Investors Overly Concerned About Budget Showdown
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Investors are overly concerned about upcoming budget negotiations, thinks Deutsche Bank's Joseph LaVorgna. In his view, another showdown in Washington is unlikely.
"The most recent showdown saw the Republicans lifting the debt ceiling despite debate at the time over what to do with the sequester, which went into effect on March 1. Even Mr. Boehner said last January that using the debt ceiling as a bargaining chip is "not the ultimate leverage". Hence, why would Republican leadership want to go down this (dead end) road yet again? We believe they will not," said LaVorgna.
LaVorgn also noted that despite rhetoric inflation-adjusted federal spending was already falling at a rapid pace.
"The budget deficit is rapidly falling. We estimate it will be near $600 billion this year (versus $1.1 trillion in 2012), or about 3.5% of GDP. This is down from 10% just a few years ago. With the budget deficit share of output likely to fall toward 2.5% next year and lower the year after, the urgency for further budget cuts is low. Consequently, we believe market participants are overly concerned about the upcoming budget negotiations," concluded the analyst.
"The most recent showdown saw the Republicans lifting the debt ceiling despite debate at the time over what to do with the sequester, which went into effect on March 1. Even Mr. Boehner said last January that using the debt ceiling as a bargaining chip is "not the ultimate leverage". Hence, why would Republican leadership want to go down this (dead end) road yet again? We believe they will not," said LaVorgna.
LaVorgn also noted that despite rhetoric inflation-adjusted federal spending was already falling at a rapid pace.
"The budget deficit is rapidly falling. We estimate it will be near $600 billion this year (versus $1.1 trillion in 2012), or about 3.5% of GDP. This is down from 10% just a few years ago. With the budget deficit share of output likely to fall toward 2.5% next year and lower the year after, the urgency for further budget cuts is low. Consequently, we believe market participants are overly concerned about the upcoming budget negotiations," concluded the analyst.
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