Who's to blame now for the uncertainty in raising the Debt Ceiling by Aug. 2nd?

Okay, this is the bottom line on who's to blame in this Debt Ceiling crisis. Senator Mitch McConnell, the same Mitch McConnell who said his number one priority is to ensure President Obama is a one term President, yesterday told the American people he and Senate Republicans were going to require 60 votes to pass Senator Harry Reid's plan to raise the debt ceiling! McConnell decided to Fillibuster instead of compromise! That's who's to blame! Remember, if we can't get the debt ceiling raised by August 2nd, and we default, you know who you should blame.

The House plan by Speaker Boehner only needed a simple majority to pass. They just got 218 votes for his plan. 24 Republicans voted against it and no Democrats voted for it.

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 comments for July 15th UPDATE

The CPI data came in at -0.2% in June, compared to +0.2% in May. Core CPI came in at +0.3% in June and was up +0.3% in May. This is showing that core prices are really rising as many feared. This economy is sounding more like we are in "stagflation". These CPI Core numbers are in line with what is happening with what has happened to the Core PPI numbers as well. In June Core PPI rose to +0.3% from a May reading of +0.2%.

The Empire State Index came in at -3.76 in July versus in June it was -7.96. Expectations for July were for the number to be 0.0, so this is not a good number and indicates a slowing business climate. That's hard to imagine given the business climate has felt like it has almost stopped the past 3 months. This data is in line with the Inventories data which is also rising and showing that Manufacturing is slowing down even further. This data is feeding into fears a double dip recession is going to occur.

Later this morning, Industrial Production data will be released for June, as well as Capacity Utilization and Michigan Sentiment data for July. Here's what to watch for Industrial Production came in in May at +0.1% and expectations for June are for a +0.3% reading. I expect the number to disappoint. Capacity Utilization came in last month at 76.7% and expectations are for a reading of 77%, indicating more usage of existing capacity. I think this number will disappoint as well and be below 77%. And lastly, Michigan Sentiment in June came in at 71.5, and expectations are for it to be 70.0% reading. I believe this number will be somewhere between 71.5% and 70.0% and will not be off by much, resonating with the general feelings in the country of negativity, partly based upon the politics of the moment on the issue of whether the Congress is going to raise the debt ceiling and also the higher Unemployment numbers this month. The trends are not good and we may be very close to going back officially into a recession.

Bah, humbug! The Futures look positive this morning in advance of this data. The Dow Futures indicated +44 before the CPI data came out and the Empire State Index. Now the Dow Futures indicate a +43 reading, so nothing has really changed with respect to the Futures.

Today is Options Expiration for July so expect high volume today.

UPDATE: 6:55am PST

Industrial Production came in at +0.2%, not +0.3% as expected. But the huge news is that the Michigan Sentiment came in at only 63.8 vs an expectation of 70.0 and a reading last month of 71.5!!! This is a huge disappointment but a realistic data point on how people are really feeling.

Capacity Utilization came in at 76.7%, same as last month and not the 77.0% expected.

Market comments for July 14th

Initial Jobless Claims data was released this morning and came in at 405K. This is a reduction of 22,000 from the previous week, but still over 400K. Expectations were for only 370K this week. The data from the previous week, however, was revised upwards from 418K to 427K Initial Jobless Claims, so again, not in the right direction for a recovery.

The PPI came in at -0.4%, while expectations were for -0.2%. This shows deflationary, not inflationary pressures are building, as the Fed is worried most about.

Retail sales for June came in at +0.1%, which is not much, but expectations were for a -0.3% number. Retail Sales Ex-Auto came in unchanged from the prior month. Thus, we have stagnation in Retail Sales.

The Dow Futures are up about 26 points at this hour, but I have a difficult time being convinced the market will rise today, given the way the issue of raising the debt ceiling has taken over most news commentary as a gloomy outlook. But in a market manipulated by the Fed, anything is possible. And with Moody's threatening a downgrade of the U.S., this is indeed a major game of chicken being played out nationally.

Negotiations break down on raising debt ceiling and reducing the deficit

According to CNN and Bloomberg report this morning, the budget talks have broken down between the Republican Congress, represented by Speaker John Boehner, and the President. According to reports, "House Speaker John Boehner said he will pursue a smaller deficit reduction accord than the one that President Barack Obama is seeking, ($4 Trillion in reductions), because the White House won’t approve a bigger deal without tax increases."

