Friday, November 11, 2011 9: 21 am EST
DJIA: 11,893. 86 S&P 500: 1239.70
TODAY: Expect a good start to the day with DJIA up more than 100 points at the open. Yesterday, I said the market had the potential to push higher today to DJIA 12,030 (S&P 500: 1255), but that I saw a sell off at the close if issues in Greece and Italy were unresolved before the weekend.
It appears that the key issues in both countries are in the process of resolution, so a higher market is possible. The biggest deterrent would be the weekend and potential for the unexpected.
Both the DJIA and S&P 500 are tracing out a pennant-like consolidations with breakout levels around DJIA 12,200 and S&P 500: 1278.
Global stock markets are buoyed in pre-market trading by events in Greece and Italy for a change.
This morning, the Italian Senate voted to pass a bill outlining austerity measures designed to reduce its 1.9 trillion-euro debt, boost growth, and pave the way for a new government led by Mario Monti, who replaces Silvio Berlusconi.
The bill goes to Italy’s Chamber of Deputies Saturday. Monti still needs the approval from Berlusconi’s People of Liberty party before taking over as prime minister.
Fears of a meltdown earlier this week in sent Italy’s 10-year bond yields soaring to 7.46 percent, but have now since pulled back below 6.70 percent with the prospect of the formation of a new government.
A Greek unity government has been formed, under the leadership of Lucas Papademos, former vice president of the European Central Bank (ECB). Papademos replaces George Papandreou who is stepping down after the rejection of his proposal to hold a referendum vote on the Euro-bailout plan agreed to October 26.
The new unity government will implement the bailout plan, clearing the way for the 8-billion euro loan installment that is necessary to prevent a collapse of its financial system. The installment was delayed by German Chancellor Angela Merkel when Papandreou proposed the referendum.
The news out of Italy and Greece is good for a change going into the weekend, however the magnitude of the problems within the 17-nation euro community is so great financial markets cannot take anyting for granted., ergo uncertainty rules.
With a key deadline looming on November 23, the actions of the SuperCommittee will soon come to the forefront.
The following was published in my blog yesterday. Since the action of the SuperCommittee will become more and more relevant as deadlines approach, I will republish this info frequently going forward.
The deadline for the SuperCommittee to vote on a plan that addresses a 10-year deficit reduction of $1.5 trillion is two weeks away, and it is uncertain how much progress has been made.
Credit that to a “don’t ask, don’t tell” policy of the committee, which is designed to take the pressures of the press and lobbies out of the decision process.
But get ready, this issue will shortly hog center stage and dominate the TV, print, and radio media, and political blogs.
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.
According to Huffington Post, Democrats have proposed a $3 trillion deficit reduction plan, including $1.3 trillion in new tax revenues; the Republicans are proposing a $2.2 trillion plan but with no new taxes.
Failure to agree on a plan triggers autonomic cuts a year hence in domestic and military budgets. In addition to the Nov. deadline there are two other key dates. The full Congress must vote on the bill by Dec. 23 and the bill must be enacted into law by Jan. 15, 2012. Have a good one !
The press will start talking about a budget “sequestration” if the SuperCommittee can’t agree to a bill. This is another term for automatic cuts to make up the difference between the “net” cuts that are made and the $1.3 trillion target. But “automatic cuts” are not cast in steel, Congress can (and has) altered laws to reduce the cuts as it did in 1990.**
The sticking point here is revenue raising.
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.
O.K., my point here is to alert you to yet another hurdle for investor and consumer sentiment, as we get a groundswell of debate as the proposals becomes available, or is leaked in advance of the deadlines.
What the committee does can have a huge impact. Everyone knows deficit reduction must be achieved or there will be serious consequences to pay.
The SuperCommittee has been lost in the shuffle, upstaged by international financial worries and the state of our economy here at home. Nevertheless, it will raise its ugly head to remind us whether our government is, or is not, dysfunctional.
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 andCongress.
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 !”
*Stock Trader’s Almanac
**Council for Foreign Relations (www.cfr.org): “Defense Spending and the Deficit Debate”
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