Down to the Wire on Debt Ceiling Compromise

Over the weekend, House majority leader John Boehner genuflected to the Tea Party coalition of Republicans, put forth a bill that was sure to pass the House and die and the Senate, and that's exactly what happened.

By Monday morning, however, Senate majority leader Harry Reid had put together a compromise plan that has more chance of passing both bodies before the clock strikes midnight on the debt ceiling issue. Reid's plan calls for an initial $1 trillion in deficit reductions, all in the form of spending cuts, has a trigger for more cuts by Thanksgiving and puts the onus of delivering on mandatory cuts - should debate in congress not find suitable agreement - on a welve-member committee made up of six Republicans and six Democrats which would then make mandatory cuts to both Medicare and Defense spending among other programs.

While all this wrangling was going on the markets were closed over the weekend, but opened Monday morning in a very positive mood, with all major indices hitting their highs of the day within minutes after the opening bell.

The euphoric spirit was short-lived. At 10:00 am EDT, the ISM Index for July came in at 50.9, on expectations of a reading of 54.0. The sharp contraction - from 55.3 in June, reminded traders that whether or not the debt ceiling is raised, the US economy continues to stall out, sending all of the indices into free-fall. The Dow, which was up 139 points at the open, was lower by 100 points just 35 minutes later. Stocks continued to slide until the noon hour, bouncing off the bottom and finally rallying into the close, though all finished in negative territory.

For the Dow Jones Industrials, it was the seventh consecutive losing session, an event which has not occurred since 2002. And, as the market players took off their trading aprons and headed home, there still was no vote on the Reid plan, though indications were that both houses of congress would approve the measure and the president would sign it into law.

The debt ceiling, if the bill passes, will be raised to over $16.4 trillion, which should be enough to keep the Washington spendthrifts happy until after the 2012 elections. A vote is supposed to happen this afternoon or tonight, though no timetable has been announced.

What is annoying, or amusing, depending on your state of mind, is how the congress can waste so much time arguing, to only come up with a bill that satisfies nobody. The Tea Party faction held the public debt hostage, and likely will come out looking like winners in the end, though, typical of Washington, all will claim victory when actually nobody won a thing.

Meanwhile, we still await the vote, which is still somewhat in doubt.

Dow 12,132.49, -10.75 (0.09%)
NASDAQ 2,744.61, -11.77 (0.43%)
S&P 500 1,286.94, -5.34 (0.41%)
NYSE Composite 8,040.94, -38.50 (0.48%)

On the day, decliners beat advancers, 3416-3189. On the NASDAQ, 36 new highs were overshadowed by 99 new lows, while the NYSE registered 35 new highs and 93 new lows, making the combined total in favor of new lows, 192-71, continuing the sell signal. Volume was somewhat robust, as the kleptomaniacs behind the HFT (high frequency trading) computers shaved fractions from everyone on the way up, down and back up again.

NASDAQ Volume 2,176,811,750
NYSE Volume 4,948,650,500

Fortunately, crude oil, which was up sharply in the opening minutes of live trading, also reversed course and ended lower by 81 cents, at $94.89. Gold was also whipsawed, but ended down $9.50, at $1,621.70. Silver met a similar fate, losing 59 cents, to $39.31.

Whether or not the debt ceiling increase and debt reduction bill becomes law before the markets open tomorrow is in the hands of congress and president Obama, but the real test for markets will come later in the week, on Friday, when July non-farm payroll data is released. The market is expecting an increase of only 84,000 jobs, which would be bad enough to send stocks tumbling again. Many believe that number will not be met or even come close to, and that it's entirely possible that a number in the 20-30,000 range may be in store.

We'll get a preview on Wednesday, when ADP releases its private payroll report for the same period.

Money Daily will publish a special post, with more details, if and when the House and Senate approve the proposed legislation.

Traders Still Positive on Debt Limit Deal; Markets Spooked

It could have been so much worse.

US stocks took another tumble Friday, on revisions to 1st and 2nd quarter GDP and fears that the debt ceiling debate in Washington was running out of time.

An hour prior to the opening bell, the government reported its second revision to second quarter GDP, which came in at a measly 1.3%, but the greater shock was the revision to first quarter GDP, which was revised lower, from 1.9% growth to a frighteningly-low 0.4%. That sent shock waves through the futures market and US indices fell sharply at the open, hitting the lows of the day within the first 15 minutes of trading.

