House GOP Budget Cuts Social Programs – Including Medicaid -- To Stave Off Pentagon Cuts - Kaiser Health News
I don’t like to engage in political debate, because when was the last time you changed someone’s mind in one?
However, cutting social programs while boosting defense spending is just downright stupid. Continued spending cuts, especially to social programs equals trotting down the same path as Eurozone austerity. Social unrest (ie. Occupy Movement) will only grow stronger if we continue these asinine policies.
Weekly Bull/Bear Recap: September 26-30, 2011
Bull
+ Progress continues to be made on the Eurozone front. Merkel is successful in rounding up her coalition and passing legislation to expand the EFSF’s firepower from 250 to 440 Billion Euros. Despite fears of decreasing political will, we see that Eurozone officials are united in passing the proper reforms to eliminate this headwind. Political Will remains solid as the Euro experiment is of extreme economic importance to Germany.
+ Jobless Claims plunge by 37,000 down to 391,000. The job market is better than many expect. Looking at unadjusted claims, we can see a clear falling YoY trend. There’s nothing to suggest that firings have increased and that the job market is deteriorating, in fact, past revisions show that it was stronger than expected.
+ While the headline for Durable Goods Orders seemed weak, a look under the hood shows that the damage wasn’t as bad. Business investment, a good measure of private spending, actually rose for the month. ”Most of the decline was centered on autos and large defense products excluding aircraft, but those orders often swing sharply from one month to the next, and they are not viewed as good indicators of future trends.”
+ Another example of the resilient manufacturing sector comes from the Chicago PMI index which showed strengthening in September. This is important in that this reading is post the financial shock in August due to increasing Eurozone sovereign debt worries. It clearly shows a manufacturing sector that is stronger than most think and is able to absorb these shocks.
+ Record-low mortgage rates are sparking a large refi wave. Re-financing into lower rates will result in more discretionary income to support consumption.
Bear
- The Eurozone situation isn’t getting better, it’s actually getting worse. The suspense among politicians and the investment community just to pass an enhanced version of the EFSF (see bullish tidbit) doesn’t bode well when “reading between the lines”. Political will is weaker than the bulls think. The market already wants more in the form of a “leveraged EFSF”. Germany, on the other hand, has staunchly opposed these measures, while its Constitutional Court warned that such action would result in a ceding of German sovereignty. A new constitution, adopted by a national referendum, is required to pass additional legislation. Meanwhile, Greece tension continues to rise and Germany wants harsher debt write-downs, chaos continues to reign supreme.
- A crisis of confidence, caused by the Eurozone sovereign debt woes, is critically injuring the global recovery. Copper fell roughly 3% and broke an important support. Economic confidence in the Eurozone dropped to an almost two year low. German retail sales plunge 2.9% in August, the largest one month drop in 4 years—while inflation unexpectedly rises —I’d hate to be the ECB right now.
- Main Street indicators continue to flash red as the University of Michigan Consumer Sentiment survey records only a modest bounce (up to 59.4) in September from a near 3 year low of 55.7 in August, while the Bloomberg Consumer Comfort survey just posted its second lowest reading….ever.
- Incomes in the U.S economy dropped for the first time in 2 years. The all-important “salaries and wages” metric, considered an essential measure for consumer spending, fell 0.2%. Real consumer spending (spending adjusted for inflation) was flat and the savings rate falls to November 2009 levels, down to 4.5%. The largest segment in the U.S economy has now stalled. Recession is knocking at the door.
- Obama is toast. Republicans have him right where they want him. Stimulus will not pass as deadlock will dominate. The Fed’s the only game in town, and few believe that monetary stimulus will help move the needle on the economy. There is no safety net for equity markets.
Are companies putting their cash to work finally?
If so, that may mean more jobs and a recovery.
Above is the Gov’t Policy portion of my thesis —created in Q2 2010—July 6th to be exact….(I will soon update it in piece meal here on my tumblr).
It seems that it is playing out as I expected.
Government Spending
A decent proxy for government spending has been Cisco according to news sources. Check out their stock chart.
(Note this is not recommendation of any kind on Cisco. I do not own nor have I shorted any shares of this company.)
Rose Colored Glasses
Investors still don’t get the fact that consumers continue to be cautious. On the positive side though, the job market continues to improve. However, will it be enough to cause consumer spending to accelerate? No doubt it will help, but the housing market continues to show signs of double-dipping and that’s not good for consumer psyche. Remember, it was the housing market that led the US into recession so we would need to see a definite stabilization and growth in property values (among other things) for consumers to finally begin loosening their wallets/purses.
So there you have it. The Republicans are going to push for extensions of tax cuts while reducing spending.
Let's Please Stop Pretending
Where the hell is it written that the US has to pick up any slack because allies are cutting down on military spending? Why don’t our government officials worry about what’s going on inside our borders instead? The US tries to portray an aura of military might yet a large portion of its population suffers. Unfortunately, our government continues to misunderstand our real priorities. The country is slowly rotting from within not because it’s been defeated by an outside military force, but because poverty is increasing at an alarming rate.
