Monday, August 1, 2011 8:10 am EDT
S&P 500: 1292.28
Looks like we have a deal - not "done," of course, until voted on. The U.S. stock-index futures indicate a strong open. I expect this rally to be short-lived, running into selling at DJIA 12,385 (S&P 500: 1316), followed by a slide to lower levels with a bottom in September/October. While expected, a downgrade by S&P or Moody's would have an added negative impact. The creation of a bipartisan "Super Committee" to deal with future deficit reduction stands to result in more of the same - ideological paralysis.
What is the downside risk? Initially, I think DJIA 10,700 - 10,830 (S&P 500: 1150).
Can the market drop further? Yes. Depending on the investment environment when it gets there, that level should produce an attempt to stabilize, even rally. If Congress continues to be divisive along radical ideological lines and the economy shows no signs of firming, the market should drop to DJIA 9,680 (S&P 500: 1050).
Here's the real danger. The behavior of the Tea Party members of Congress suggests to Americans and the world that there are no longer any rules, or limits, that even the highest offices in our government are fair game for obstruction and paralysis. Hostility from within is very scary.
If the market was plunging, gloom thick as tar, and investment sentiment well past the "ouch" point en route to the "I can't stand it anymore point," I'd feel more comfortable about being positive.
I just don't think the market has discounted what is really happening, probably because what is happening is so unbelievable.
Our nation's economic expansion has stalled. I think it will resume its expansion, but not with legislative paralysis driven by political ideologies, which translates into a paralysis in spending by corporations and individuals.
*google “Starve the Beast” –something you need to know to
understand what is happening.
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