What our enemies and friends are learning from the Gov't Shutdown

It's sad to see but this shutdown is going to show countries like Iran and North Korea how they will need to deal with our Country in a crisis. This Shutdown and Debt Ceiling crisis is not good for our President and the Congress as our enemies are going to learn a free lesson in dealing with us when our Countries have a major crisis like Iran acquiring a Nuclear Bomb. They get this knowledge without having to pay anything for the lesson. It's a damn shame and a sad day for America. Someone is going to need to be the adult in the room and it isn't going to be Speaker John Boehner. He is forcing the President's hand as the crisis of Syria did when he drew a red line regarding the use of Chemical Weapons and couldn't get the Congress to support him. What idiots the Tea Party Representatives are. They don't really care about our Country and they should fold their hands in this crisis. The Country needs to get rid of all these Tea party nuts and some consequences should also take effect with the dumb people who voted them in!

Summary of this week in the stock market and where we go from here. (UPDATE)

At the end of this very volatile week in the stock market, with days up and down in a 500 points range, many are wondering whether they should sell or buy stocks. This is compounded by the facts that we are in an indecisive period right now and therefore predicting market direction is even more difficult in the short term. I have said I believe we are headed lower in the next 6-12 months, but I can't tell you when we drop further from here. We had closed below the 11,000 level this week on Monday and Wednesday, but on Thursday and Friday we closed above, closing at 11,269. I had said in my previous posts there was going to be a fight at the 11,000 level once we had broken below the 11,500 level. So, in fact, we did and, this testing of 11,000 level, may not be complete.

In the below chart, of the Dow over a 5 year period, I have added some red arrows to signify many of the significant drops in the Dow value followed by flat indecision periods, identified with blue flat lines. The purpose was to show that there is a period of time after a drop where the direction is uncertain. We are now in that period. As you can see below, it can last for about a month or so. Other factors are at play.

The news will dictate in which direction we go, and I think one could build a very strong case that markets will go down further. For example, this most recent major drop was precipitated by 2 events. The first was the concern over Italy and its debt problems and whether they were going to default, because they are such a large economy, they can't really be bailed out unless the EU started printing money like our Fed did. The second concern was from the Debt Ceiling deadline and the politics involved in almost defaulting here. This precipitated the S&P to downgrade the US from AAA to AA+ rating. Then the market tanked.

We are now in the stage where we have the Congress appointing a special committee to work out details to come to an agreement on where further cuts are going to come from. They must do this by Nov. 23rd. If they can agree on a package, there is no guarantee it will be approved by both Houses of Congress, because there will be no Amendments aloud. It will face an up or down vote.

Also, we have the 2012 Budget which must be approved by Congress by Oct. 1st. All this with the 2012 Presidential election in the background. The chances of having bipartisanship is nearly zero. That is why I see the market going down a lot more from here. As the expression goes, it is all baked in the cake. Wish it weren't so, but it is the stark reality we face. And the Fed has signaled they aren't going to do much more given the economy looks so weak. They said they will keep existing rates through until 2013, which is an unprecedented move on their part.

It took us 2 1/2 years to climb out from the low of 6,500 on the Dow. I believe it will only take a year to go down and retest that low, given the state of politics and the weakness in the Global economy, with many debt laden countries. This will also produce social unrest at levels we have not seen in my lifetime. We are starting to see the early stages of this now.

UPDATE: Monday 5:35am PST.

The Empire Manufacturing Index data was released at 5:30am this morning. The reading came in at -7.70 for August compared to an expectation of 0.0 and the previous dat of -3.76 for July. This month's data is going in the wrong direction for recovery and for a healthier stock market. The reading this morning is not having a negative effect on the Futures market and from all I can see the market will start up this morning.

At 7:00am PST the NAHB Housing data will be released for August. Expectations are for a reading of 15, which would be the same as it was for July.

Tuesday's release of July's Housing starts and Building Permits will be interesting to see. Also tomorrow's data will include Import and Export prices as well as Industrial Production for July and Capacity Utilization for July. These are all lagging indicators. The most important of these are Housing Starts, Building permits and Industrial Production.

Market comments for Aug. 2nd

First, an apology for not posting the past few days during our Debt Ceiling crisis. My computer crashed 4 days ago and I had it looked at and found out I had a bad Video card and board. It is in repair being replaced. Normally it would cost $1,000 to fix, but because it is a manufacturers problem, I am getting it fixed for free! Hooray! Thank you Apple! The last post I made was from my cell phone.

I wanted to comment about yesterday's low ISM Manufacturing number at -0.2% and today's Personal Spending number at -0.2%. Both of these numbers show a trend that is not good and plays off the 2nd quarter GDP number, which was very low coming in at a 1.3% reading. Also disturbing was the revision to 1st quarter at a 0.4% reading. So that was 1/2 of the year with an average GDP of 0.6%. What makes this important is that it shows we are standing still in this economy, at best, and may be slipping back into a recession. The low ISM adds more evidence as does a low Personal Spending. And we evaluate the level of debt we have in terms of a percentage of GDP. So if GDP goes down, our debt level looks worse.

WE will be getting a read on the July Unemployment rate at the end of the week and it doesn't look good for a reduction in the Unemployment rate as we had 4 weeks above 400K Initial Jobless Claims. Yes, we are going to have the Debt Ceiling raised but what a mess it was to watch. And it proved we are so divided as a country now, there is little hope for a bipartisan plan for future reductions.

Stock market at a critical point

The debt ceiling crisis impasse resumes again tonight with Speaker Boehner not getting the votes he needed from his own Party. We are now getting close to the point of no return. As you can see from the 2 charts below, we are headed down. The Dow and Russell 2000 are below their respective 50 day and 100 day Moving averages. Tomorrow will be an interesting day and Monday even more interesting and volatile.

I recently purchased TZA Call Options at $2.69 and $2.81 for October expiration at a Strike price of $41. Those call options have increased in value now to $4.80 and I expect it to go to at least $6.00 before the debt ceiling issue is resolved.

Initial Jobless Claims improved.

Expectations were that we would actually have 440K Initial Jobless Claims when the data was released this morning for the previous week, but instead, the data released showed only 398K were in fact what was recorded. That is the first time we have been below 400K in almost 2 months. However, it should be noted tha the week before this data's release was revised upwards from 418K to 422K. Still, today's release showed an improvement and at least is in the right direction.

Meantime, the debt ceiling standoff is approaching a critical moment for the Congress and the markets. Stay Tuned.

Tomorrow an important piece of data will be released, which may have a major impact on markets, a first look at 2nd quarter GDP, as well as the Chicago PMI and Michigan Sentiment.