It is more than just the debt ceiling
Steve Cook on Disciplined Investing

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Have You Seen This?


The Market
    
    Technical

    The Averages (DJIA 12302, S&P 1304) had a rough day but remain in the mid zone of their trading ranges (11863-12919, 1263-1372).  The right shoulder to a head and shoulders pattern continued to form. 

The S&P not only again traded below its 50 day moving average, it also traded below its 100 day moving average.  This happened in late June and the Market held at its 200 day moving average and bounced back; so I want to be careful not to get too beared up too quickly.  The 200 day moving average is now at circa 1283.  If stocks break that level, we could be in for a rough ride. 

    Volume picked up: breadth was terrible and included the breakdown of the flow of funds chart.  The VIX spiked 13% making it the second day above the upper boundary of its trading range.

    GLD was off fractionally but is well within its intermediate term up trend.

    Bottom line: stocks are working their way toward the lower boundary of their current trading range.  If the morons we call our elected representative continue fill the air waves with idiotic points and counterpoints, then we will likely get a test of that lower boundary.  In the meantime, I have to pay attention to our Price Disciplines.

    Fundamental
         
      Headlines

    Yesterday’s economic news was basically bad: weekly mortgage applications were down, June durable goods orders were down and the most recent Beige Book report reflected a slowing in the growth rate of the economy and little improvement in unemployment.

    However, the politicians are still center stage.  Futures were off before the Market opened because it appeared that the Germans were dissing the latest Greek ‘bail out’.  Then as the day wore on, investors switched their focus to the Boehner plan which he re-worked following Tuesday’s cbo scoring (the new version will  likely be voted on today).  However, leaders in senate as well as the White House said that it would be DOA at both locations.  That really got stocks moving to the downside.  I still believe that there will be some resolution to the debt ceiling problem, though the most likely scenario, in my opinion, is that it will be a half assed, kick the can down the road to the 2012 elections. That’s OK and it fits our Model.

    Here is the new Boehner plan (medium):
    http://www.zerohedge.com/news/boehner-releases-revised-plan-cut-917-billion-each-year-decade-buys-4-months-next-debt-ceiling-


    And to be clear, here is how ‘cuts’ in spending are calculated (short):
    http://scottgrannis.blogspot.com/2011/07/nobody-is-proposing-actual-spending.html

    The wild card is what happens if the rating agencies see this solution for what it is, i.e. not a solution to our budget problems, and lower the ratings of Treasuries.  It will take an enormous set of cojones to do so; but the risk is there and the outcome could be really disruptive to the capital markets.

    China’s response to our fiscal mismanagement (medium):
    http://www.project-syndicate.org/commentary/roach7/English

    Bottom line: it seems the EU sovereign debt problem isn’t d after all; and while the US debt issue get be resolved short term, it could raise additional problems relating to the US credit rating.  Not a pretty picture.  At this point, I think we have to heed the warnings of our Price Disciplines and take a little money off the table.  Of course, western civilizations political class could have an epiphany and make me look stupid; but as I said yesterday, discretion is the better part of valor. 

 
Economics

   This Week’s Data

    Weekly jobless claims fell 24,000 versus expectations of a 2,000 rise.
    http://www.calculatedriskblog.com/2011/07/weekly-initial-unemployment-claims_28.html

   Other

    This is an interesting study of the growth of federal spending under Obama as compared with other Presidents.  Of course, the Obama numbers are projected versus actual.  What this study needs to be truly accurate is a comparison of how spending was projected to growth in the early years of a presidency versus what actually occurred; in other words, how much extra spending did or did not take place based on legislation subsequently passed.  The point here is, how many more programs (spending) will this administration load on the American taxpayer before departs?
    http://advisorperspectives.com/commentaries/nt_72611.php

    A history of devaluation (medium):
    http://www.zerohedge.com/news/thousand-pictures-worth-one-word-worthless

    Another look at who pays taxes (short):
    http://mjperry.blogspot.com/2011/07/warren-buffett-is-wrong-on-taxes.html

    A snap shot of the global economy (short):
    http://mjperry.blogspot.com/2011/07/world-trade-and-output-continue-to.html

    Truck tonnage is up (short):
    http://mjperry.blogspot.com/2011/07/ata-truck-tonnage-index-jumps-68-in.html
   
Politics

  Domestic

Tony Blankley on the deterioration of the legislative process (medium):
http://townhall.com/columnists/tonyblankley/2011/07/27/government_by_coup_de_theatre_or_the_constitution

    Speaking of the legislative process, check this account of what’s going on inside the GOP (short):
    http://michellemalkin.com/2011/07/27/rancor-on-the-right/









Posted 07-28-2011 8:24 AM by Steve Cook