SOCIAL SECURITY ISSUES DEBT-CEILING WARNING
(MarketWatch)
“The federal government shutdown hasn’t affected Social Security benefits.
But it’ll be a different story if the government doesn’t raise the debt
ceiling, according to the Social Security Administration….it can’t
guarantee that benefits will be paid in full.” Full story at…http://blogs.marketwatch.com/encore/2013/10/07/social-security-issues-debt-ceiling-warning/
This is Government fear mongering at its best. Worry the seniors who will pressure the
Politicians.
Here’s more:
ANALYSIS – WHAT DEFAULT? REPUBLICANS DOWNPLAY IMPACT OF
US DEBT LIMIT (Reuters) – “The Obama administration says a U.S. default would
be ‘catastrophic.’ Economists say it could plunge the country into recession
and prompt a global financial meltdown. To many Republicans, however, the
prospect of the world's lone superpower juggling its bills doesn't seem so bad.
The government could muddle through without a debt-ceiling increase as long as
it kept up with interest payments and a few other priorities, they argue….‘We
are not going to default on the public debt. That doesn't mean that we have to
pay every bill the day it comes in,’ Republican Representative Joe Barton of
Texas said on CNBC on Monday.”
http://www.reuters.com/article/2013/10/08/us-usa-fiscal-default-analysis-idUSBRE99700P20131008
If there are no negotiations, my guess is that the
Republicans will offer a small debt increase and a line in the sand - no
further increase without negotiations.
Conversely, they may just wait on Obama. Waiting looks like it will
bring no results, so we could pass 17 Oct (the debt ceiling bust date) with no
increase. That will trigger a lot of
effort by the Administration as they figure out who to pay.
Just a couple of days ago Treasury was saying they didn’t
have the capability to prioritize and pay some bills and not others due to
their old computer system. I do not
believe that. It is highly unlikely that
debt instruments (Bonds, T-bills, notes, etc.) are lumped in with General
obligations of the Government. Today, it
was reported on CNBC that perhaps they can prioritize.
But make no mistake, the debt issue is huge. We ran a budget deficit of more than 1-trillion dollars in 2012. So using 2012 numbers, if we need to balance the budget instantly, (if the borrowing limit isn’t raised) we must reduce spending by 1-trillion dollars. To avoid cutting entitlements (social security, Medicare, etc.), available funds would have to come from 2-sources: (1) discretionary spending ($615-billion) and (2) Defense spending ($670-billion). Even if we eliminate ALL discretionary spending, to make up the shortfall we’d need to cut the Defense expenditures in half. Now, the numbers are a little better than 2012, because revenues are now higher than they were, but the point is clear. Instant balancing of the budget is a calamity…no bull.
But make no mistake, the debt issue is huge. We ran a budget deficit of more than 1-trillion dollars in 2012. So using 2012 numbers, if we need to balance the budget instantly, (if the borrowing limit isn’t raised) we must reduce spending by 1-trillion dollars. To avoid cutting entitlements (social security, Medicare, etc.), available funds would have to come from 2-sources: (1) discretionary spending ($615-billion) and (2) Defense spending ($670-billion). Even if we eliminate ALL discretionary spending, to make up the shortfall we’d need to cut the Defense expenditures in half. Now, the numbers are a little better than 2012, because revenues are now higher than they were, but the point is clear. Instant balancing of the budget is a calamity…no bull.
MARKET REPORT
Tuesday, the S&P finished down 1.2% to 1655 (rounded) at the close.
VIX rose 5% to 20.34 as VIX breached the level of 20 that
many traders see as a big worry.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing on the NYSE
fell to 43% Tuesday from 47% Monday. (A
number below 50% for the 10-day average is generally bad news for the market.)
In a reversal, New-lows outpaced new-highs Tuesday,
leaving the spread (new-hi minus new-low) at minus 12 (it was +10 Monday). The 10-day moving average of change in the
spread is minus 12. That just means that over the last 10-days, the spread has
been getting worse.
Market Internals remain Negative on the market for this
short term indicator.
BREADTH DIVERGENCE
Carter Worth, Chief technical Analyst at Oppenheimer,
made an interesting observation on CNBC the other day regarding breadth as
measured by the number of stocks trading above their 150-day moving
average. It was falling and he pointed
out divergence with the S&P 500. We
see a similar divergence when breadth is measured as the percentage of stocks
advancing.
The below chart shows that the 100-day moving average of
percentage of stocks advancing has been falling rapidly since last May when
compared to the S&P 500 that has been rising. That is well in advance of the current
political crisis. Is the market worried about more than just the Debt ceiling? I think it is worried about earnings, too, so we'll see how the earnings come in for last quarter and how companies guide for the future.
BREADTH (%-ADVANCING) IN RED AND THE S&P 500 IN BLACK
NTSM
Tuesday, the overall long-term NTSM analysis remains HOLD at the close.
MY INVESTED POSITION
I remain about 20% invested in stocks as of 5 March (S&P 500
-1540). The NTSM system sold at
1575 on 16 April. (This is just another
reminder that I should follow the NTSM analysis and not act emotionally – I am
under-performing my own system by about 2%!)
I have no problems leaving 20% or 30% invested. If the market is cut in half (worst case) I’d
only lose 10%-15% of my investments. It
also hedges the bet if I am wrong since I will have some invested if the market
goes up. No system is perfect.
