Did Someone Blink?

George Brooks |

George Brooks Stock MarketThe surge in stock prices over the last five days suggests the United States will not default on its debt, that a mini deal to raise the debt ceiling temporarily will be agreed to that enables Congress more time to work out a plan to address future increases in the national debt.

Unfortunately, a mini deal would simply prolong the uncertainty and may heighten it.

Today: All four major market indexes have recouped more than two-thirds of their May 2 to June 23 loss, and it all happened in 5 days.

That is a lot of rebound, leaving little room for disappointment.

Support is DJIA 12,275 (S&P 500: 1307).

Brooksie’s Daily Stock Market blog: An edge before the open.

Tuesday, July 5, 2011 9:24 am EDT

DJIA: 12,582.77
S&P 500: 1339.63
Nasdaq Comp.: 2813.03
Russell 2000: 840.53

Senator John Cornyn (R.Texas) told Fox News Sunday he would be open to a short-term deal on the debt ceiling to allow more time to work out a more comprehensive agreement on debt reduction.

Arizona Republican senators John McCain and Jon Kyl, told Fox News Sunday, they would be willing to consider certain revenue raisers to provide more time for negotiation. This suggests a less hard line in thinking on arriving at an accord and further indication

Default is out of the question; it would do irreparable damage to our nation and citizens and set off a domino affect globally. The end of life as we know it, the end of retirement, health care, our AAA credit rating, and ironically default would be very injurious to the Republican Party which is using the issue as a negotiating lever.

Warren Buffet says it would be “asinine.” Republican statesman, James Baker, JP Morgan Chase (JPM) head, Jamie Dimon, Treasury Secretary Tim Geithner, and PIMCO Asset Management’s Mohamed El-Erian all say it would be “catastrophic.”

Standard & Poors and Moody’s have both indicated they would lower the U.S. credit rating.

Worst case, it is possible President Obama would have to head off such a disaster by evoking the powers available to him as president in the 14th Amendment to the U.S. Constitution to by-pass Congress and raise the debt ceiling and avert a default. This is a new wrinkle and I am not sure it could be applied.

What the Street cares about is that the “unthinkable” won’t happen.

August 2 has been widely accepted as a drop-dead deadline for raising the debt ceiling.

Not so, according to insiders who claim an agreement to raise it would have to come at some point between July 15 and 22nd, to comply with congressional rules requiring advance publication before consideration.*

The debt ceiling was raised 7 times during George W. Bush’s terms in office, during which the national debt doubled. Raising the debt ceiling should not be used as a negotiating issue, we all deserve better.

Let’s be grateful we did not have a total melt down, why give it a second chance.

There is nothing this nation cannot achieve or adversity it can overcome if we put extreme ideological agendas of both parties aside.

This is not “their” country, it is “ours!”

None of the above suggests fears won’t mount between now and August 2, ( or mid-July). While some pols will back peddle, others will stand firm on NOT raising the debt ceiling unless they get their way in the negotiations.

I would have to give the nod to reason here. Nevertheless, there will be days, it appears reason won’t rule.

Next hurdle ?

The economy. Is it softening, or were the recent disappointing numbers just a blip, prior to improving numbers in Q4 ?

Not to be ignored are Q2 earnings reports. Will the softness in the economy during Q2 impact these reports, if so, the market is vulnerable.

George Brooks
sensiblesleuth@gmail.com

*Bloomberg News
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The writer of Brooksie’s Daily Stock Market blog, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk

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