This is a missed opportunity and is a major disappointment for our country. To not raise some taxes at this time is irresponsible by Republicans. The data this week shows we are not in good shape. The Unemployment rate rose to 9.2% from 9.1% in May. Other data includes the following: Initial Jobless Claims for the past week were still above 400K at a reading of 418K, Wholesale Inventories were up from 1.1% in April to 1.8% in May, the Average work week was down from 34.4 to 34.3 hrs, Hourly Earnings were flat at 0% for June, only 18K Non Farm Payroll jobs were created for June, and lastly, the ISM services data came in at 53.3 for June from 54.6 in May. This was not a good week to inspire confidence in our economy.

Watch all Futures markets for a major sell-off this week. While there might be a deal to accept the cuts already negotiated by the Republicans to get a vote on raising the debt ceiling passed, the war has just begun and the first shot will have been fired, which officially signals the start for the very soul of this country in the election of 2012. I hate this kind of politics as do most responsible people. In the meantime we all lose as much to get this economy moving will take well over another year of wasted time. Blame whom you like. My blame goes squarely on the Republicans for being unreasonable, stubborn and too idealogical.

The Debt ceiling will be raised with accompanying cuts of several Trillion dollars. The Republicans will call this the first victory in their campaign to shrink the government. The President will call this a victory as at least the debt ceiling was raised and he did not cut any Social Security or Medicare benefits.The Democrats will claim a victory as they stood firm that no more reductions came without standing up for the principle of shared sacrifice as they would not allow any more cuts without raising taxes on the wealthy. The bigger question is what will you see in this outcome, because that is what the fight will be about going forward, your vote for who was reasonable.

While you are here, take my new Mini Poll on the right margin. The question is as follows:

Which option do you favor most to help our economy?

Where do you think cuts in spending need to be made?

Since there are going to be round the clock negotiations to hammer out a compromise on reducing the debt this weekend. I thought I would summarize the results of my Mini Poll here. Remember all this drama is going on in order for the Republicans to get concessions for their votes to raise the Debt Ceiling. It is clear how folks think these trade-offs should be made. Here's the question and their Vote:

Where do you think cuts in spending need to be made?

Answers and Percent in Favor of the choice
1. Everything, no exclusions. 39%

2. Increase taxes on just the wealthy. 33%

3. Increase taxes on everyone. 7%

4. Cut mainly from Defense. 13%

5. Cut mainly from Medicare, Medicaid and Social Security 6%

6. Don't need to cut anything or raise taxes. 3%

So 39% are in favor of cutting everything and 33% say they would choose adding taxes on the wealthy. That's a 72% majority.

Market outlook: Painful times

Lest there be any doubt, the markets are heading down a lot more down. If you had any doubts, look at the volume of Fridays drop in the chart below, with 280 million shares traded. Average volume runs about 180 million shares these days. The volume for the last two days should have woken you up to what's happening. The major stock of the Dow 30 stocks responsible for this spike at the close was Cisco's stock. This market move of the past 30 days is a systematic steady erosion and not the quick panic correction followed by a nice rebound. This is eventually going to get quite painful for most people.

Most people will watch the drip, drip drip of their losses like a deer caught in the headlights. Those of us who are on the short side of this market, will reap the rewards of our patience. But here this, I will not take much pleasure out of this as the true meaning of this decline was avoidable and many fine people are going to be hurt financially. As a newsletter I read today said, "Wall Street thinks all is rosy, but Main Street knows it is a depression."

I have posted many charts on this site and showed some 30 year charts in those posts. The future does not look rosy. I wish it did! But we must face the reality that our elected officials are not trying to solve our countries problems. And let's be honest here folks, the Republicans are still saying no to any taxes, even for millionaires. They would rather see us default on our debt and try and win some political advantage then to fix the economy. I realize I am being partisan here, so save your emails to me. The last time this happened was when the then Speaker of the House, Newt Gingrich, shut down the government. They lost the next election smartly. It wasn't necessary. People were reacting to the inflexibility of those in power. If everything is on the table, so is taxes!

Market comments for June 24th

Which way will today's market play out? That is what I have been asking myself. The market had been down over 200 points yesterday but managed to stage a comeback and close down only 59 points on the Dow. But as you can see from the 3 month chart below, there was a definite Sell signal confirmed with a Hammer Candlestick pattern not only for the Dow, but also for the other major indexes like the S&P 500. Notice also the higher volume yesterday on the lower chart of the Dow 3 month chart.

But still the market did save over a 200 plus drop in the Dow and that gave me pause. So I pealed back some of the data to see what the charts are telling me going into today. Below you will notice a 2 day chart of the Dow in 5 minute increments. This chart clearly shows the surge back up from the lows and does show a slanted upwards "W" pattern or Head and Shoulder pattern going into the close.

