What are the odds a debt ceiling bill is passed? The Intrade Prediction Market gives us a clue and so do CDS rates, interest rates and the VIX

The Intrade Prediction Market tells us the odds of Congress passing a debt ceiling bill by July 31 have dropped to 21%, a test of the lowest reading on the chart (not yet reflected in the charts below).  The same platform also says the odds for passage of a bill by August 31 is now 75%.  The point I takeaway is that the public and the markets are actively discounting the possible short term outcomes of the August 2 debt ceiling deadline being breached.  Passage by August 2 would now be a surprise.  Therefore the market driven indicators may be assumed to be reflective of the short term consequences of not meeting the deadline.  The bond market suggests investors see the debate as more political theatre vs. a probable risk of actual default on Treasuries.  CDS rates (the cost of insuring against a U.S. default) are reported by Reuters today as being “nearly half” their March 2009 peak.”  Interest rates are real money bets and they are saying that the markets are not particularly alarmed by the political showdown in Washington over the budget.   Additionally, the VIX (volatility index) is outright boring trading at a fraction of the levels of 2008 and 2009 and not far from its low for this year indicative a lack of extreme risk mitigation.  So . . . We have market based indicators saying “be calm” while we have the Rasmussen consumer index testing 2 year lows, and “retail” investor sentiment at very low levels . . . my read is the market is right and sentiment is wrong.  Jeb Terry, Sr. July 24, 2011

Aberdeen Investment Management – a guide service for micro-cap technology investment

Leave a Reply

Your email address will not be published. Required fields are marked *