on anything that could remotely be responsible for anything that could wreak havoc on the American people and the financial markets.  What however the member of both parties have done quite successfully in their zeal to get some prime time face time is to make us look weak in the eyes of the rest of the world. While some agreement is all but assured the prospect of S&P downgrading our debt from its century old status of “AAA” to “AA” is still a real possibility. The question remains what will pension funds, insurance companies, and other institutions that are mandated to hold only “AAA” rated holdings going to do if S&P, Moody’s and Fitch decide they will lower our credit rating to “AA” due to the theatrics in the U.S.?

I can only conclude that if the United States were to be downgraded the countries that hold our debt would be much less likely to buy more. This would be a catastrophic scenario for our country because we would have to raise the interest rates paid on our treasuries which would have the effect of sparking interest rate hikes throughout our economy. Credit card debt would rise, interest on student loans would rise, and worst of all the interest rates, which are the life blood of small businesses, would rise. This would be a calamity for our already fragile economy.

The GDP numbers reported on Friday were dismal. The first quarter numbers were revised down to an anemic 0.04%. That is barely a positive growth number. That does not sound like a recovery to me.

Sadly, if our credit loses its “AAA” rating we will have the Congress to thank as I see this as a media circus that was perpetrated by them to garner TV face time and save face with their constituency.

So before I conclude this essay, I want to urge my readers to continue to be long physical Gold and Silver and look to hold their positions in the Gold ETF (GLD) and buy the Silver ETF (SLV) on any pullback to the $38.00 level or lower. I see this debt ceiling media circus playing out this way. Once there is some agreement reached we will experience a short term “relief bounce” and the dollar will temporarily strengthen and gold and silver will momentarily sell off as there is an inverse correlation to gold and silver and a strong dollar. I would look at this as an opportunity to buy SLV under $38.00 I would only be a buyer of GLD at $144.00.  After the one day euphoria subsides and everyone realizes that fundamentally nothing has changed the market will sell off with a vengeance. I urge all to keep a watchful eye on the S&P VIX and when it gets to 30 start dollar cost averaging in as the market sells off. One of my readers wrote me that he sees the VIX reaching fifty so do not go all in at thirty but patiently buy in small increments as the market sells off. Once the market has sold off Dr. Bernanke will have no choice but to initiate QE3 and that is when the market will take off.

About The Author – George has been an investor for 30+ years. When he retired in 2004, he took over the control of his investments full time. In March of 2009 he committed a sizable stake to the market and doubled his money. he sold half about a year ago and what he started with is in drips dividend reinvesting. The other half he have been a bit more speculative with, but he recently bought SLV at $26.00 in January and sold it all on April 29th for a 66% realized gain. He spends my time reading every financial classic he can get his hands on and has become a fairly good chartist.

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