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Obama to the Markets.....DIVE, DIVE, DIVE.....

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July 25, 2011 – Comments (12)

 My first thoughts the last ten days or so have been to guess how the markets would react when the debt ceiling was raised. Would it be sell on the news or a relief rally??  Now after Obama and Boehner did their bolstering I'm ready to batten down the hatches, realizing that what seemed so certain is really at risk, but the risk of default in the short run isn't the bigger problem after that display.   I do suspect at least something will pass.  Perhaps the kick the can option. I not going to take sides on which plan should pass, we all have our opinions just as the President and Congress do and it's unlikely that we could find compromise on an investment forum.

My comments are regarding the President telling the American people to contact their congressmen.   I think occasionally on a few bills that might have some slight influence, but overall Congress isn't going to take an opinion poll and read the emails and messages from their constituents. The American public does vote every few years. The sentiment vary's and the balance shifts between the parties.

Some think that the Financial Markets are controlled by sentiment of day traders, retail traders, hedge funds, etc and that the sell orders control the flow of the funds from the mutual funds.  The reality is that the markets are controlled by a relatively select few who can swing it widely.  This will be the message that the  Markets to send that message tomorrow morning.  The sentiment will align with warning message that is usually sent when the market movers want to remind Congress where the power lays if they can't make up their mind.

First we threaten the paychecks of Social Security and Veteran recipents. Clearly the President and House doesn't know that these two groups carry more licensed guns than the law enforcement who might be called upon to stop the riots.  The riots in Greece will look tame compared to getting those two groups working together.

Now we talk about a week extension due to better revenues, or a kick the can for six months or its the Presidents fault for vetoing it.  The tiptoe up to the deadline and sign something at the last minute will most likely still happen, but the President wants a message sent.  He's asked for the markets to step in.

Look out tomorrow morning.  The overseas markets started the selloff yesterday and wondered why the American markets were relatively tame. We know Congress and the President can pass a bill in a day or two even though a week was said to be the bare minimum.

After tonights public display by school children, (actually that would be an insult to school children, we're in for the Market sending its message first.

Some day this too will end. It's just a shame that only do we look like idiots/kids that can't compromise to the rest of the world.  We prove that we really are a bunch of children.

Hunker down.......

TSIF

The Sky isn't falling this evening, but the governmnet is certainly making it dark and gloomy! 

 

 

12 Comments – Post Your Own

#1) On July 25, 2011 at 10:39 PM, vriguy (83.89) wrote:

The question is how much will the markets fall over the next few days? 10%? 20%? 40%?

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#2) On July 25, 2011 at 10:49 PM, Momentum21 (39.12) wrote:

I have no idea but my gut tells me this isn't going to result in much of a "tradeable event" from here. Some of this waffling was priced in weeks ago and I also doubt we rally much even if a speedy resolution is passed.

If anything, (maybe) getting these guys front and center and escalating the debate might get more of the American Public engaged and focused on all of the nonsense that will get packaged up in any compromise. The complete opposite is a bit more probable though... : ) 

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#3) On July 25, 2011 at 11:23 PM, tomlongrpv (78.18) wrote:

Obama will wait a little if there is a default but ultimately just issue bonds on his own.  The 14th Amendment provides that the debt of the United States shall not be questioned.  When Congress passes whatever spending and tax bills it passes it cannot contradict those laws with a debt ceiling.  That's what the constitution means when it says you cannot question the debt.  The debt must be paid.  The radical slash and burn types will have to find another way to do it.

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#4) On July 25, 2011 at 11:28 PM, TSIF (99.96) wrote:

vriguy, I'm (usually) not one to contribute to a panic. I keep my umbrella handy, but normally am pretty content to drift around my pasture looking for grass that the farmer spilled some fermenting grain on.  I do try to ride cycles and look for bargains that might develop.   I've got a few very low limit orders set on a few equities I wouldn't mind owning.  I think the end result will be that we will end the year 3-5% higher than we are now, but then again, what do I know.

 WE had a 600 Point Dow crash that started as 200-300 point one the last time the markets were really mad.  I wouldn't be surprised to see 2-3 percent over the next few days depending on how the rest of the sentiment and 24 hour talking head news feed things. If we don't pass something and the S&P comes through on the credit rating hit then we're probably out another 2-3 percent. I think overall when the dust settles if either version of the plan, including the tin can passes then it's probably going to snap most of it back quickly. Of course if it's kick the can, we do this again in January.

I'm surprised the Japanese market only shed 0.30 percent after the two spoke tonight...maybe the tone/confusion/posturing don't translate very well...... ;)

Momentum21, I pretty much agree, I thought the entire thing would probably be pretty much of a nonevent, but I was hopeful if they did it right we might seek a slight upward direction if things stay quiet in Europe, etc.

The next week, however, after tonights display might be rockier than it had to be.  Nothing is easy and maybe a few bargains will show up on my radar. I just don't think the public posturing is going to help.

