Will Senator Leiberman's Medicare Solution Break the Debt Ceiling Stalemate?

George Brooks  |

The stock market could use a piece of good news, and Senator Leiberman may be about to deliver it in the form of a solution for Medicare’s surging costs, a major stumbling block for Congress as it seeks ways to reduce deficits going forward.

Recently, I targeted July 29/Aug.1, for a bottom to the current decline with the market dropping to Dow Jones Industrial Average 10,700 – 10, 839 (S&P 500: 1150). I based that projection partly on worries about the economy, but more so on heightened fears that Congress would not raise the nation’s debt ceiling by the assumed deadline, August 2, ergo default.

A breakthrough could turn the market up sooner.

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

Monday, June 13, 2011 9:23 am EDT

DJIA: 11,951.91
S&P 500: 1270.98
Nasdaq Comp.: 2643.38
Russell 2000: 779.50

While I view default and the nation’s inability to meet certain obligations as unlikely, the angst stirred by the press as we approach August 2 would be enough to accelerate the decline in the stock and bond markets.

Realistically, taking a decision down to the wire like that may dangerously roil financial markets at a time they don’t need additional roiling.

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Powers greater than that wielded by Congress may dictate that a decision come sooner.

Senator Lieberman has offered a solution, or at least a starting point, for fixing Medicare. He plans to draft legislation that will preserve it without privatizing it, preserve its solvency and save billions of dollars over 10 years.

Leiberman is a confirmed “independent” and the likely person to present a solution that both party extremes can accept.

However, the BIG money may get wind of it ahead of time and jump the gun, turning stock prices up ahead of the crowd.

The market has been down six weeks in a row, and is technically due for a rally.

However, without a breakthrough, in the economic news or debt debate, this decline will likely have to reach the “ouch point” where certain stocks, even the market itself will discourage new investment.
I am a bit suspicious of the softening in the economy. It may be temporary, as it was last summer.
The impact of Japan’s problems, weather, and consumer concerns about potential government default could well have impacted the economy adversely, but temporarily.

At its worst, the market will have to reach the “I can’t stand it anymore” point where investors dump stocks indiscriminately.

However, investors must be alert for an early break in the debt ceiling gridlock. While the behavior of this Congress suggests a decision won’t occur until the last minute, I sense the last thing that is expected would be an earlier than expected agreement to raise the debt ceiling with a framework of an agreement to address spending going forward.

George Brooks

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