Just before 10:00 am EDT, Chicago PMI was reported to have fallen to 58.8 in July, lower than forecast, from 61.1 the prior month. That wasn't bad enough news, however, to shake off the nascent rally on rumors and hope that congress would decide on a debt ceiling increase by the end of the day or over the weekend.

As the session wore on, stocks moved sharply on any unfounded rumors, but eventually gave way late in the day, as lawmakers in the House of Representatives agreed, 236-186, to begin debate on House majority leader John Boehner's debt ceiling proposal, which had been in limbo since Tuesday because the measure did not have the backing of the Tea Party wing of the Republican party and - even if it did pass the House - was seen as almost certain to fail in the Senate. An actual vote on the measure is expected to come around 6:00 pm EDT Friday.

At the end of the day and end of the week, with no resolution on the debt issue and economic data overshadowing even the best corporate second quarter reports, the Dow finished lower for the sixth straight day, the S&P down for the last five, and the NASDAQ in negative territory for the fourth day out of the last five. On Thursday, the NASDAQ registered a gain of just over one-and-a-half points.

For the week, the Dow lost 538 points, a 4% decline. The S&P slipped 53 points, the NASDAQ shed 102 points and the NYSE composite fell by 328 points.

As bad as it was, stocks actually recovered half of their earlier losses on Friday. Still, it was the worst weekly performance for US indices in a year.

Dow 12,143.24, -96.87 (0.79%)
NASDAQ 2,756.38, -9.87 (0.36%)
S&P 500 1,292.28, -8.39 (0.65%)
NYSE Composite 8,079.44, -44.59 (0.55%)

Declining issues again dominated advancers, 4113-2476, and the gap between the expanding number of new lows and shrinking new highs worsened. On the NASDAQ, there were just 26 new highs, as compared to 114 new lows. The NYSE showed even worse, with just 16 new highs and 177 new lows. The combined totals of 42 new highs against 291 new lows is sending the strongest sell signal imaginable. Even if the congress does find a way to pass a debt ceiling increase by Tuesday, August 2, the damage for wasting time has been done the Moody's and S&P will likely downgrade US debt in short order, as they both have warned would occur if serious measures were not taken at this impasse.

Add to that the non-recovery "recovery" which has been represented by high unemployment and falling home prices and the recipe for further declines in equities is writ large.

Volume on the day was strong, another sign of a weakening stock market poised on the brink of turning losses into a major correction and a resumption of the bear market.

NASDAQ Volume 2,274,169,000
NYSE Volume 5,045,403,000

Among other interesting notes were the 10-year, which rose in price, but slumped in yield, down to 2.80%. The 30-year bond also hit a fresh low yield of 4.13%.

Oil took some losses, down $1.74, to $95.70. Gold made another intra-day high of $1637.50, before settling back to close at $1,628.30, up $14.90 for the day. Silver was up 31 cents, to $40.11 per ounce.

With the markets suffering their worst weekly losses in a year - coincidentally at the same time top economists are partying at their annual convention in Jackson Hole, Wyoming, the same place that Fed Chairman announced the launch of QE2 last summer - the onus is on the congress to come with a plan that appeases not only both parties but the ratings agencies as well.

While it is doubtful they would let the August 2 date pass without a debt ceiling increase, the chances of them passing a bill before then that actually cuts spending appropriately are still quite long.

Week Ends with Split Decision; Gold, Silver on the Rise

After a week of ups and downs, it's probably appropriate the Friday ended with a bifurcated market: the Dow and NYSE down and the S&P and NASDAQ up.

It makes little sense to the casual observer, though the condition becomes more understandable if one is an insider, playing long and short, hedging positions, trading momentum and running super-fast computers in the 2011 version of "timing the market."

For the rest of us, forget it. Stocks have become nearly impossible to trade with any success unless one is truly gifted or just dumb lucky.

The White House and congress still haven't decided what to do about raising the debt ceiling. The Republicans' ploy of passing their ridiculous Cut, Cap and Balance bill in the House is a desperate and dangerous maneuver, costing more time as the ratings agencies and the rest of the civilized planet look on with alternate views of shock, horror and amusement. The continued stalemate virtually assures that the United States will receive a number of ratings downgrades no matter what happens from here on out.

