FAMOUS FOR DOING NOTHING

In the last week or so I've had to continue rereading my own posts to ensure that I am clear as to where I think we are heading.  As I stated last week this whole debt ceiling is an odd affair that is more like theater rather than an exercise in leadership, although this is exactly the kind of result I was looking for, going through it is frustrating.  As readers know I suggested that the drama would unfold and the participants would use the tension to drive markets lower and add to the urgency to get "any" deal done. 

Unfortunately we received the exact prescription I ordered.  The market for its part has handled the mess pretty well as it has been conditioned to believe that any close call will be met with the not-so invisible hand of the Fed, Treasury, or President Teleprompter each time.  I hate to admit it, but the President and the Democrats have this game of politics quite in hand and they have managed to make the Republicans negotiate against themselves and the RINOS have looked fragmented, unpolished, and inept.  While I don't believe the US should default and feel like a deal could have been cobbled together in a better manner, the Republicans have simply looked like amateurs.  Reading this you may feel like I'm bashing the "Tea Party Faction" of Congress, but you'd be wrong.  These are the only folks that have stood for a reasonable approach through this entire mess.  They have clearly laid out their expectations and have continually restated their demands.  As usual the press and everyone else has blasted them as unreasonable and part of a fringe, however they are the folks that have been on the leading edge emphasizing their position from the beginning.  I think Boehner and the President and the Democrats simply assumed that they would come in line just like all politicians do.  I think what all of the power players are finding is that the rookies are actually principled and mean what they say.

Remember, the Republicans got burned during the last set of negotiations, so it isn't so weird to think that they remember passing a bill with the expectations that billions were to be saved only to find out that nothing was actually cut.  If I was embarrassed like that, I would be demanding a pound of flesh this time.  My point in describing this issue is that I think it is the miscalculation by the Republican leadership, Democrats, and the President that has gotten us to the brink of a "default".  They expected a different outcome and therefore played their hand.  Now I will praise Boehner in all of this because he is a classic politician and he is weaker than previous Speakers because he promised that the Republicans would not add any earmarks to bills, in other words he'd stop the process of bribery that we've seen all too often.  (Remember Obama and his promises to the Nebraska leadership on healthcare?).  Because he isn't using this tool, he doesn't have the carrot to get our dirty little congressmen to come along with his crummy deal. 

As a final update on this, it looks like Boehner and Cantor have added the tea-party requirement that there must be a balanced budget, and it appears like this will pass the house.  It is absolutely necessary to send this over to the Senate because this puts Senator Reid and the President back on the hot seat.  They have talked about not passing this bill, but will they actually kill the bill knowing that THEY caused the default?  Who knows, but it will be interesting and it puts pressure on them.  At this point Boehner and Obama are famous for doing nothing on this issue.  Essentially they are non-leaders and that is clearly my feeling about the President.  While he likes to talk a lot on TV and use that teleprompter, he has little substance.  He postures and relates how things should be done, but never follows through.  Where is the President's plan to cut spending?  He has none.  If he doesn't get his way he vocalizes how its not fair.  At this point the President, Reid, Pelosi, and Boehner remind me of the world's most famous tennis player, who by the way never did anything.  She wasn't any good, never won a tournament, and never competed strongly at the highest levels, but she clearly was the most famous tennis player for years.

 Photo by www.eltiempo.com -

These times demand that our leadership reign in spending and come up with real solutions that are lasting.  Cutting $100 Billion each year for 10 years is a complete waste of time.  S&P told us we needed to cut $4 Trillion in spending, where is the disconnect between this dire circumstance and what these hacks are producing?  The Keynesian experiment where we blow out all budgets to stimulate the economy with massive government spending has failed, today's GDP revision has proved that.  If deficit spending failed there is only one solution left, to cut spending.  Our leaders need to get to work on their craft and stop working on being "famous".

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

BROKE EMPIRE RESORTS TO MASSIVE STORMTROOPER LAYOFFS

Stormtroopers can be found wandering the streets with all of their belongings in their Troopercarts.

 

CREDIT ATTACKS LEAD TO DOWNSIZING
Stormtroopers throughout the Empire received their pink slips this weekend and were summarily kicked to the curb with all of their belongings and a small severance stipend.  As credit problems resurfaced in Europe over the last month, the USA felt like it had dodged a "rebel assault" only to find that all of the radical rating agencies were gearing up for war.

Last week Planet Moody's launched a preliminary onslaught against the Empire's credit domination as a AAA credit by putting the country on credit watch for a downgrade.  Moody's cited the lack of fiscal cohesion on the part of the Senate and Congress and their inability to raise the debt ceiling.

Standard and Poors joined forces with Moody's in an unlikely rebel alliance by also placing the USA on credit watch, but stated that it would drop the credit rating of the Empire if significant budget and deficit cuts weren't approved.  They stated the rating will be cut within 90 days if these changes were not made.

GEONOSIANS (CHINESE) LAUGH AT THE EMPIRE'S LIES
At a high level economic summit on planet Geonosis, General Grevious (aka Tim Geithner) responded when asked how the USA could simply terminate so many of their Stormtroopers with little notice by saying, "It's expensive to run an Empire and we've got to prove that we believe in a strong dollar)."  When concluding his statement, young Geonosian students laughed at the outlandish lie.

