Today’s ad-hoc explanation of market action seems to be the failure of the US Congress’ “supercommittee” to come up with a deal to slightly shrink the 2nd derivative of budget growth over 10 years. What a joke! Europe was down over 3.5% today – does anyone there know or care about the supercommittee? What about the Russians (-5%) or traders in Hong Kong last night (-1.5%)? There is a deficit of over a trillion dollars a year, and this committe was talking about spending a trillion less over 10 years than they would at the current pace of growth, as if Congress ever sticks to previous budget plans anyway.
Nobody but journalists has cared about this noise, since it is clear that Congress and the executive will do nothing to meaningfully address the budget gap until the bond market forces their action. If we are in another strong wave down in the secular (post-2000) bear market, this will buy the government (and probably those of Japan, Germany, France and the UK) another year or more before interest rates start to creep higher and force defaults and spending cuts. This outcome is inevitable, since the welfare state Ponzi schemes must collapse and screw the later generations of entrants, as in all Ponzis.
So why is the market down today? Because we’re in a bear market, and Oct-early Nov relieved the oversold condition that had built up by the end of September (lowest, longest-sustained DSI bullishness since 2009). Since before it started, I have viewed this rally aspossibly similar to what we experienced from mid-March to late-May 2008. If the corollary holds, we will be back under SPX 1100 by the New Year.
Journalists are lazy and make up explanations for market action without any empirical evidence, always assuming that correlation equals causation. If every day you magically had the next day’s news headlines, I doubt it would offer much if any trading advantage.
From his Texas Straight Talk column on his Congressional site:
This week marks the deadline for the so-called congressional Super Committee to meet its goal of cutting a laughably small amount of federal spending over the next decade. In fact the Committee merely needs to cut about $120 billion annually from the federal budget over the next 10 years to meet its modest goals, but even this paltry amount has produced hand-wringing and hysteria on Capitol Hill. This is only cutting proposed increases. It has nothing to do with actually cutting anything. This shows how unserious politicians are about our very serious debt problems.
To be fair, however, in one sense members of the Super Committee face an impossible task. They must, in effect, cut government spending without first addressing the role of government in our society. They must continue to insist the federal government can provide Social Security, Medicare, and Medicaid benefits in the future as promised, while maintaining our wildly interventionist foreign policy. Yet everyone knows this is a lie.
Keep in mind that the 2011 federal deficit alone was about $1.3 trillion, which means the Super Committee needs to cut that much PER YEAR rather than over a 10 year period. If Congress ever hopes to address its debt problem, it must first stop accumulating any new debt immediately, in 2012.
Federal revenue likely will be about $2.3 trillion in fiscal 2012. The 2004 federal budget was about $2.3 trillion. So Congress simply needs to adopt the 2004 budget next year and the federal government will balance outlays and revenue. That’s all it would take to produce a balanced budget right now. Was the federal government really too small just 7 years ago, in 2004? Of course not. Only Washington hysteria would have us believe otherwise.
Read the whole thing here: http://paul.house.gov/index.php?option=com_content&task=view&id=1928&Itemid=69