Brooksie’s Daily Stock Market blog – an edge before the open
Monday, November 21, 2011 9:11 am EST
DJIA: 11,796.16 S&P 500: 1215.65
If the SuperCommittee, et al, thinks Americans are going to tolerate extreme partisan politics at their expense, they are more delusional than I thought. The Tea Party in particular can’t read their own leaves. We are looking at a “My way or the highway” mentality, a wrecking ball for survival, not to mention progress.
Lose it guys and girls – NOW !
Close ranks – Democrats do a “right face,” Republicans do a “left face” and meet in the middle, or IMHO you will see tens of millions of people in the streets of D.C. with marching orders you don’t dare disobey.
The deadline for a vote by the SuperCommittee is Wednesday, Nov. 23, but that’s debatable since under committee rules the Congressional Budget Office, or CBO, must receive the plan 48 hours before then.
The President’s “Go Big” with spending cuts and revenue raising of $3 – $4 trillion was DOA, can’t happen. Based on leaked reports, the Super Committee can’t even go little ($1.2 trillion) where debt would still grow faster than the economy.
Passage of “something” would take a simple majority (7 – 5) whereupon the plan goes to both the House and Senate for a vote (without amendment) where it can be passed or rejected, or where it can be vetoed by the President. If the plan falls short of $1.2 trillion, the “sequester” (automatic cuts in defense and non-defense) kicks in, starting in Jan. 2013 to make up the difference between what is agreed upon and the $1.2 trillion.
The Committee could agree on some cuts then mandate Congress enact tax reform that nets out as a revenue raiser that facilitates debt reduction going forward!
Failure to agree on a plan and it all goes to sequester, unless Congress opts for its safety valve – to amend or repeal the “cuts” during the months before 2013 !!
The biggest damage from all of this is the sense of paralysis felt by Americans who take the time to follow developments that affect their lives. The managers of money, business decision makers, professionals, educators, government officials and foreign investors are themselves driven to inaction.
CONCLUSION: The stock market will cross the “ouch” point early this morning with a drop to DJIA 11,300 (S&P 500: 1165) possible in coming days.
Do not lose sight of two things here. One, the overall assumption is that governments here and abroad are totally dysfunctional. The outlook is beginning to look too hopeless, and that kind of pessimism often characterizes bottoms in the market, not tops.
Two, the U.S. economy is grinding out a recovery, however slight. We have recovered from the worst economic/stock market debacle since the 1930s, recovery of both takes time. Baring a meltdown, there is nowhere else except stocks for institutions to invest funds and seasonally, Nov. 1 to May 1 has historically been the “Best Six Months”* to own stocks.
THE SUPERCOMMITTEE: 3-Days to a deadline!
The big roadblock is increased taxes. Reportedly, the committee is now considering a two-step process, small increases to be followed by larger ones to be debated by Congress – hmmmmm. Now who’s kicking the American citizen down the road ?
Parts of President Obama’s “American Jobs Act” may be used as a bargaining chip.
If the “committee” reminds us after more than a month of silence just how dysfunctional it is, it will have a negative effect on the U.S. markets.
If it surprises us, and demonstrates the ability to craft a balanced approach to revenue raising/deficit reduction, it could add another arrow to the Bull’s rapidly filling quiver.
Most House Republicans have signed a public pledge not to raise taxes, however a Nov. 3 Bloomberg News report noted 40 Republicans have indicated support for revenue increases.
What the committee does can have a huge impact. Everyone knows deficit reduction must be achieved or there will be serious consequences to pay.
12-member SuperCommittee timeline:***
Oct. 1- Dec. 31: Both houses of Congress must vote on a Balanced Budget Amendment.
Oct.: 14: Deadline for House and Senate Standing Committees to submit recommendations.
Nov. 23: Deadline for both houses to vote on a plan with a 10-year deficit reduction goal of $1.5 trillion Dec. 2: Deadline for committee to submit report and legislative language to President Obama and Congress.
Dec. 23: Deadline for both houses to vote on committee bill.
Jan. 15, 2012: Date that the “trigger” leading to $1.2 trillion of future spending cuts goes into effect if
the committee’s legislation has not been enacted.
Feb. 2012: Approximate time when first $900 bn of debt ceiling runs out.
Feb./Mar.2012: Deadline for Congress to consider a resolution of disapproval for the second tranche
($1.2 – $1.5 trillion) of debt limit increase.
Fall/Winter 2012: When additional $2.1 – $2.4 trillion of borrowing authority from this law runs out.
Jan.2, 2013: OMB orders sequestrations for defense and non-defense categories of spending necessary
to meet spending cuts required by the “trigger.”
Recent blog headlines:
Oct. 21, DJIA 11,541, “DJIA 12,000 “IF” the Europeans Can Get It Right”
Oct. 24, DJIA 11,808, “Euro-Solution Announcement After Wednesday’s Meeting”
Oct. 25, DJIA 11,913, “Short-Term Euro-Solution Doesn’t Cut It”
Oct. 26, DJIA 11,706, “Ball’s in Europe’s Court”
Oct. 31, DJIA 12,208, “Buyers on Dips. Euro-Deal to Hit Some Snags
“Doomsters and Shorts Out in Force”
Nov. 2 DJIA: 11,637, “Risk-Taker’s Buy Shaping Up”
Nov.3 DJIA: 11,836, “Again – It’s All About Europe”
Nov.4 DJIA: 12,044, “Easy Does It ! Traders to Take Some Profits”
Nov. 7 DJIA: 11,983, “SuperCommittee Will Soon Take Center Stage”
Nov. 8 DJIA: 12,068, “Stock Market Hanging Tough – Would Love to Run…. but…”
Nov. 9 DJIA: 12,170 “Italy’s Turn to Crunch Prices, But the SuperCommittee is in the On-Deck Circle”
Nov. 10, DJIA: 11,780, “ OK Greece and Italy – Cut the Crap – Decision Time !”
Nov. 11, DJIA: 11,893, “Potential for an Upside Breakout Looms, Absent New Negatives”
Nov. 14, DJIA: 12,053, “SuperCommittee and Economy Taking Center Stage”
Nov. 15, DJIA: 12,078, “European Outlook Tentative – U.S. Outlook Picking Up”
Nov. 16, DJIA: 12,096, “Europe – Surprise Us for a Change – Get the Job Done !”
Nov. 17, DJIA: 11,905, “Time for European Leaders to Avert Contagion – European Central Bank to the Rescue ?”
Nov. 18, DJIA: 11,770, “Stock Market a Coiling Spring ?”
George Brooks
*Stock Trader’s Almanac
**Council for Foreign Relations (www.cfr.org): “Defense Spending and the Deficit Debate”
***National Journal
…………………………………………………………………………………………………………
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.
Read Next
