Showdown at the Senate saloon

The global markets may have underestimated the determination of Ted Cruz, who is the first Hispanic elected a US Senator. Cruz is leading the Republican fight to gain spending cuts from President Obama.

It was clear from last night’s CNN interview that Cruz believes with a passion that history is on his side in this campaign. He points out that since 1978 the Congress has raised the debt ceiling 55 times and in 28 of those actions Congress has attached stringent spending requirements.

And in 2016 – the 56th increase – that’s exactly what Cruz and his band of Republicans will require. And in 2016 they have an extra weapon because they are shutting down the US government to “soften up” Obama before taking the US to the brink of defaulting and creating world chaos. Of course on the 56th debt ceiling encounter the first Hispanic to become a Senator faces the first black President. Both men have the steely determination that comes from their tough fight to the top. The only exit plan Cruz has is an Obama concession. 

And in effect this is the beginning of the 2016 presidential campaign.

A recent survey by Public Policy Planning puts Cruz in the lead among would-be Republican presidential candidates. Twenty per cent of Republican voters supported Cruz, which was up sharply since Cruz started the action.

Both Cruz and Obama will therefore go down to the wire and may even go further. Obama believes that the Republicans will split. Cruz believes that his forces are so powerful in the Republican Party – and that the party is now in so deep – that there will be no split.

Most of the Washington Press commentators are close to the Obama camp and assume that Cruz is simply a fool and that he will roll over. Too many Washington correspondents are “Obamaised” and don’t understand the other side.

Basically Cruz is telling Obama that he wants spending concessions to partly offset the cost of Obama care. If Cruz succeeds he will then claim a great victory for the Republican Party and he is on his way to fighting the Democratic nomination for the White House in the 2016 election.

If the Republicans split they will be destroyed and Cruz may emerge even stronger.  

Barring a Republican split, markets need to understand that Ted Cruz is a firebrand who will go all the way.

The general market view is that the slump would be a great buying opportunity so ‘do not sell out’.  As the US moves closer to October 17 and a US default in its obligations, the markets will realise that the Hispanic and the Black both have a dangerous amount to prove. I still believe that in the end Cruz will soften his demands and Obama will blink. Most likely, what will bring on that coming together will be a big fall in the market.  

But no one can be certain.