MLR - Premarket Pulse November 30, 2012
Despite another mid-day spin-out on comments from House Speak John Boehner regarding the utter lack of progress in reaching a Fiscal Cliff agreement, the market managed to hold in the black for the day, with the NASDAQ Composite Index remaining just above its 200-day moving average on higher volume while the S&P 500 pushed right up into its 50-day moving average where it stalled on lower volume.
The White House wants both $1.6 trillion in tax increases as part of a fiscal cliff deal as well as a "permanent" increase in the U.S. debt ceiling according to The Wall Street Journal. In addition, the Obama administration is asking for at least $50 billion in new spending to spur the economy and wants to extend the current payroll-tax cut. The bottom line is that the argument over tax rate increases (which may not necessariliy result in increased tax revenues) leaves out the more important side of the equation, which is spending. If the Administration and the Senate choose to ignore the importance of cutting spending in order to bring debt under control, then a catastrophe looms ahead, and in this regard we would continued to keep a close eye on the precious metals. If the debt ceiling is raised yet again, and the mountain of debt is merely allowed to continue growing, then it is clear that continued devaluation of the dollar will be the order of the day, keeping the long-term upside trend for both gold and silver quite intact.
In economic news, third quarter growth was revised upward to 2.7% from 2.0%, mostly because of higher inventories and exports, the Commerce Department said Thursday. Economic growth during Obama's term has averaged 0.8%, a very poor record for any modern Presiident. Even with the upward revision in GDP growth the increase in consumer spending last quarter was cut sharply to a rate of 1.4% from 2% originally, while final sales were trimmed to a 1.9% increase from 2.1%, and inventories rose by $61.3 billion in the third quarter compared to $41.4 billion in the second quarter. Business capital investment fell a sharper 2.2% instead of 1.3% as originally reported. Inflation as measured by the PCE index rose 1.6%, or by a tame 1.1% excluding food and energy.
The number of people who filed new applications for unemployment benefits fell sharply for the second straight week as the effects of Hurricane Sandy continued to fade. Initial jobless claims dropped by 23,000 to a seasonally adjusted 393,000 in the week ended Nov. 24, the Labor Department said Thursday. Economists had forecast claims to fall to 390,000.
The real story for the market remains the Fiscal Cliff negotiations, and this has resulted in a lot of mid-day chop as the market reacts to the news headlines in real-time, but so far there has been no evidence of a rally failure, and so the oversold bounce has continued. However, the market is reaching a crticial juncture here as the bounce gets extended and investors appear to have become somewhat complacent that a Fiscal Cliff agreement will be reached, even if it is at the 11th hour. Thus investors should be wary of any surprises to the contrary, as well as the potential for the market to begin discounting a continued weak economy into 2013. While there have been some buyable stocks, our position has been to tread lightly and to keep a lot of cash on hand as we remain skeptical of the market's ability to sustain a bold, new bull market given that we are 45 months into a bull phase that began in the spring of 2009. In other words, we are later in the cycle than earlier, as we see it, and the market has not had a serious bear market in a long time. Whether a compromise to the Fiscal Cliff emerges may be less relevant over time given the propensity for this Administration and Congress to impose more taxes and regulations that ultimately stifle economic growth.
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