While the spending issues in the Empire are the headline stories we are reading, the real drama is playing out in real life as Stormtroopers and Tie Fighter pilots are being furloughed without warning in an attempt to resolve the huge spending deficit.

Many wayward Stormtroopers have been attacked and killed by kangaroos on the dark side of planet Earth.  Stormtroopers without jobs are more susceptible to depression and illness and are often unable to defend themselves from vicious predators. 

DEBT CEILING AGREEMENT?

So how will this play out?  Clearly the CONgress will come to an agreement with the Administration and there will be a debt ceiling agreement.  The rating agencies are simply playing catch up here and should have don't this years ago.  They are a complete joke.

Interestingly, the only credit agency that I actually trust, Weiss, downgraded the USA to debt to C- which equates to a BBB- with Standard and Poors.  It is almost a junk rating!  http://www.thestreet.com/story/11186657/1/us-downgraded-to-near-junk-by-weiss.html?cm_ven=GOOGLEN

Who do you think is really telling the truth?  I tend to side with Weiss since they are the only independent credit rating firm that earns their money from investors that pay them to look at companies and countries.  Standard and Poors and Moody's take their compensation from the companies that issue the debt, which is an obvious conflict of interest.  If one of the current rating agencies other than Weiss gives you a rating you don't like, you just stop paying them to rate it!  Don't you think they are incented to play nice and give you every chance in the world to have the best rating?  This is why the ECB and IMF's interactions with the ratings agencies are a total sham, and why now we are seeing these central banking institutions simply state that they will ignore ratings when purchasing and backing the sovereign debt of Greece and Italy. 

(Yes, I'm having fun, please read the story about Jacob French who is an Australian nut job that clearly doesn't have a job who is now walking across Australia to raise money for charity.  When I saw the pictures I simply couldn't resist; who can resist a story about a guy in a Stormtrooper costume?). 

http://www.dailymail.co.uk/news/article-2015292/May-force---width-Australia-Star-Wars-fan-starts-mammoth-trek-dressed-Stormtrooper.html

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

THE NOOSE IS TIGHTENING....

Moody's made the first assault on the beachhead just yesterday.  Shockingly, Standard and Poors reinforced the rear guard today reporting they put the USA sovereign debt on credit watch negative.

Now here is the real kick in the pants;

"The long-term rating may be lowered by one or more notches into the AA category in the next three months if SandP concludes Congress and President Barack Obama’s administration haven’t achieved a credible solution to the rising U.S. government debt burden and aren’t likely to achieve one in the foreseeable future, according to the statement. "

Note that it isn't like the Moody's warning that the debt ceiling negotiations were a reason for the potential downgrade, this explicitly states that the USA is on credit watch for its out of control spending.  In other words, EVEN Standard & Poors cannot be bought off anymore and just like several weeks ago with the Italian bonds, the rating agencies finally are stating the obvious.

Congress and the administration were just given a warning here and they better pay attention.  There are significant ramifications for downgrades and the biggest one of course is that we'll be required to by higher interest on borrowing.  We already know that the Fed (we) lose billions each time bonds trade 1 bps (basis point) higher.  We simply cannot afford an increase in borrowing costs now and rising interest expense simply adds to the problem of meeting our future obligations.

I'm increasingly repulsed by both political parties and  I only champion candidates that actually propose and support fiscal restraint and cutting EVERYTHING!  Note how I phrased that, I only care if they actually do what they say, not just say and not do.  Yes, that would include Rand Paul and Ron Paul who talk a good game and then suddenly can't get anything done.  I don't care if the program helps little old ladies, dogs, police, traders, bankers, beggars, or murderers, I want the programs and employment serving that program cut 10% tomorrow as an opening gesture.  I want Congress closed for half a year.  Finally, the department of Energy, Education, and Homeland Security need to be shuttered and all Federal Union contracts destroyed.  These should be a fine starting place to warm us up for discussions to move the retirement age for 40 year-olds and younger to 72 for Social Security.  Social Security tax caps need to disappear and benefits need to be means tested while Medicare and Medicaid outlays need to be reduced.  Finally, to cap off the blitzkrieg attack on government nanny-ness, waste, and fraud, the Patient Protection Act (Obama Care) should be thrown in the trash.

I haven't forgotten about defense spending either and that should receive a flat 15% cut and all foreign aid to all countries should cease immediately.  It is a travesty to think that Americans pay foreign aid to China so they can steal from us and rip us off and then lend to us.  It is wrong that Pakistan takes billions from us and then supports the Taliban that are killing our troops.  Once the money flows to other nations are halted we'll quickly find out if they were really our friends or not.

The rating agency actions are serious and our "representatives" in Congress and the guys in the administration better wake up.

It won't be long before the bond vigilantes come around and we'll see just how much fire power and creativity Bernanke has left.  The bond market is way bigger than the Fed balance sheet.  The Fed may be able to manipulate equity prices but he can't handle drinking from the bond market's hydrant if everyone starts selling treasuries.  He won't be able to keep rates at zero forever in the face of that kind of onslaught.  You can hear them saying, "Get a rope".

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/