By comparison, Europe appears far worse, though they have more than enough gall and arrogance to keep the media and the ratings agencies in check for the time being. With all of the Mediterranean nations in some sort of trouble or already having been bailed out, the European Union seems to be held together by duct tape and crewing gum.

There was nearly nothing worth reporting about this week, as the Ponzi schemers made it through another week without anybody receiving a subpoena or getting caught cheating. Score another one for the rich guys.

Dow 12,681.16, -43.25 (0.34%)
NASDAQ 2,858.83, +24.40 (0.86%)
S&P 500 1,345.02, +1.22 (0.09%)
NYSE Composite 8,408.20, -3.25 (0.04%)

Advancing issues narrowly beat decliners, 3293-3194. The NASDAQ showed 79 new highs and 23 new lows, while the NYSE registered 102 new highs and 24 new lows. The combined total of 181 new highs and 47 new lows is about par for the course in an upward-sloping market. Volume, however, dipped back into apathetic mid-summer malaise.

NASDAQ Volume 1,674,379,250
NYSE Volume 3,538,032,250

The commodity markets gave both good and bad news. Oil was up another 74 cents, to $99.87, which is bad news for everybody except oil company executives and Arab sheiks. The precious metals bore most of the good news, with gold up $14.50, to $1,601.50, and silver higher by $1.17, to $40.12. Silver appears ready to head into orbit, now that the new Hong Kong silver futures vehicle is offering some variation in pricing.

As the US economy becomes more and more bad theater, expect gold and silver to grind higher, with most of the explosive moves in silver, which is still underpriced at a 40-1 gold-silver ratio. The long-term trend is 16-1.

Today, House Republican "leader" John Boehner walked out of debt ceiling negotiations with the president, saying the two sides, "couldn't connect." No kidding, John, when you won't even allow for closing tax loopholes on millionaires and billionaires when we're suffering the worst depression of all time.

Boehner, and the rest of the "Tea Party" Nancies ought to be ashamed of what they're doing to the country. When the collapse comes, they should be handed the great bulk of the blame. President Obama has tried to deal with them, but it has become a losing battle.

God save us.

Rattled Market Recovers in Late-Session Trade

Investors, worried over an imminent government shutdown, got another jolt of reality when it was reported that a 7.4 earthquake struck Japan just after 10:00 am EDT.

The quake struck in pretty much the same region as last month's 9.0 earthquake, but geologists quickly downgraded the temblor to 7.1 and eased fears over another tsunami, measuring this one at a mere one meter (roughly three feet). This most recent quake hit in what was the middle of the night in Japan, so reports were rather sketchy, though it appeared that damage had been minimal.

With the waning of that alarm, investors quickly got back to work buying stocks, bringing the major indices back to nearly break-even at the close.

Word out of Washington was still dire, suggesting that Republicans would force Democrats into a no-win situation without resolution of their differences and cause a government shutdown on Friday night, April 8, at midnight. While most Republicans and Democrats alike would prefer to work out the narrow $7 billion worth of difference on the current budget, the House Republicans, led by first-term Tea Partiers, seem intent on standing fast to ridiculous ideological riders that would defund Planned Parenthood and public support for PBS and NPR, and it appears that these freshman legislators are going to get what they cheered yesterday, an indefinite shutdown of non-essential government services, since the Obama administration and the Senate Democrats say they have negotiated in good faith and enough is enough.

Just a little more than a day is left to work out a compromise, though a meeting today between House leader John Boehner, senate leader Harry Reid and President Obama produced nothing other than a promise that the same leaders would meet again at 7:00 pm tonight.

In another grandstanding move, House Republicans pushed through a one-week funding bill that would provide paychecks for the military, though President Obama has promised a veto should the measure reach his desk. This is how the Republicans are holding the process captive, by using American servicemen and women as props in their political debate. This level of audacity and below-the-belt maneuvering is reserved to the worst politicians on the planet, though the House newcomers seem perfectly content to drive the country to the brink of insolvency.

Wall Street took it in stride, but the eventual fallout from shutting the government down for an extended period could have long-lasting consequences the newbie Republicans can hardly imagine.

