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Posts Tagged ‘Congressional Budget Office’

Every intervention into our life by this government creates a new and uncharted course.  Big government and an ever increasing debt load on our country.  The absolute arrogance of this government to think that they can tinker with the future of our country in this manner and that everything will be just fine.  In the good old days, you really couldn’t see through the charades.  Politics were played behind closed doors.  Today, they are going to rob you blind right in front of your face.

It is a joke to think that these politicians are going to take the numbers from the Congressional Budget Office as reality.  Once these numbers came out last week declaring that this healthcare reform bill will reduce the deficit, there was a swing in the NO votes to YES.  Something that you need to know is that these estimates are based on fairy tale assumptions and in no way reflect reality.  It is the ultimate insult to intelligence that these politicians will use the CBO numbers as validation for voting on this healthcare reform bill.  One politician referred to being “giddy” in reference to them. 

OK, I will refrain from ranting about this abduction of our future and address the ultimate question.  How will this affect the markets?  It is so tough to say.   We have never lived in a time where there is so much agenda attempting to control.  You really have to look at the price levels of the stock market, separate yourself from the news, and see how investors feel. 

We haven’t talked about price levels in a while.  Price levels are important to watch because they tell you how the market is reacting to risk.  So, the current price level on the S&P 500 to watch is 1150.  This is the line in the sand.  As long as the stock market stays above 1150, then that signifies that the markets are OK with our debt-laden world.  However, the inability for the S&P 500 to stay above that price level indicates problems on the horizon. 

Last week, the S&P 500 confidently climbed over that level.  This week will test that confidence level.  I have learned (the hard way) one simple fact.  You can read the news and look at the world around us and draw conclusions as to what should be happening in the stock market.  You can look at all of the debt accumulating and the debt that we have yet to take on (see healthcare reform) and come to the conclusion that this is not sustainable and not good for the stock market.  However, the market might or might agree with that conclusion today.  Tomorrow might be another story. However, today the markets are focusing on other things.

 So, we have reached the line in the sand, which is 1150 on the S&P 500, and will watch to see how the stock market reacts in this environment.  Today is a new day in America as we continue to go through uncharted waters.  It started a few years ago as the Government hijacked capitalism using the financial crisis as the ultimate excuse.  Today, this agenda filled Government has just taken one more huge step.  This continues to create enormous risk in the markets.  However, it will not matter until the moment that the markets wake up to reality.

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Over the weekend, I received an e-mail from a listener in Japan.  He listens to Prudent Money via the daily podcasts.  He was asking me about an investment trading strategy that he had some success using.  He asked me if it were a zero sum game if he was making money while everyone else lost. 

My answer to him was that whenever someone loses money, there is someone who makes money.  When the market was going down last year, there was someone making money.  With any investment trade, you have a winner and a loser.  You just need to have a strategy.  What most investors think of as a strategy might really end up being a disaster.  This listener has gone out and learned an investment strategy.  Buying and holding and doing nothing is a strategy.  However, it is not a good one considering this particular environment. 

When I speak of this particular environment, I am talking about the new environment which is a permanent change.  I truly believe that we will never go back to the old days (pre-2008) when it comes to investing.  If I am correct in my thinking, those who do not adapt to this new environment could be in for some real heartache.

Well, consider the environment and tell me how this enormous amount of debt is going to go away and things get back to normal.  Also consider that the Federal Government seems to be set on continuing to add to the debt on a daily basis with more and more government spending.  The following excerpt is from Michael Panzner’s blog Financial Armageddon.

Even under the best of economic circumstances, tax season is a tense time for American households. The number of hours we collectively spend working on our returns is probably a lot more than government agencies claim.

The burden in financial terms is even greater: A recent independent survey found that the average American’s total federal, state and local tax bill roughly equals his or her entire earnings from January 1 up until right before tax day.

Now imagine that tax bill doubling over time.

In recent years, the federal government has spent more money than it takes in at an increasing rate. Total federal debt almost doubled during President George W. Bush’s administration and, as much as we needed some stimulus spending to boost the economy, the nonpartisan Congressional Budget Office now estimates total debt levels could almost double again over the next eight years based on the budget recently outlined by President Obama.

Regardless of what politicians tell you, any additional accumulations of debt are, absent dramatic reductions in the size and role of government, basically deferred tax increases. Remember the old saw? “You can pay me now or you can pay me later, with interest.”

To help put things in perspective, the Peterson Foundation calculated the federal government accumulated $56.4 trillion in total liabilities and unfunded promises for Medicare and Social Security as of September 30, 2008. The numbers used to calculate this figure come directly from the audited financial statements of the U.S. government.

If $56.4 trillion in financial commitments is too big a number to digest, think of it as $483,000 per American household, or $184,000 for every man, woman and child in the country.

So, this is the environment that we are dealt and it is full of risk.  Investors need to learn a strategy or have someone manage money that understands the concept of strategy and investing versus buying and holding.

Market Update

As I wrote last week, my indicators are sending a warning sign right now.  The markets are having a very tough time this morning (at the time of writing).  This is the worst morning opening that we have encountered in a while.  It is important to look for a change of character in the market.  This is pre-mature and purely on gut feeling.  I think that we are seeing a change of character right now. The bear might be back.  

 

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