So as we are within a few minutes of the open, I believe today will be a struggle between the Bulls and the Bears for control. Watch the range be tight for most of the day as the Volatility will drop. Watch volume as it should be less than yesterday as well.

There are still major issues to be dealt with like the impasse of the Congress to raise the debt ceiling and you know all is still not well in Greece. So if I had to bet, I would say we have a higher chance of ending down today than up. Of course, on the other hand, the Fed still has some influence in manipulating the market with still some funds left to spend before the end of June. Maybe we should all just go away and come back in the Fall after all. :)

Market comments for June 16th

Another day and another market drop. The Dow closed down again yesterday as did our other Indexes. We start today with the Nikkei and European markets down again today because of the turmoil in Greece. Our Economic data was a little better this morning with Initial Jobless Claims dropping for the week of 6/11 to 414K. Expectations were for 425K, so this is a bit better and in the right direction.

Yesterday we closed with another consecutive day when the Put to Call ratio was =>1.00 for the 11th consecutive day. Yesterday's chart shows the history of this indicator and let's face it, people don't really feel that well about the economy or the stock market and are selling, rather than looking to buy on the dips. As long as that mindset is present, it does portend good times ahead for the Bulls, but does for the ever louder Bears.

Today's chart below is of 3 months for the Dow. Of particular interest to me and should be to you was not only the fact that we are getting lower lows and lower highs on bounces, but that the down volume is much stronger than the up volume. Yesterday, the volume was stronger than the previous 2 days of the market rising slightly. And then before that, the volume was higher too. The trend is still down, but we haven't yet gotten to the real scary drops that are coming. Don't say you had no clue of this coming!

The culmination of this in the form of a sharp deep drop may come in the next few weeks. Much is riding on the negotiations of V.P. Biden and the Congressional leaders who are trying to get enough votes to pass the legislation to raise the debt ceiling. It looks now like somewhere between $1 and $2 Trillion dollars will be reduced over the next 10 years, in the level of debt we have. However, if neither political party did nothing, the debt would rise $6 Trillion with what Congress has already approved. So cutting $2 Trillion is a step in the right direction, but not enough. We will be revisiting this issue for the foreseeable future. In the mean time, everyone knows that and many don't have the confidence to buy stocks, so drip, drip, drip, the market goes.

Today is the 100th Birthday of my former employer of 18 years, IBM. Happy Birthday, IBM! It was a great company and still is.

And lastly, I want to thank all those who wrote me privately yesterday on my Cisco article. It looks like many outside AND inside agree with my comments.

Market comments for the week ahead and beyond

Let there be no doubt, the Dow will go as low as 11,600 shortly. From there we may have a bounce up but the odds are we will continue to see this and the other stock market indexes drop lower because much concern still lies with the issue of raising the debt ceiling. We have less than 3 weeks for this issue to get resolved before the markets start to get very nervous and volatile, even though we have until Aug. 2nd before the government defaults on its debt obligation and the government shuts down. The sides are still miles apart and it seems to be playing along in a similar game of chicken as to when Newt Gingrich was the Speaker of the House during the Clinton Administration. The Republicans miscalculated then and appear to be again now. Only this time the consequences our governments credit will face is much worse as the United States has never defaulted on its debt obligation. So you see this is very serious indeed.

I have added a 6 month chart of the Dow this morning as is seen below. Notice that on Friday, which is often a low volume day, the Dow was down 172 points at the close. Notice also that the Volume was indeed higher than the entire rest of the week.

Also noteworthy was the fact that the Put to Call ratio continues to be greater than 1.00 now for 8 consecutive market days, not seen since Sept. 9, 2008. All the signs are warning investors this is serious. Don't say you didn't know it would get so bad. You have been warned!

How far down is the market going to go is subject of many guesses. My guess is that we will be first going all the way down to the 10,000 level after testing 11,600. A look at the 2 year chart below shows just how easy the Dow and other Indexes can unwind. I have identified 3 levels to test in what could be a drop as far down ultimately to test the Dow at 6,400. Yes, that's right, Dow 6,400. You read that correctly. Much depends on when and what the Fed is allowed to do. If the Fed stops its quantitative easing (QE2) and not do more, we could get there sooner rather than later. If the Fed decides it needs QE3, this drop and crash will be postponed for a while, but it will be inevitable, we will crash to test 6,400 eventually. A defense will be better than any offensive market move going forward as the odds are against a Bull market now. Fair Warning! We are in a Bear market now.