WHAT DID THOSE FINANCIAL TERRORISTS GET?

$3,850,000,000,000

As we come to the end of the debt ceiling debacle for 2011 and 2012 it is important to highlight what our fine leaders and representatives accomplished for us hard working folk.  I only want to highlight the key points and I'll add some thoughts below the summary.  In addition, I'll talk about market direction in the TRADING UPDATE section.

DEBT CEILING HIGHLIGHTS -

• The compromise allows the debt ceiling to increase by as much as $2.4 trillion dollars in total. Included is an immediate increase of $400 billion dollars. President Obama would be permitted to request another $500 billion increase in the coming months, which Congress could vote to disallow by a veto proof two-thirds margin. A further increase of between $1.2 trillion and $1.5 trillion would be available after a special committee identifies matching levels of additional spending cuts.
• The agreement calls for cuts of more than $900 billion over ten years in spending from programs, agencies and day-to-day spending. It would include security-related and non-security-related cuts. According to the Congressional Budget Office, "discretionary" spending would be decreased by $21 billion in 2012 and $42 billion in 2013.
• The agreement creates a 12-person House and Senate special committee to identify further spending cuts. The committee must complete its work by Thanksgiving - November 23 - and Congress must hold an up or down vote on the committee recommendations by December 23. The committee could overhaul the tax code or find savings in benefit programs like Medicaid, Medicare or Social Security. Congress could not modify the committee's recommendation.
• Should the special committee deadlock or should Congress reject the committee's recommendations, then automatic across the board spending cuts of at least $1.2 trillion would go into effect.
• The agreement requires that the House of Representatives and the Senate vote on a Balanced Budget Amendment to the Constitution, although its passage is not guaranteed.
• The deal also includes changes to Pell Grants and student loan programs. Pell Grants will receive a $17 billion increase for low-income college students, which will be financed by the elimination of subsidized student loans for most graduate students

Ok, here's a little refresher before we get started.  The 2011 budget is slated to be a total of $3.85 Trillion and of that it includes borrowing almost half of the sum to meet those requirements.  That borrowing represents a $1.65 TRILLION deficit.  Stated another way, we are spending almost double what we are bring in.

OVERVIEW -
I'm fine with bullet one where they parse out the amounts over time.  Clearly the President got what he wanted which was a deal to get him through the 2012 election cycle.  Hasn't the guy ever heard about serving the public?  Who cares about the election, fix the problem!

Cuts of $900 Billion in ten years are a complete farce.  There are so many problems with the approach that these clowns took with this deal it is simply appalling.  First 2012 and 2013 cuts amount to around $70 Billion.  These are cuts that likely will happen, but amount to about 2% of the freaking budget!  Who runs a budget like this?  In other words, this $900 Billion is a complete joke.

The Special Committee is something that I feel is dangerous.  While I like the idea of a group getting together to actually work AND having their ideas implemented, it is dangerous in terms of who will be on the committee and who won't.  Effectively we already know that to be considered for the committee you must  have voted "YES" for the debt ceiling agreement.  That means that many of the fiscal conservatives in Congress will not be allowed to participate.  Ron Paul and others that actually vote based on conviction will be excluded, and he is exactly the one person that should be on the panel.

I do like that cuts will be enacted and if not, across the board cuts will come.  This is REALLY what has the Democrats shaking in their boots.  If the Republican caucus really wants to find cuts they can simply vote the recommendations down and the hammer will come.  Of course we all know that the Republicans talk a good game but don't really have a real desire to change anything so we'll see some other compromise that will keep the status-quo going for a little while longer till the house of cards completely implodes.

The Balanced Budget piece has no teeth.  It is interesting that almost all politicians say that they want a balanced budget, but somehow it never gets put to a vote.  My guess is that we'll have about 99% absenteeism on the day that vote is held.  That issue is one where everyone likes to affirm it, but no one wants it really.  If we had a balanced budget amendment, the government ponzi scheme would face limits and that can't be good for anyone that derives power from an unlimited and insatiable government.

Finally, the Pell Grant thing is also pretty laughable.  We are going to continue down the road of getting our young folks all going to college so they can get in line with the other unemployed folks with useless liberal arts degrees.  I actually would support this measure IF and only if Congress required these students to self-fund their expenses until they actually received their degrees (yes loans, working, etc) to make the cost to taxpayers riskless.  Second, the government Pell grants would only reimburse students that earned degrees in engineering, science, and other hard-core programs that were technical in nature.  Upon earning degree AND working for 2 years in the field the Pell grant would pay off or reimburse a student for books and tuition up to a maximum amount.  This would ensure that the taxpayer only pays for success and doesn't pay for Jimmy to "find himself in college" and also makes sure that the graduates that earned the degrees are employable contributors to society.  While it sounds tough, too bad.  WE HAVE ENOUGH UNEMPLOYED LAWYERS, LIBERAL ARTS LOSERS, AND DROP OUTS in this program, enough is enough.  It is our money and it is time to demand responsible stewardship of it.

