I'm back! Here's my take on the Debt Ceiling crisis

I've been away on vacation for about 10 days so I apologize for not posting during that time, but you know that there are some remote places where there is no internet access. But I'm back now and ready to comment on this debt ceiling crisis.

I think there is now a 50% chance that both Parties in the Congress and the President will not come to an agreement to raise the Debt ceiling by Aug. 2nd. You know how this will affect the country in a negative way so I won't waste your time with those details. It seems obvious to me that President Obama has boxed himself into a corner as have both Republicans and Democrats over this issue. It seems to me the only thing left is for this President to make the unprecedented move to raise the Debt Ceiling using the 14th Amendment of the Constitution as the reason for this. This is what the 14th Amendment says:

""The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." Many read this to say the President has the authority to guarantee payment since the Treasury of the United States reports to the President and is a Cabinet position.

I think that this President needs to consider the possibility that this may be the only way to guarantee the debt ceiling is raised in time. Politically he most likely would not want to make this choice, but he might just have to because it is clear to even the most casual observer that the House Republicans are demanding things that can't pass the Senate and the Senate are demanding what the House Republicans won't pass. So we have an impasse. This issue has held government hostage unnecessarily and never before in history have we ever come to this point. If you are into the blame game, you can either blame or praise the Tea party Republicans for where we find ourselves today. Those praising their stance on this, I hope you still feel this good when government spending is significantly reduced at a time where spending is required to keep this economy from relapsing into a Great Recession of worst, Unemployment rises, the cost of borrowing increases significantly and causes the housing crisis to get worse. This Republican Party with its Tea party activists will more than own the economic problems and crisis going forward, because in their zeal to ensure President Obama is a one term President, as Sen. Mitch McConnell has repeatedly said. God help us all.

Market commentary: Looking ahead to a critical juncture in the markets and the country

Before giving an outlook for the week ahead, I think it important to review where we are now and as usual I will be using a number of unique charts to se where we are and see if any trend emerges for a higher probability market call. To start this off I would like to focus first on the Dow.

In the chart below I have made a custom chart of the Dow from January 1st, 2010 to the close of the market yesterday, June 3rd. You will notice that I have drawn 2 blue trend lines showing the uptrend of the Dow one starting in July 2010 and the other more vertical line starting around Sept. 1st 2010. We are currently touching this line and will see whether we break below it next week or not. If we do break below it then the other lower line becomes the next major support level. You will notice that this week there was also a Volume spike with the selloff this week as is indicated in the lower chart. You will also notice that I have placed several dates on this chart which will be important to look at on a chart of the Put to Call ratio in my next series.

You can see from the chart below of the Put to Call ratio for the same period of all of 2010 and to the close of the market yesterday, that the Put to Call ratio closed yesterday at a reading of 1.24 and that the Put to Call ratio had not gone that high since 9/10/10. Compare that date on this chart to the chart above of the Dow and what happened after that high a reading was reached. The Dow started its climb which lasted almost a year.

The key to me here is to look at the Put to Call ratio for 1/2 the time before the 9/10/10 date. It was a period of higher variation in the ratio and correspondingly a wilder time in the Dow. There was a higher Put to call ratio of 1.53 during that period as you can see on the chart from a Dow of 11,200 down to a Dow of 9,800.

This next week is very critical for the market. If we break below the current uptrend line we could go much lower. With all the lack of action by the Congress on raising the debt ceiling, this is just adding gasoline on a potential firestorm. Within the next 30 days, Moody's is going to consider whether to lower the U.S. rating from triple AAA causing huge problems around the globe. This is an irresponsible action of Congress. Playing chicken with the debt crisis is similar to what Newt Gingrich did during the Clinton Presidency and shut down the government, but much worse. Back then it only affected U.S. workers and the American people some of which didn't get their Soc. Security checks. But this time we are giving the middle finger to the world and especially those who hold our debt and will not be so eager to fund our debt in the future should we default. These are very dangerous times.

So what would I do right now? I would be defensive right now. I wouldn't be a buyer of stocks until the trend became clearer. I would take some money off the table so if the market drops, I have locked in any profits I have gained over the past year. Watch the Put to Call ratio daily and see if we are going higher. While normally a 1.24 reading would be a Buy signal, we could get much higher Put to Call ratios in the near term and all they might be saying is not to be a buyer quite yet as there is a lot more downside.

Also, look at the Treasury Bond yields just from April 25th. I have been recording the data daily and this chart says that all interest rates have dropped, from a 3 month to a 30 year and I might add rather quickly. Ask yourself this question, why has the Fed wanted the interest rates so low and going lower? People on Fixed income are getting creamed. It's like the Fed is trying to get everyone to look for riskier investments and get their money out into circulation to "stimulate" the economy more. the 30 year Treasury Bonds are at only 4.21%.

