This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Debt Super Committee Could Spoil the Holidays

I find it almost comical that America is so obsessed about this $1.5 trillion spending cut initiative. After all, we already have a $14 trillion national debt (which excludes another $1.2 trillion in state debts and $1.7 trillion in local municipalities' debts), and these targeted debt reductions are to be implemented over a 10-year timeframe. That's hardly a drop in the bucket.

What really raises my ire, however, is my sense that a bunch of accounting gimmicks may lead the JSC to proclaim that it has achieved its deficit reduction target. For instance, as much as $300 billion in deficit improvement can be attained over the next 10 years by using "chained CPI" as opposed to the current CPI measure when indexing federal entitlement benefits and tax thresholds. In other words, substituting this lower chained CPI figure means less dollars going to beneficiaries and more citizens paying higher taxes at a lower level of income in the future.

Given such low expectations for the JSC, we are at the crest of an ironic moment in U.S. financial history. A larger-than-expected agreement may lead to a relief rally in "risk assets" on Wall Street. Imagine that: the U.S. government acts like an adult to address some of its structural, long-term debt ills, and the bond markets respond by raising yields on U.S. Treasury bonds.

Conversely, should the JSC fail to reach an agreement, the resulting bitter disappointment and fear of a deadlocked Congress could lead to an increased aversion to risk and a flight to quality such that U.S. Treasury bond yields would fall (and a self-propelling U.S. recession might follow as well).

Ironic, isn't it? Perhaps this seems counter-intuitive to you. If so, welcome to the emotional roller coaster that many investors have experienced this year in the global bond and stock markets. Stay tuned.

Alan Zafran is a partner of Luminous Capital, a $4 billion financial-advisory firm providing wealth-management services to high-net-worth families. He has over 20 years of industry experience, previously serving as a wealth adviser for affluent families at Goldman Sachs and Merrill Lynch. Zafran's experiences include facilitating the execution of credit default swaps on subprime residential mortgages in 2006 and 2007 before the market crashed. He is a contributor to TheStreet, Forbes.com and Wall Street Week. Zafran received his MBA from Harvard Business School after graduating Phi Beta Kappa from Stanford University.
3 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,186.66 +212.35 1.25%
S&P 500 0.00 -2.75 -0.14%
NASDAQ 4,566.1250 +16.8990 0.37%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs