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?

Market comments for the week ending Nov. 12th

Well as it turns out the Put to Call ratio did signal this week's drop in the market. The Dow dropped 252 points, but that is only 2.2% for the week. What was also amazing was that Cisco stock dropped about 17% in one day on the news they were going to miss analysts expectations, even while having a good quarter. But Cisco dropped more yesterday closing at $20.15 and hitting a low yesterday of $20.03 for the day. Cisco was as at its recent high of $24.50, before the earnings disappointment. So it has had a 17.8% haircut. Notice from the chart below the gap down but look more importantly at the volume traded. This has more to go down, depending on market conditions.

Now look at the volume during the decline this week and compare it to the previous volume average, from the chart of the Dow below. You will also notice that the pullback on Friday dropped us below the uptrend line. The big question is will it go back over it or continue to drop.

The market does look like it will go down further but it is anyone's guess how much and on which days.

Below is a 3 month chart of the S&P 500, which shows a similar pattern and the break of the uptrend line.

This coming week there will be more political banter, because the President is back from his Asia trip. There has been some deliberate leaked news about proposed cuts in spending and raising taxes from the bipartisan White House Commission on Fiscal Responsibility and Reform that President Obama had formed, which is headed by Erskine Bowles, and Alan Simpson. I think they had leaked these ideas out to the media so that commentary could start in advance of the President returning to Washington, and most likely will dominate the news along with any unexpected Financial bombs which come to light this week. The Irish Debt issue has crept back in the headlines in Europe and there is an uneasiness with the Fed's actions and approach with Quantitative Easing (QE2). Ever onward!