Now that the Fed and our Government has taken on all the risk, they seem to want to unload that risk on you and me and our children and grandchildren's lives. There is a temporary solution to this. If we could come up with legislation to increase the debt limit, which must be raised no matter what else we do, then that would calm the markets. Then the Congress needs to identify a minimum of $4 Trillion it is going to reduce the national debt and still invest in certain growth ares where we must. Republicans and Democrats need to stop the idealogical battles and start to put the country first and find savings across the board. Defense must be trimmed, healthcare needs simplification and technology improvements, Foreign aid needs not to be routinely given, but subjected to new criteria as to whether they do something for America There should be some strings on repatriation of corporations funds abroad, so that if corporations are allowed to bring money back, they must create meaningful manufacturing and service jobs here to compete better in the world and ensure the survival of our Middle Class and our economy. We need high speed rail in America. It would mean less emissions and less pollution from cars. And the wealthiest Americans must pay more taxes! Let's get on with it!

Market Outlook for week of May 4th

I keep saying I need a clear signal to tell market direction and the question on your mind is, Did I find any? Before I answer that here's a summary of how I look at the past week and where we find ourselves, going into the week of May 4th.

The Dow closed the week at 8,212 and this was a gain of 136 points, or 1.7% for the week. The Nasdaq closed the week at 1719 and that was a gain of 25 points, or 1.5% for the week. Those aren't big gains for the week by any measure. It felt like we were up a lot more given each day the indexes seemed to be up. Again, it feels like a smoke screen to me. The big question is how was the corresponding Volume of trading for the week. It was down again this week. So for the past 3 weeks Volume has declined steadily each week in the Dow stocks and the NYSE. However, the Tech sector Nasdaq maintained a bright spot with steady volume these past weeks with the index rising. This is the bright spot in the market to me and points to the Tech's going to lead us out of the recent big market decline from the Fall.

I have put several 6 month charts ahead of this post, worth clicking on. The first chart is of just the Dow to show the decline in Volume the past week. The second is a comparison of the Nasdaq Composite Index as compared to the Dow and the third is a comparison of the Nasdaq Composite Index as compared to the SP500. The gains of Technology seem to indicate this might be where to have been invested.

The signal I am looking for is Volume. If Volume spikes up, it won't matter what direction as direction will be clearer. Right now it is a rally lacking conviction. Now this can be a good thing as well. Many are skeptical, including yours truly, that the gains are real and many believe that we are not in a Bull Market Rally, but instead are in a Bear Market Rally. If the market can stay the course, as it has since the lows, it will eventually convert the Bears to cover their shorts and we will be on our way to a real Bull Market. But we are clearly not there yet.

The Put to Call ratio closed at 0.82, not low enough to give a sell signal but not high enough for a convincing Buy signal. To me the Put to Call would need to get over 1.05-1.20 to convince me to Buy. And it would have to get as low as 0.55-0.60 to Sell, or buy more Shorts. Some news will spark both this move and the Volume spike, but we still wait for clarity.

The news of this coming week regarding the Unemployment Rate for April has already been discounted. It will show a higher rate but a slowing of the decline over previous months. It is my opinion it will be reported at 9% or higher, getting ever closer to the 10% double digit rate most pessimistic scenarios had surmised. I do not expect this to tank the markets and do expect them to take the number in stride. More questionable will be the market's reaction to the Stress Test results expected to be released on May 7th, the day before the release of the Unemployment numbers.

If you look at the drop in Volume of the Dow index, and look at the Volume of Citigroup dropping this week, you can see a correlation. many banks had weaker Volume this week over the previous week. This can easily be seen by looking at a 6 month Chart of the volume of the Financial ETF, FAS. When they announced earlier this week that there are rebuttals by the Banks to the Treasury's Stress Test data, it quieted trading for both FAS and the short FAZ.

Add to the mix, Warren Buffet's latest comments on Real Estate and it provides an interesting back drop for the coming week. Here's what Buffet said, "There’s no signs of any real bounce at all in anything to do with housing, retailing, all that sort of thing,” said Buffett, 78, in a Bloomberg Television interview before the Omaha, Nebraska-based company’s annual shareholder meeting today. “You never know for sure, even if there’s a leveling off, which way the next move will be.”

So I leave you hopefully convinced that the market direction is still not clear, even while the Dow and S&P goes a bit higher. The only real good news is that Technology seems to be the bright spot and this is substantiated with good solid Volume. So if you believe this rally is for real, make sure you own some good tech companies in your portfolio or at least some dogs that show some life. But remember my overall advice, no matter what, preserve capital!