And yes, all of those scientists could work to create the next generation of these (see video below) which just happen to be some of the coolest planes ever.  I really put them here to show you what $1.5 Billion will get you.  Now contemplate this, you could buy 650 of these awesome flying wings for just under 1 trillion.  My guess is that when all is said and done, we won't have anything to show for our use of $1 trillion in deficit spending this year, so if I have to spend an extra trillion or two I'd rather have the B-2s.

WHO WON?

My first take on this deal is that the Democrats won.  Yes the media is howling and stating that the Republicans won and the Tea Party members are terrorists, but that is foolish.  The Republicans caved just like I said they would.  Essentially they could have gotten anything they wanted if they were willing to push things to the limit, they weren't.  The President gets to push this issue out past 2012 so he can concentrate on the election and continue telling everyone that he inherited a financial mess.

While the Tea Party may have scored some points by getting the balanced budget onto the map and even getting the special subcommittee to make cuts, they have allowed themselves to be characterized as a radical fringe group of nut jobs willing to take down the USA to accomplish their goals.  They need to be more forceful and vocal stating that they love this country and that the politicians on the left and right simply are part of the political class that could care less about the nation and its people.  They must state this emphatically every time and demand recognition that the past policies of Bush and Obama are failures and don't work.  The liberals hate the Tea Party and attempt to label them and marginalize them in order to attempt to make others discount them.  It has worked so far, but they must fight on.

Unfortunately Republicans are the the guys that are attempting to play the game of politics the best.  You can see it in the old veterans.  They are loving having a "bad cop" group that they can blame for being on the fringe and then they can go to their constituents and blame the liberal left.  They proudly sit in the middle playing both sides off each other.  I can tell they believe that they will rise to power in 2012.  The problem is though that many of us recognize this game and the time for life-long politicians is waning.  We need leaders that make hard choices and choose the side of long term financial strength for our country rather than another election cycle victory. 

Here is a list of those that voted for and against the bill in Congress -

Here is a list of those that voted for and against the bill in the Senate -

I will do a trading update this evening.  Please drop by again to view this post.  http://www.goatmug.blogspot.com/

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/

LEADERSHIP IS NOT PROPOSING A PLAN

Since I'm on the subject of leadership as I just posted in FAMOUS FOR NOTHING..... Love the line "Leadership is not proposing a plan".  Well, if that is the criteria for great leadership, I've been wrong for some time and the Senate and the President are great leaders.  Pretty funny.  Enjoy the video.  Personally, I'm not so convinced that a balanced budget saves us because we still haven't addressed the run away entitlement spending and defense spending.  Yes, it caps deficit spending, but at the end of the day the goal is not to max out our government size, it is to have a small government.  We already know that what the government does, it doesn't do well - except in the case of our military.

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/

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/

UNCOMMON INDICATORS - SAME RESULTS

I found an interesting video on CNBC (yes, all fluff and they try to make all things positive).  The CNBC gang interviews Nick Colas who tracks internet searches on Google to attempt to find trends that might indicate where companies and the economy are going.

Clearly everything in the economy is not roses as he responded several times, "that's a tough one" meaning that because the search term was showing up more and more that didn't mean that things were getting better.  Essentially this interview highlights one of my issues with the CNBC hosts, they enter into the interview with the thought that these indicators are to reveal bullish information, hence the panelist is in a position to defend the data and almost apologize if the data is negative.  Truthfully, it isn't hard to figure it out, you just examine the results, question it, and then accept it.




Here are the search trends he follows;

GOOGLE SEARCHES FOR HOME BUYING - I get this one, I hadn't thought about that.  I would state though that I'm hearing more and more complaints from realtors and mortgage lenders that they can't get buyers that can get financing.  In my city this is really blowing up potential deals and causing slow sales. 

SEARCHES FOR USED CARS  - He doesn't share with us the numbers for used cars, but this would be useful to see if folks are going to try to buy new cars or buying used.  I keep hearing lots of optimism from the auto industry about their growth prospects and how things have changed.  I wanted to examine these indicators for myself and so I used the Google Automotive Search Index results as a high level "smell" test.  Interestingly the index values show a couple of striking things.  First, we are currently at a level that is much higher than last year, which was horrible.  This is wonderful and you can see how the executives at the manufacturers are excited that things are looking up.  Despite the good news, we see that this is also a level that is similar to 2007, which wasn't exactly awesome.  On top of that you must account for a growing number of searches as people are using media and search more, much more than they did 4 years ago, so this too should make us pause a little.  Finally, we have just exited the typical peak point in sales and searches in terms of seasonality.  Last week I posted a chart on GM, I'm not getting long anytime soon. - GM CHART FROM 7/22/11.  Take a look at the Google Search Index for Autos below.