I'd suggest fellow Fools use any pullback to look for bargains. 

My other considerations had been what might follow if the cutting does get passed that is heavy in some areas.  I have a few providers to the military on my watch list and those type of investments will need to be made more carefully.

But I'll worry about that another day!

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#5) On July 25, 2011 at 11:31 PM, TSIF (99.96) wrote:

 tomlongrpv  I was of the opinion that a loophole could most likley be found as well. There seemed to be no reason to threaten the seniors at all.  Clearly bills can be paid in certain orders to take care of day to day and I would agree that the debt limit issues seem to covered by the constitution.  The credit rating agency's cutting our credit rating, however, and the perception still wouldn't bode well overall.

(I'm still surprised anyone cares what the credit ratings agency's think after they showed how competent they were during the crash)!!!  ;)

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#6) On July 26, 2011 at 12:07 AM, RainierMan (72.83) wrote:

I guess the futures market disagrees so far....all up.

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#7) On July 26, 2011 at 7:25 AM, outoffocus (23.48) wrote:

Simple fact is there needs to be cuts across the board and taxes need to be raised on the upper echelon/ top 1%(data on the wealth gap show this).  There wouldn't be any riots if we fostered a culture of personal responsibilty.  Instead the government deals with the people like a bunch of whiny babies and the people in turn respond like a bunch of whiny babies.  Despite the usage of terms like "printing money" and such people should know that money does not grow on trees.  Yet because of all the "freebies" the government has given us over the years (they were never free) we somehow feel the government is he exception to the rule.

Cut everything.  Leave no pork unsliced, not program untouched.  Raise taxes on the top 1% by getting rid of all these ridiculous loopholes.  

I know people will find a reason to justify this program or that program.  But its not about the validity of the programs, its about one simple fact that no one wants to recognize.  WE CAN NO LONGER AFFORD IT. 

/end rant...

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#8) On July 26, 2011 at 11:13 AM, Frankydontfailme (27.71) wrote:

Nice outoffocus

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#9) On July 26, 2011 at 11:47 AM, leohaas (31.02) wrote:

TSIF: Right. I am with you. But it still isn't happening (the "Dive, Dive, Dive" that is). So maybe we are wrong?

#1: I am ready for this 10%, 20% or 40% fall over the next few days. But since it hasn't started yet, and it is too late now for a grand bargain (which I believed we needed to avoid the fall we both expected), it should really have started, shouldn't it?

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#10) On July 26, 2011 at 12:52 PM, smartmuffin (< 20) wrote:

Maybe we should give "the markets" a little bit of credit here for being smart enough to realize that this is nothing but political grandstanding.  Obama and Boehner want to trick the public into believing that the two parties are just so different, the other one is extreme and radical, and that they couldn't POSSIBLY come to a compromise.  Meanwhile, they're bickering over a few hundred billion dollars of cuts over a ten year period when the deficit is something like 1.4 trillion per year.

In the end, some sort of compromise will be made.  Either the Republicans will celebrate and act like the few hundred billion in cuts they got will somehow solve the problem, or the Democrats will celebrate and act like the few hundred billion in revenues they got will somehow solve the problem.  Meanwhile, everyone who is paying even the slightest bit of the attention (including Mr. Market) will know that they are both fradulent liars, that nothing is solved, and that nothing has changed.

I see no logical reason for a large move up or down in any scenario.

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#11) On July 26, 2011 at 2:19 PM, TSIF (99.96) wrote:

The passage of any bill will have it's winners and losers. How close they come to cancelling each other out will be interesting over time.

I agree with Smartmuffin in that there not being  a morning drop could speak to the Markets being a bit smarter (or the ones with the most clout), or it could mean more denial of the extent of the issue and the timing. I think the mention of the "kick the can" down the road option at least offered a temporary reprieve. 

Overall, however, the markets hate uncertainty and fear is a real driver in the short run, so I'm not so sure we won't get some reaction in the next few days,  Certainly on Friday going into the weekend if we don't get something more positive.   I'm pleasantly surprised so far today, as are the few analysts that I follow that are normally very level headed.

I'll be even more surprised if the markets don't register at least a 1-2% swing before this is over.  Again, I don't expect a 10+ drop unless nothing gets done and we do get a credit rating hit. I think overall that looking for bargains is warranted.

Thanks for all the comments.

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#12) On July 26, 2011 at 6:57 PM, awallejr (76.63) wrote:

Except once a default occurs it changes the status of US TBills.  Many things worldwide are tied to it, so it would have a global impact. 

As for the use of the 14th Amendment, it is unclear how that would ultimately play out in the Courts.  Generally that amendment was made to insure Civil War debts were to be paid since there was a concern that the readmittance of Confederacy Congressman might have tried to stop it.  On the other hand the Courts could try to extend its interpretation to cover this current crisis. 

Obama would be foolish not to at least try should it come down to that, and should he succeed, and I think he has a shot, then the debt ceiling basically would be forever removed from being used as a "weapon" again.

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