Thursday, September 15, 2011 9:15 am EDT
S&P 500: 1188.68
Nasdaq Comp.: 2572.55
Russell 2000: 704.16
The DJIA and S&P 500 reached my resistance levels yesterday at DJIA 11,325 and S&P 500: 1195 and retreated. Tomorrow is Quad Witching Friday when all four stock-index options, futures, stock options and single stock options expire raising the possibility is sharp swings in either direction. It is already evident in pre-open futures activity.
Perhaps, the saving grace here is there is nowhere else to invest cash. Money markets and the equivalent yield zilch, long-term bonds are at all-time peaks and risky. The only alternative is common stocks. While, by generally accepted standards stocks are fundamentally cheap, they can still decline over the short-to-intermediate term, especially if conditions in Europe deteriorate, the US economy sinks into recession and Congress rejects the Jobs Act.
The Street needs an answer to the “recession, or no recession question ?” We really need assurance that the economy is NOT tanking, more than signs it is strengthening, at this point.
Hopefully today’s economic reports shed more light on the direction of the US economy. So far, the Jobless Claims, Consumer Price Index (CPI) report, and Empire State Manufacturing report are in. Industrial Production will come at 9:15 and the Philly Fed (regional economic) Survey at 10 o’clock.
The CPI was up 0.4 percent vs. +0.3 percent in July (not good). The Jobless Claims were up 11,000 through Sept. 15 (not good), and the Empire State Manufacturing Survey (NY area ) was down 8.8% through mid-September (not good). Industrial Production comes at 9:15 after release of my blog. The Philly Fed Survey (regional business conditions) comes at10 o’clock.
These numbers do NOT indicate that the economy is tanking, but they are hardly reassuring.
Yesterday’s market was buoyed by assurance from Germany and France that Greece will remain a member of the euro as leading finance ministers prepare to discuss how they will implement the expansion of the region’s new bailout funds.
A look at the timeline for the 12-member SuperCommittee, is unsettling. It smacks of UNCERTAINTY through at least February 2012. Then too, there is the American Jobs Act. Obstruction without the offer of a better way to create jobs will not only create more uncertainty but harpoon an economy that is already on the ropes.
Based on past performance by Congress and especially the Tea Party, obstruction is exactly what can be expected to happen.
But, so often the consensus is wrong. If both parties set politics aside and work diligently to develop constructive solutions, it would be enormously bullish for the economy and stock market.
Common sense says, it is not in the interest of Republicans to reduce the jobless rate, since that would enhance President Obama’s chances of re-election, but obstructing progress on this key campaign issue could hurt them even more.
What I am saying here is, be prepared for a surprise, just in case.
Personally, I think high unemployment is now a chronic problem, requiring government work programs and re-training to address major problems, like infrastructure. Innovation and the computerization of “ease of entry” and low-skill jobs is just taking too big a bite. Productivity is, of course, great for the bottom line of companies, and for their employees and shareholders, but 70% of the economy is consumer spending, and a lot of people simply won’t have any money to spend, if they don’t have an income. In time, that will lead to a higher crime rate and possibly a home-grown terrorism.
12-member SuperCommittee timeline:*
Sept. 22: Deadline for Congressional consideration of resolution of disapproval for first $900 bn tranche
of debt limit increase.
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
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.”
*source: National Journal
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