SEARCHES FOR GUNS -
I'm not exactly sure that guns are a great indicator of improving financial health as Nick tried to spin this.  His angle is that guns are a $300 to $500 durable good like a washing machine or refrigerator.  Somehow I'm not thinking that gun searches are a marker that citizens feel confidence in an improving economy.  I believe that folks feel like the system is breaking down and the government cannot protect them.  Perhaps folks aren't looking to prepare for Mad Max times, but their search for the best gun for them may mean that they are concerned about the increasing risk of break-ins and their security.  Oh yes, if you are in the market for guns you might consider the Mossberg 500 or 590 and the Glock 23 as a starting point in your research.

SILVER AND GOLD -
We've discussed this at great length, people across the world are buying gold and silver as the un-currency and as an inflation hedge.  If "investors" are looking to buy gold and silver, they don't have a lot of confidence in traditional investments. 


FOOD STAMPS -
The Goatmug Blog tracks food stamp usage every month, but I like the idea of watching these trends to see how many searches are being performed in real time. This approach may give us insight into what numbers will look like several months in advance.  Regular readers know that we report these dismal figures in the monthly update and last month's figures show that almost 45 million people are on the roles and as the panelist described one in five families receive food stamps.  How disgusting!

GOOGLE TRENDS

If you have a desire to check out some of these you can look at Google Trends to examine word searches and also you can use this link in Google Finance - http://www.google.com/finance?q=GOOGLEINDEX_US:AUTO

I did searches for durable goods and other items and many of the results show how poor the us consumer is right now in terms of discretionary spending.  Durable goods searches are at 7 years lows, but it is beginning to tick up compared to last year's horrible totals in year over year trend!  Wow! 

At the end of the day I like this approach it may give us a view of coming changes in trend in a real time format.  At least Google's spying is good for something right?

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/



WELCOME TO THE THEATHER - 1984 STYLE

WORLD MARKETS ARE THE FOCUS
I heard today that the President and CONgress were rushing to try to get some type of debt ceiling done (temporary or not) before Asian stock markets opened for the week (Sunday evening in USA time).  I'm struck by this because I'm simply floored by the fact that these politicians are spending any time focused on what equity markets are doing rather than focusing on the task at hand.  What I'm getting at is the notion that they are scurrying around to avoid a fall in markets shows me that this is all just a big show for the markets! 

Yes, this isn't some new revelation since the timing for all major announcements seem oddly planned EVERY single time to coincide with a Sunday night bombshell or options expiration Friday.  As I've noticed these events I've pinched myself saying, "no, it's just a coincidence".  However, after having an entire arm covered with red whelps, I am finally of the mindset that a game is being played to juice markets and keep them elevated. 

The story here - http://www.foxnews.com/politics/2011/07/24/leaders-seek-debt-deal-before-asian-markets-open/

"White House Chief of Staff Bill Daley warned Sunday that the financial markets are starting to have doubts about the ability of Washington to strike a debt deal, as lawmakers scramble to come up with a plan before Asian stock markets open.



The Asian markets will start to open Sunday evening Washington time, ahead of the Dow opening in the U.S. Monday morning. U.S. officials are cognizant of the possibility that a failure to outline a path forward by then on how to raise the debt ceiling could roil the markets."

Now give me a break!  We have several days until this deal needs to be done, and rest assured that our friend Ben Bernanke is quite willing to buy up all the debt in the world to keep us from having an interest rate problem.  I saw Tim Geithner on tv telling us how irresponsible those Republican politicians are being and how the apocalypse will be unleashed if something isn't agreed to immediately.  While the warnings are grave we can retain a sense of confidence in our financial overlords as every other problem we've faced in the last two years has been met with a change of the rules, a bending of all reality, twisting of economic paradigms, and a moratorium on basic math.  Forgive my tongue and cheek approach to the drama, but I personally don't think there is any chance of a deal not getting done, and with hours to spare they'll unveil another monstrosity that will solve nothing and only ensure that Amerika's future is just a bit dimmer. 

WASHINGTON GENERALS WOULD MAKE GREAT REPRESENTATIVES
Have you been to a Harlem Globetrotters game?  I love them and go every time I have a chance.  Those guys are funny and entertaining and the kids think they are a blast.  My kids haven't figured out that the Washington Generals (the perennial opponent of the Globetrotters) are laying down so the Globetrotters can win.  My kids don't realize that the entire game is a show and there is no competition going on down on the field of play.  Likewise, I think the entire drama unfolding in CONgress is simply a ruse where each side of the isle is attempting to make the most out of the situation.  They are all on the same team, they are just wearing different jerseys to keep up the facade that a competitive game is under way.

So, with that realization, I want to give you the opportunity to watch a movie you may have seen a long time ago.  You may have read it in high school back when they actually tried to teach you important ideas and challenge you to think.  The entire theater that is Washington relies on all of us buying into the divisions of a two party system where one can be good or one can be bad based on our frame of reference.  Let's face it, we all like to be on a team!  The problem sets in when you discern that neither one of these teams is good. 



I will leave you with these thoughts and questions from the movie.

Ignorance is strength!

The party gives them exactly what they want.

How do you know what exists?

I encourage you to watch it.  How Orwell would have ever imagined the things he did when writing it is amazing.  I am awed by the idea of the screen in every home and building monitoring every action.  It is very much like today.

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/