The heat wave in the Northeast has temporarily been broken, so now the focus shifts to the intransigence inside the beltway.
The debt ceiling is a self-imposed limit on government borrowing. It is advocated by politicians, who want to at least appear to be fiscally responsible. But in the last 40 years it has been raised some 38 times, almost always by the Presidential party [which usually has the power and the popularity to get away with it].
Today, debt-ceiling discussions continue, but from an investor’s point of view, remember that:
1) Deal or no deal, Social Security payments will be made.
2) Even without a deal, there will not be a default on US government debt obligations.
3) No one knows how markets will react to stalemate: some claim catastrophe, while others are unconcerned. Most with public positions are politically motivated, with little or no understanding of markets and monetary matters.
4) Federal tax collections are higher than expected, so the August 2 “deadline” may be pushed to the right by 7 to 10 days or more].
5) Congress doesn’t want to take advantage of these extra days, because it is cutting into their vacation time. They want to go home!
“No man’s house or property is safe when the legislature is in session.”
It’s the third week of July, we are seeing a continued heat wave across the U.S. and the global markets continue to be volatile. Last week stocks sold off with a few exceptions. China, Indonesia & The Philippines were the only noteworthy exceptions. We can’t help but be reminded of the saying, “the dog days of summer.”
Do you ever wonder what the saying means?
Here is a definition from the Webster dictionary:
1: the period between early July and early September when the hot sultry weather of summer usually occurs in the northern hemisphere
2: a period of stagnation or inactivity
“Without selloffs, there are no rallies.”
- Al Frank, The Prudent Speculator
Climbing the wall of worry? Or not? Investors seem buffeted (no pun intended) by conflicting economic data making it difficult to understand where we stand. Case in point is the latest jobs data. Wednesday we learned from ADP that 150,000 jobs were created in June. Then on Friday the Bureau of Labor Statistics shocked by saying only 18,000 jobs were gained. One thing we do know is that government jobs are decreasing, which is a trend that has to continue. And we also know that all these numbers will be revised.
Of course there are more walls to worry us: the debt ceiling negotiations and southern Europe’s worries, especially Greece and Portugal. As to the debt ceiling and debt reduction, we have to believe that a compromise will happen in time, one that will not make either party particularly happy.
Perhaps we can all benefit from the sage advice handed out in our latest quarterly Newsletter: “History has shown that investors are better served by following long-term investment plans than by making investment decisions based on the day-to-day noise of the markets.” To which we say Amen!
“I, however, place economy among the first and most important republican virtues, and public debt as the greatest of the dangers to be feared.”
- Thomas Jefferson
Last week the DJIA gained 5.4%, its best percentage gain since July 2009. Economic reports indicated that the U.S. economy maybe working its way through the recent slowdown. In addition, investor anxiety over the Greek debt crisis eased somewhat.
On Thursday, the Chicago Purchasing Managers Survey for June beat economists’ projections and on Friday the ISM June manufacturing index was reported at 55.3 (50 and above means economic expansion) well above expectations of 49.5.
The big economic news for this week will be the U.S. Labor Department’s jobs report on Friday. Projections are for 94,000 net new jobs and unemployment to hold steady at 9.1%.
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“A speculator is a man who observes the future, and acts before it occurs.”
- Bernard M. Baruch