Super committee faces deadline/failure

Budget Super Committee: Set to fail?

The congressional Budget Super Committee's (formally known as the Joint Select Committee on Deficit Reduction) official deadline to find $1.2 trillion of spending cuts is Wednesday, Nov. 23. However, the unofficial deadline appears to be Monday evening. No matter what the outcome, it looks like Super Committee is set to disappoint in the eyes of the average American.

According to Credit Suisse, the market will likely view a failure of the Super Committee as negative for risk assets and growth, which after an unsure knee-jerk reaction would be positive for rates markets. The automatic budget cuts would begin in fiscal year 2013 and could be relatively severe for various departments. In particular, 50% of the cuts (after accounting for debt service savings) would come from defense spending. This fact should incentivize Republicans to look for at least a partial deal which would minimize defense cuts. Democrats could also be incentivized as automatic cuts to Medicare (capped at 2%) would also be likely. There is no supply concern now that the Budget Control Act of 2011 is law, but at the same time the across-the-board cuts starting in 2013 would reduce growth prospects (while other outcomes would likely delay some cuts for a few years).

Canaccord Genuity Inc. is a global investment banking and institutional brokerage firm. Their website is www.canaccordgenuity.com.

For disclosures of any equities mentioned here please see: http://www.canaccordgenuity.com/en/ODD/pages/disclosures.aspx

About the Author

Canaccord Genuity Inc. is a global investment banking and institutional brokerage firm. Their website is www.canaccordgenuity.com.

For disclosures of any equities mentioned here please see: http://www.canaccordgenuity.com/en/ODD/pages/disclosures.aspx.

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