A debt-ceiling deal may be close but the crisis likely isn't solved for good. Here's what would happen if the US actually defaulted on its debt.
Happy Saturday, team. I'm Phil Rosen — today I'm excited to share my conversation with an economic and policy expert from the Atlantic Council, who's a former IMF advisor and speechwriter to European bank chief Christine Lagarde.
As reports emerge that the White House and Republican lawmakers are close to a deal, markets are breathing a sigh of relief. But the potential agreement will extend the borrowing limit for another two years, meaning the problem will almost certainly arise again.
Today we're looking at what a default might actually look like.
Per usual, if you have any suggestions for who I should interview next, let me know on Twitter @philrosenn, or email me prosen@insider.com.
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Josh Lipsky is the senior director of the Atlantic Council's GeoEconomics Center. This conversation has been lightly edited for length and clarity.
Phil Rosen: To start us off, how would global investors react if the US does default on its debt?
Josh Lipsky: In a crisis, investors want something safe, where they can get a reasonable return. Other sovereign debt markets don't have the capacity for huge inflows, nor is that debt all highly rated.
Therefore, in a default, if you believe it will be short lived it makes sense to still go into Treasurys.
So the Treasury market remains intact in this scenario?
JL: In a default, coupons could still be paid on US debt, and it'd be other government bills which may go unpaid, not US Treasurys.
So in addition to the lack of viable alternatives, I think it's likely you see a flight to safety to Treasurys.
What we see happening already is people rotating out of short-term Treasurys and into long-term, which makes logical sense at this point.
What about the rest of the economy? What could happen there?
JL: The broader US economy will suffer, the stock market will suffer, there will be higher unemployment. People won't get critical benefits from the government. We could go into a recession.
So just because the Treasury market ends up doing fine does not mean good news for the US economy.
Read the full story from our conversation on the debt-ceiling crisis.
What do you think of Lipsky's insights? Let me know.
And here are the top stories from markets this week:
1. The housing market only offers four major cities where it's cheaper to buy a home than rent. Nationwide, it's typically about 25% more to pay for a monthly mortgage compared to monthly rent. But Detroit leads the way in the handful of places bucking that trend.
2. Goldman Sachs said the Treasury Department could issue $700 billion in T-bills within weeks of a debt-ceiling deal. That would drain liquidity from markets in a brief span of time. Analysts at BofA predicted that a move like that would have a similar impact as a Fed rate hike of 25 basis points.
3. Bank of America recommended these 20 stocks that could outperform once the Fed stops raising interest rates. Smaller firms may be more likely to outperform with the central bank on pause thanks to their quality and technical strength, in the firm's view. See the list.
4. If you think the stock market isn't signaling there's a recession looming, David Rosenberg says otherwise. He pointed to the slump in consumer discretionary stocks, as well as the dip in banking and transportation as evidence. Full details.
5. The CEO of Nvidia has added nearly $7 billion to his net worth this week. And most of it happened on Thursday, when shares of the chip maker rallied as much as 29% after it reported a massive earnings beat and gave optimistic guidance for the rest of the year.
6. The housing market has become so local that the price growth gap between Miami and San Francisco is near a three-decade high. Home prices in the Bay Area are down 10.1%, while those in South Florida are up almost 11%. Redfin economists said that disparity points to the deeply contrasting pockets of the housing market scattered across the US.
7. The AI hype gripping the stock market will resemble a mini dot-com bubble, according to UBS's Art Cashin. Wall Street is riding the wave on the current tech boom, but it's possible the gold rush is only just getting started.
8. Here are the exact offensive and defensive portfolio strategies that a top fund manager swears by. She's expecting a mild recession later this year, but the tactics she relies on are meant to allow investors to navigate markets of all conditions and last generations.
9. Meet Wall Street's rising stars of equity research. We asked colleagues, bosses, and investors to pinpoint top talent from across the industry who are poised to take on a challenging market and economy. These 17 analysts age 35 and under are all movers and shakers.
10. Russia's economy could use a 6-day work week to help it navigate sanctions. That's what a Russian business group called on Moscow to implement this week. The idea is that the extra working day could boost the country's wartime productivity while the West tries to clamp down on its financial system.
Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email prosen@insider.com
Edited by Max Adams (@maxradams) in New York.