Outlook on Debt Ceiling and US Government Shutdown

**Analysis was made on 07-Oct-13.**

Our outlook remains constructive on equities until the end of the year despite Government Shutdown and and Debt Ceiling concerns that is due to be fixed before 17-Oct-13.

This is due to the following reasons.

1. Technicals. SPX is bullish technically and is forming a falling broadening wedge pattern in the 1Y daily chart w/c suggests a continuation of the upside move in the short-term. This bullish outlook will be invalidated if the price breaks the Support of the rising wedge w/c will then turn the technicals bearish. A potential driver of this event happening is when the policy makers in the US don't come up with a deal before 17-Oct-13 to raise it's debt ceiling. However we'd take the opposite bet on this because given that they "own" the decision whether they will default or not and given that the whole world is looking at them the probability that they will decide not to default is higher.

Sell in May and Go Away, Go back in Late September to October

Some thoughts on Index Seasonality (Dow Jones)

Key takeaways:

- The Dow is back where it was 6 Months ago (around April 10 to Present)

- In a 1 Year perspective, it seems Index Seasonality is in play

Dow Jones YTD Chart

 Dow Jones 15Y Seasonal Average

What Happens to Equities and Bond Prices When There is a Sudden "Spike" in Interest Rates?

**This analysis was done last May 03, 2013 - Before Ben Bernanke's "Tapering".**

This is in relation to Lloyd Blankfein's "Biggest Worry" -  Interest Rate Increases in Parallels to 1994

http://www.bloomberg.com/news/2013-05-02/blankfein-sees-parallels-to-1994-interest-rate-increases.html

"Goldman Sachs Group Inc. Chief Executive Officer Lloyd C. Blankfein warned that the interest- rate environment has parallels to 1994, when a sudden and sharp increase in rates caught many investors off-guard."

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Question: What happens to Equities and Bond prices when there is a sudden hike in interest rates?

Methodology: We've examined the 10Y US Goverment Yields, S&P 500 Index and US Long Bond from 1981 to Present (32 years) and tried to find out what happens to Equity prices and Bond prices when interest rates make a sudden move up a.k.a "Interest rate spikes".

We've identified 5 interest rate spikes between the 32Yperiod.