Liquidity Biggest Concern in U.S. Default: Lacaille

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Oct. 16 (Bloomberg) -- Rick Lacaille, global CIO at State Street Global Advisors, discusses the biggest global economic concerns if the United States falls into default. He speaks on Bloomberg Television’s “On The Move.”


There are a couple of things we should focus on.

We don't know what is going to happen.

Liquidity is very important.

As we begin to change the language and talk about the lays of payment rather than default, we need to focus on the impact and what fixes are available from the fed for that the quiddity issue.

Then, the economy.

Some of that will come back.

But that is a fiscal headwind.

We are going to be a little bit concerned about that.

Liquidity is the first thing.

The economy is the second.

What is the effect on the equity market?

But what is the effect?

I am trying to understand, come friday morning if we don't get a deal, are we going to see a moment where everything collapses?

I don't think this is a lehman-like moment in the sense that this is more of a liquidity issue than a solvency or outright default issue where people will be deprived of principle eminently.

The economic effects of the fiscal headwind.

If you project yourself forward a year, what will the economy look like in a year under all the different scenarios?

It may be weaker.

Equity values should reflect that.

But it won't be catastrophically weaker.

If you can't delete 0.1% for ever week that the shutdown goes on and pick some of that slack up, how much do you recuperate?

How much more growth do you see because there wasn't spending for these weeks?

Some of it you will lose because of a change of business confidence in consumer sentiment.

We are already seeing that fading through now.

It is incalculable.

But it is significant enough for us to be concerned about.

Let's think about discounted stream of earnings out to infinity.

Is it really going to make that much difference in a year's time?

When you look at concerns about overall fiscal headwinds and liquidity issues, what is the greater concern for you?

The long-term fiscal drag or whatever the fed does to make sure there is liquidity?

What they are doing to fix liquidity is absolutely critical.

We don't know what might happen in the dealer community.

There is already evidence that dealers are deleveraging.

That is the vital thing.

The fiscal headwind won't be that large in the long-term.

Think you some much.

Richard lacaille level chief

This text has been automatically generated. It may not be 100% accurate.


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