What The Debt Ceiling Means For Your Penny Stocks…

| July 26, 2011 | 0 Comments

US CapitolRight now a battle royale is taking place in Washington DC.  On one side of the aisle are the Republicans controlling the House of Representatives.  On the other side are Democrats holding the Senate and the White House.

Their fight is over the debt ceiling.

See, Congress put in place a limit on how much money the government can borrow.  The number is a staggering $10 TRILLION!

The scary part is we’re at risk of passing those levels any day.  As it now stands, current estimates by the US Treasury put us at risk of running out of money on August 2nd.

Nobody’s surprised our government is a heavy borrower.

It’s been that way for years.  But without raising the debt limit, the government will be unable to make many of the payments they need to.  It means our military might go without pay.  It means seniors might miss social security checks. And it means the interest on our debt might go unpaid.

The whole fiasco is garnering more attention than a royal wedding!

Despite all the hoopla and the resulting media circus, I think your time is better spent worrying about something else.

Here’s why.

One of the biggest risks of a default is going to be the US government credit rating.  Should Congress do the unthinkable and let the government run out of money, we’re guaranteed to see the credit agencies move our rating lower.

And as a result of lower ratings, we should see the cost to borrow money go up immediately.

It makes sense.  The riskier an investment is, the bigger a return investors will seek.  That’s why triple-A rated corporate bonds pay lower interest rates than triple-B rated bonds… and junk bonds pay even higher rates of interest.

Remember, the financial markets are always forward looking.

A lot of times the market corrects early for a rating change.  If a ratings change is expected, you’ll see the price of the bonds move before the actual change is announced.

That’s why I looked with interest at the most recent yields for the US Government’s 10 year bond.  Take a look at the chart.


We’ve been dealing with the debt ceiling crisis for several months now… and all that’s happened is the yield has moved lower.  If there was a real risk of default, we’d see the yield shooting higher.

What’s that mean for you and your penny stocks?

It simply means the bond market (and some of the smartest guys in the world) don’t really see a risk of the US Government defaulting on debt payments.  In all likelihood, the politicians will make a lot of noise and do a bit of grandstanding up till the 11th hour.

Then in a speed rarely seen in Washington, they’ll come to an agreement and pass the debt ceiling extension.

So all the wild gyrations will be for naught and anyone with heartburn over this issue is simply worrying themselves sick. If you ask me, I’d keep a watch on a number of interesting penny stocks.  And if I see them trade lower with the market, use it as an opportunity to stock up.

When it’s all said and done in two weeks, the debt ceiling debate won’t even warrant a footnote in the history books.

Until next time,

Brian Walker

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Category: Breaking News

About the Author ()

Brian joins the Penny Stock Research team as a seasoned independent trader and financial analyst. Brian graduated with a B.S. from the University of North Florida and now resides in Scottsdale, Arizona. With a background in economics and statistics, he has a keen ability to uncover profitable and growth-focused companies. He has years of real life know-how in analyzing fundamental and technical data that gives him an edge drilling down on companies and financial results. With over 15 years trading experience, Brian has become an expert in the ever-changing equities markets. Today, he scours the markets hunting for penny stocks that offer low risk and high reward.