Something or someone has to give

First off, let's start with an apology. It's been a hectic time. Lots going on at Ancieo , most of it good.

So the rhythm of the newsletters has fallen off.

We hope we can make amends with this one.

Markets are in limbo, waiting for a sneeze.

We've spoken about the debt ceiling impasse before now.

The ceiling effectively blocks the US Treasury-not the Federal Reserve-from issuing debt in Treasuries—debt backed by the full weight and authority of the United States Government.

Treasuries are the collateral the entire global financial system relies upon for measurement and security.

US government debt, the global risk-free rate, is so sacrosanct that the 14th Amendment of the Constitution protects it. Indeed this week, you may see some commentary about President Biden invoking section 4:

"...the public debt of the United States, authorized by law...shall not be questioned."

It's that underlined bit that may be a problem. Congress has the right to either raise or hold the debt ceiling. The President may seek to use his powers to bypass them. All of which could be ruled on by the third branch of government, the Supreme Court.

As we write, we're now into a negotiating countdown measured in days and, before too long, maybe in hours. A countdown we've been in before. But this time, as we've said recently, it could be different. It's that "could" that matters.

We know the US political system is fractured, but if you have been watching the debt ceiling coverage, you would be forgiven if you had missed an important fact.

The United States Treasury hit its debt ceiling in January.

It's already there.

What has been happening since January 19th is that the Treasury has been enacting so-called extraordinary measures. These measures are the equivalent of cutting back on expenses (hunting down the back of the sofa) because you've hit your overdraft limit. Eventually, that cash runs out. Janet Yellen, the Treasury Secretary, has warned that the sofa will come up short on or around June 1st. Eight days away, eight days until the United States Government runs out of cash to pay its bills. Just think about that for a moment.

Not going to happen? Maybe, but we said that about the invasion of Ukraine. No one predicted the attempted insurrection of January 6th 2021. Covid was the grey swan that no one wanted to address. This is the closest the US will likely come to default. Even getting too close will hold unknowable dangers for the financial system.

Remember the old saying, "When America sneezes, the World catches a cold"?

It originates from Napoleonic times and the Austrian statesman Klemens von Metternich. Metternich was talking about the superpower of the age, France. So the saying was, "When Paris sneezes, Europe catches a cold."

So does that mean the World will catch a cold if the debt ceiling talks collapse?

Who knows? But given history, it is likely.

So markets wait, who gives and does the US sneeze?

Dry powder.

In various conversations this year with market decision-makers over the first half of the year, we've heard a common theme, the desire to hold onto dry powder and a reluctance to invest.

It is understandable. After all, the cost of capital has gone up. Central Banks have driven interest rates up in a manner that was mainly unforeseen to try to defeat inflation that has defied forecasts.

The second statement that follows the dry powder theme is the caveat,

"But we're always open to a good deal".

So we're talking about a stronger focus on quality, value, or reluctance to speculate. If money costs you something, you won't throw it around as much.

For early-stage investments, this is both good and bad. It's good because, of course, your idea is different and you deserve the money when others don't.

It's bad because you must work harder to convince investors who have been burnt in the last two years.

There are some great ideas out there and some brilliant founders. The World of investors may need to wait for the market-induced limbo to pass.

Until the markets find some direction (for good or for bad), dry powder is the main game in town. It's a big game, estimated at just over 4 trillion dollars in January 2023.

It will be interesting when it comes back into play.

As always, feel free to contact us here or at [email protected] for questions and comments or to learn more about us and what we do at Ancieo .

None of the above is intended to be investment advice. For that, you have to pay!