Monday, May 16, 2011 Debt ceiling hit Mon but deal still considered far off; the Treasury

is expected to announce Mon that it will stop issuing and reinvesting government securities in certain government pension plans, part of a series of moves designed to stave off default until later in Aug. – WSJ IMF head Dominique Strauss-Kahn has been charged w/a criminal sex act in NYC early Sun (he was removed from an Air France 10 minutes before it was due to depart for Europe late on Sat). John Lipsky, the IMF’s #2, stepped into the role of acting managing director and planned to chair any board meetings. Strauss-Kahn was due to attend a meeting Mon + Tues of European finance ministers at which the bailouts of Greece, Ireland, and Portugal were supposed to be discussed. It’s not clear how his arrest will impact talks on the European debt crisis. The IMF said it was fully functioning despite the arrest and a variety of officials have said they anticipate no disruption to the eurozone debt talks as a result of the arrest. Reuters says that eurozone finance ministers on Mon are still expected to back the bailout package for Portugal (w/new conditions set by Finland). Discussions concerning Greece could be delayed as a result of the IMF news. – WSJ A technical default by the Treasury wouldn’t produce a market catastrophe and could help prices to rally if spending gets slashed – WSJ interview w/Stanley Druckenmiller – the HF manager points out a big difference between a technical default, deferring a few interest payments, and an actual economic default (where a country lacks the economic capacity to service its debts). If the Treasury were to technically default but at the same time implement large and credible spending cuts and entitlement reforms, the Treasury market might actually rally. The bigger risk is permitting the current fiscal dynamic to extend into the future. – WSJ – the status quo is the real tail risk. If technical default is what it takes to get structural deficits in order, then it is a positive for the country. FOMC minutes Wed May 18 - these minutes may wind up being one of the most important releases for markets – CNBC recently reported that the meeting was more hawkish than Bernanke let on during his recent press conf a couple weeks back. Specifically, CNBC said there was a lot more talk among officials concerning exit strategies. If this is the case, than the dollar could find more upside support. – CNBC White House to accelerate domestic oil production; Obama announced Sat during his weekly radio address plans to significantly expand domestic exploration and production. However, none of the initiatives unveiled will have any immediate impact on prices. The White House specifically will begin holding annual auctions for leases in Alaska’s National Petroleum Reserve. It will also accelerate a review of the environmental impact of drilling in the Atlantic. – NYT