Showdown! American Public Says "No" to Default !

George Brooks  |

Q2 earnings, the prospect for an accord on the debt ceiling, and better-than-expected economic news is a springboard for higher prices.

The Street is betting that an accord will be reached soon, but cannot get reckless, just in case Congress opts for default.

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

Wednesday, July 20, 2011 9:23 am EDT

DJIA: 12,587.42
S&P 500: 326.73
Nasdaq Comp.: 2826.32
Russell 2000: 834.62

In yesterday’s 3:34 “BULLETIN,” “Breakthrough on Debt Ceiling Imminent,” I indicated I believed an accord on raising the debt ceiling would be reached before August 2, possibly this week, or over the weekend.

In my 9:23 am blog, I explained that a decision needs to be made before August 2 to comply with certain congressional rules, ergo readers shouldn’t be caught off guard by an earlier announcement.

Of course, if Congress opts for default, August 2 is the expected date.

Apparently it is a significant element of the Republican House (Tea Party) that is adamantly opposed to any increases in taxes, even though the increases would be limited to certain upper bracket earners.

Most, if not all Tea Partiers, march to Grover Norquist’s drumbeat. Norquist is an ultra conservative powerhouse in the Republican Party determined to reduce the size of the government and taxes.

A 6/14 article indicated Norquist is losing support in the Republican Party, and national polls indicate an increasing majority of Americans are opposed to default by the U.S. government.

I also indicated in my BULLETIN yesterday that Tom Coburn (R-Okla.) has returned to the “Gang of Six,” a bipartisan group of senators that has crafted a plan to reduce future deficits and enable the debt ceiling to be raised. In a speech yesterday, President Obama praised its work.

O.K., so what am I saying here?

I am saying “DEAL.”

When ?

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Probably over the weekend.

The stock market should be plunging in face of the threat of default, which would be an utter disaster and #1 on the wish list of our nation’s worst enemy.

Won’t happen.

Worst case, President Obama will opt for heading it off by exercising the powers presumed given him in the 14th Amendment and let the courts sort it out later.

With Q2 earnings continuing to “surprise,” some light at the end of the longest tunnel in the world (housing) flickering, and an economic slump that isn’t happening, the combo spells higher prices.

Look, we dodged a bullet in 2007 – 2008 that could have resulted in an cross-the-board meltdown.
We have an opportunity to address the problems that got us there and carve out an even stronger competitive position in the world. For the most part, U.S. corporations are flush with cash and ready to hire and spend. The debt ceiling issue should not be an issue. It’s been raised 74 times since 1962, six times during the Bush administration.

We have the ingredients for another run in stock prices. Originally, I expected it to start closer to fall, and that is still possible. The catalyst is if concerns about the debt ceiling, an economic slump, and foreign sovereign debt issues suddenly vanish.

Recent Headlines :
“Is the Fix In” ? (June 16 – DJIA: 11,897)
“Quadruple Witching Friday –Buying Open Risky” (June 17 DJIA 11,961)
“Ugly ! Nevertheless, the Outlook Can Change Quickly” (June 20 – DJIA 12,004)
“No Time For Napping” – (June 21 DJIA: 12,080)
“No Hope in Sight ? Don’t Bet on IT ! Prepare for Opportunity” - (June 22, DJIA: 12,190)
“Countdown to Opportunity – Start Preparing !” - (June 23 DJIA 12,109)
“ BIG Money Nibbling – Stocks Beginning to Look Attractive – Negatives can Vanish” (June 24 DJIA:
“Institutions Showing Interest – Not Reaching Yet” (June 27 DJIA: 11,934)
“Will Q2 Earnings Reports and Congressional Action on Debt Ceiling” (June 28 DJIA 12,043)
“ Don’t Buy News on Greek Vote – Spike to Be Short-Lived” (June 29 DJIA: 12,188)
“Again: Debt Ceiling Approval and Q2 Earnings Catalysts” (June 30 DJIA: 12,261)
“Enjoy the Fourth ! Prepare for Fireworks in Weeks Following” (July 1 DJIA: 12,414)
“Did Someone Blink ?” (July 5 DJIA 12,582)
“A Pause is Needed Here to Digest Recent Gains, Q2 Earnings Ready to Take Center Stage” (July 6
DJIA 12,569
“Whoa !” (July 8, DJIA: 12,719.49)
“July Could Be a Pivotal Month” (July 11, 2011, DJIA: 12,657
“Watch This One Closely – Very Closely” (July 12, 2011 – DJIA: 12,505)
“Default is Un-American” ( July 14, 2011 – DJIA: 12,491.11 )
“Breakthrough This Weekend ? – a Risky Bet ( July 15 – DJIA:12,479)
“Has the Stock Market Discounted Default ? (July 18, 2011- DJIA: 12,479 )
“Alert – Decision on Debt Ceiling May Come Before August 2” (July 19 – DJIA:12,385)
“3:35pm BULLETIN – Breakthrough on Debt Ceiling Imminent” (July 19, DJIA 12,586)

George Brooks
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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