Bloomberg Survey

================================================================
Release Period Prior Median
Indicator Date Value Forecast
================================================================
Construct Spending MOM% 5/4 March -0.9% -1.6%
Pending Homes MOM% 5/4 March 2.1% 0.0%
ISM NonManu Index 5/5 April 40.8 42.0
Initial Claims ,000’s 5/7 2-May 631 635
Cont. Claims ,000’s 5/7 25-Apr 6271 6350
Productivity QOQ% 5/7 4Q -0.4% 0.8%
Labor Costs QOQ% 5/7 4Q P 5.7% 2.8%
Cons. Credit $ Blns 5/7 March -7.5 -4.5
Nonfarm Payrolls ,000’s 5/8 April -663 -600
Unemploy Rate % 5/8 April 8.5% 8.9%
Manu Payrolls ,000’s 5/8 April -161 -157
Hourly Earnings MOM% 5/8 April 0.2% 0.2%
Hourly Earnings YOY% 5/8 April 3.4% 3.3%
Avg Weekly Hours 5/8 April 33.2 33.2
Whlsale Inv. MOM% 5/8 March -1.5% -1.0%
================================================================

THe financial crisis slowly plods along. We're lucky it is giving experts time to think about solutions!

Main Street media is reporting that the government is considering a bailout of Citigroup. Citigroup also has already received a $25 Billion package from the TARP funds, so many wonder what Treasury is now considering as its options. Citi lost its bid for Wachovia to Wells Fargo. While at the same time the Administration and those of the Obama Administration are trying to calm and stabilize markets here and abroad. All this while many are ambivalent about a bailout of the Auto Industry and specifically GM. This is leading to our friends abroad in Europe and Asia wondering whether the U.S. is going to have an unfair advantage over rivals, many of which are made in those regions.

They will not let Citigroup fail. So right now it's all about speculation. One of the reasons Citi finds itself in this situation is the loss in their stock value at $3.94. One thing which would help is if the SEC re-instituted its Uptick rule to prevent continued shorting of the stock by speculators. It was the worst decision in SEC recent history to abandon the rule. Many have called for the head of Christopher Cox, head of the SEC and a Bush appointment. It seems too late for that but Cox could reinstitute the Uptick rule and help minimize a further slide in the share price. I just don't have any confidence in him doing that. It would be admitting he made a mistake and that is something the Bush Administration will not consider.

But in spite of it all, I believe this week ahead will be good for the markets. I'll state why tomorrow. Come back then.

$700 Billion: What else could we do with it?

Have you asked yourself yet what could be done with $700 Billion dollars today besides this rescue plan that the Fed and the Treasury are asking from Congress? I'll tell you one thing, a sizable amount could have been used to make Social Security more solvent for one thing. We could have repaired many of the bridges and roads across this country. We could have used the money to solve Global Warming and reduced the Green House gases on the planet. We could have given every teacher in America a minimum salary of $100,000/year and still had $500 Billion left over to do some of the other things mentioned here.

But instead, we are going to pony up this incredibly large sum of money and are not going to observe anything for it. It will not be noticed, as life will go on as it did before the crisis except the unemployment rate will be going up, interest rates will be going up, stocks will be going down and many will fell tight when it comes to spending any of their money. We won't see anything that looks positive that we can point to that will be a measurable observable difference for the better. What there will be is the prevention of a total collapse of our system, THEY HOPE! You see there are no guarantees here. It is like going to Vegas and being able to play roulette and betting on red or black and hoping to win. But it is possible that the ball will settle on the zero (0) or double zero (00) number. That's where we are now. There is probably only a 2 in 37 chance that this $700 Billion investment will faIL, but there is still some chance. Southerners may be thinking of that old adage, "Save your Confederate money folks, the South shall rise again." The only problem is that this time we are all in the same barrel, whether we like it or not.

When this is over, I don't want to hear people say we can't afford Healthcare for everyone or that we can't accept Barack Obama's ideas to grow the economy with Green initiatives or that we can't bring home the troops to help save $12 Billion per month! If we can print money to pony up $700 Billion here, we can print some more and do the other things as well. Yes the wealthiest are going to have to pay more taxes. Get used to it as your life is better than the most of the country and we all must bear a more equal share of the burden.


This is what it must have felt like at the Fall of The Roman Empire.

Bush veto’s children's health care bill because he wants to spend every penny in the Treasury on Iraq

The title says it all. We are supposed to believe he has found himself again and is now a fiscal conservative, hence the veto. Ha! Can't wait to hear what Comedy Central's Jon Stewart says about this. Let's face it, he wants to spend every single last penny in our Treasury on the Iraq war and the planned war he and Cheney are scheming on Iran.