Dow 12,409.49, -17.26 (0.14%)
NASDAQ 2,796.14, -3.68 (0.13%)
S&P 500 1,333.51, -2.03 (0.15%)
NYSE Composite 8,489.33, -18.90 (0.22%)

Even though the major indices finished in the red, there was a pronounced number of losers over winners, with declining issues beating back advancing ones, 4092-2427. The NASDAQ finished with 115 new highs and 24 new lows, while the NYSE saw 154 new highs and just 4 new lows. Volume, despite the drop and rally in the morning, was still very much on the light side.

NASDAQ Volume 1,811,538,125.00
NYSE Volume 4,322,927,000

The day's events did nothing to slow the rise in the price of oil, however, as WTI crude futures rose to $110.30, up another $1.47 on the day, as word that Libyan rebels were being pushed back by forces loyal to embattled leader Moammar Gadhafi.

Gold made another new closing high, but only by an 80 cent gain, to $1,459.30. Silver tacked on 17 cents, to $39.55, another 31-year high.

With a looming government shutdown less than 36 hours away, markets are more than likely to remain somewhat stable, though a prolonged battle by the political leadership might be more than the fragile economy can handle. Sadly, the amount in question is tiny compared to the intellectual vacuity of the Tea Party Republicans.

Flat City

Maybe Tuesday's ramp-up was a little too much, or investors are actually a little concerned about events unfolding in Egypt, but whatever the case or cause, markets didn't do anything other than flatline on Wednesday.

The Dow traded in a 45-point range, while the S&P and NASDAQ were bound by 10 and 5-point ranges, respectively, proving that three's nothing like pushing already overvalued stocks even higher to stall out trading completely.

ADP released its monthly employment report, which suggested private payrolls grew by 187,000 in January, and revised December's report down 50,000, to 247,000. The revision means that the initial report was off by a factor of 16%, making it about as reliable an indicator as anything coming out of the Bureau of Labor Statistics (BLS), which, by the way, is the "official" measure of everything employment-related in the USA.

Market reaction to the number was a big yawn and the rest of the session more resembled churning of butter or grape-stomping rather than orderly markets. The day was a mash, and a dull one, at that.

Dow 12,041.97, +1.81 (0.02%)
NASDAQ 2,750.16, -1.03 (0.04%)
S&P 500 1,304.03, -3.56 (0.27%)
NYSE Composite 8,272.57, -17.52 (0.21%)

Losing issues took control over gainers on the day, 3569-2893. The NASDAQ recorded 158 new highs and 15 new lows, while the NYSE had 255 new highs and 6 new lows. This indicator has been stuck at roughly these levels for the past two months with no signal that they are going to change any time soon, thanks largely to the Fed's easy money policies of ZIRP and QE2. Volume was back at the usual moribund levels.

NASDAQ Volume 2,011,206,000
NYSE Volume 4,553,074,500

Commodities took the day off, especially crude futures, which registered a smallish gain of 9 cents, to $90.86. The precious metals continued to be depressed, with gold down $8.20, to $1,332.10 and silver off 23 cents, to $28.29.

Thursday will bring initial unemployment claims at 8:30 am and Friday will be the big number, the BLS' non-farm payroll report. Of course, none of these indicators really matter much with the Super Bowl on Sunday. As mentioned in previous posts, there won't be any real movement in markets (other than straight up) until after the big game.

Inflation remains a hot topic, with the official government CPI proclaiming it to be hovering in the 1 1/2-2% area, when everyone in the real world knows it's really 5-8% or higher, especially concerning food and fuel.

One area not experiencing inflation are payrolls, which haven't budged much in the last 10 years for most middle class jobs. How long the government can keep the Ponzi scheme of rising prices and stagnant wages going before the USA turns into either Ireland, Greece or Egypt is an open question, though considering the general stupidity and apathetic nature of the American public, it could carry on for some time, measured more in years than months.

But then again, nobody in the "official" world saw the Sub-prime or banking collapse coming, so the next Black Swan could be right around the corner, say, in Pakistan.

Leaders in Washington have been particularly silent of late, focused more on in-fighting than any meaningful, needed reforms, and that condition is unlikely to change. After all the next big congressional and presidential elections are only 21 months away. It's actually quite astounding that nobody from the Republican camp has declared themselves a candidate.

Maybe they're all scared of Sarah Palin, or something worse. But, is there anything worse than the former Alaska governor? Well, there is Michele Bachmann, the woman who keeps John Boehner in tears.