Sell-off accelerates amid fiscal cliff deadlock
Stocks finally suffer a bout of panicked selling pressure. Yet sentiment remains bullish.
For weeks, the bulls on Wall Street have blissfully wanted to believe that -- despite all signs to the contrary -- President Obama and House Republicans could come to an agreement on red-meat issues like tax hikes and spending cuts to avoid the fiscal cliff at the end of the year.
After GOP House Speaker John Boehner was unable to pass his "Plan B" -- featuring tax-rate hikes for millionaires and billionaires but no spending cuts -- this illusion has slowly been shattered. Thursday, Democratic Senate Majority Leader Harry Reid admitted that it looks like we're headed off the cliff just as the next, much scarier catalyst comes into view: the debt ceiling, which the Treasury says we will hit in a matter of days.
But as the fiscal cliff fiasco demonstrated, there is little reason to believe Washington will come to an agreement easily. That, along with the threat of a credit rating downgrade and signs of economic weakness, has investors headed for the exits in a big way.
This is a big reversal for many.
Despite signs that a new downtrend is being established amidst a political stalemate in Washington -- from various technical measures to our own Trend Indicator (more on that below) -- sentiment remains very bullish. Newsletter writers following the Nasdaq are now recommending one of their most extreme net long positions in more than a decade; a breathtaking reversal from their bearish positioning just five weeks ago.
These people were banking on a last-minute fiscal cliff compromise deal. Maybe they get one before the end of the year. I'm doubtful. A short-term deal will likely happen in mid-January. Everyone will sigh in relief.
But that only opens the door to the much more difficult task of raising the U.S. Treasury's debt ceiling (which will be hit on Dec. 31, but will be extended through cash-management measures until February or March). And that will require an agreement on the long-term, structural drivers of the deficit including entitlements and health care costs.
If you think the battle over raising taxes on millionaires and billionaires is tough, just wait.
The system is clearly unsustainable. There are a record 56.7 million Social Security recipients. But only 94.75 million full-time private sector workers in the country. And we've yet to tackle the issue of reducing health care costs and making the system more efficient.
And while the Federal Reserve is keeping Treasury yields low -- preventing bond investors from expressing their displeasure -- the credit rating agencies suffer no such hindrance. If a deal doesn't get done, or if it's accompanied by embarrassing political stunts and excessive delays, the Treasury will be hit by additional downgrades.
Standard & Poor's cut our AAA rating last summer in large part because of our dysfunctional politics.
Wednesday, Moody's warned that if there is no clear path on the fiscal outlook and debt trajectory next year, they will downgrade us too.
All the while, the economy is tipping -- along with Japan and Europe -- into a new recession as business spending dries up and consumers pull back as confidence falls.
The risk-off complex is starting to move as a result of the market weakness, with the Dow Jones Industrial Average falling through its 200-day moving average. Treasury bonds, the U.S. Dollar, and volatility are all doing well. Everything else pretty much isn't. The exception is precious metals, which are hanging in there to my surprise (I expected additional weakness on the pop in the dollar).
As a result, I'm booking profits in my precious metals shorts and adding new exposure to Treasury bonds (long), energy (short), technology (short), and the euro (short) via the Direxion 3x Treasury Bull (TMF), Direxion 3x Energy Bear (ERY), ProShares UltraShort Nasdaq QQQ (QID), and the ProShares UltraShort Euro (EUO). I'm adding all three to my Edge Letter Sample Portfolio.
Disclosure: Anthony has recommended TMF, ERY, QID, DUG, UUP, and EUO to his clients. Be sure to check out his new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at firstname.lastname@example.org and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
There is a new archeological finding now know as a Boehnementalus deficientales, stupidsaurus, retardsaurus. This new found specimen belonging to the new mental deficiency species of retarded humans! Science is also making progress in the finding of another sample of a Ryasaurus, abusesarus, imperfectus, and a cantorsaurus wotherlesssaurus! Science keeps moving forward quickly, presently investigating another phenomenal science discovery that will be named, Palisaurus pervertsarus! This new species eats unaware humans alive while making grossly sounds!
TRULY A MAGNIFICENT POST, THE TRUTH AND ONLY THE TRUTH THE DESTRUCTION OF THE PLANET EARTH IF WE KEEP TOLERATING THEIR ABUSES OF THE AMERICAN PEOPLE!
Be careful with sucker's rallies today, do not fall for them, we just had one at about 1045 hrs or so.....Pieces of dirt in complete control, we expect those rallies from time to time to lure people in...Just play it safe...Perfect day to stay on the sidelines, at least for now...More later.
KILL ALL REPUBLICAN, NEO-CON, LIBERTARIAN AND TEA PARTY IMBECILES ASAP AND BEFORE THEY DESTROY THE WORLD!
DO IT FOR A BETTER AMERICA!
FORWARD FELLOW DEMOCRATS!
GOD BLESS AMERICA!
No budget passed or even proposed by dear leader in 4 years.
a complete disgrace an embarrassment to this country
We will get the 47% that pay ZERO now to start to pay for Obamanomics. We shall see how well they like it ONCE THEY HAVE TO PAY FOR IT...
We Republicans understand the LEECH 47% will always VOTE for SOMEONE ELSE to pay for government. We understand they rather VOTE for a living instead of working and eraning one.
We need to wean the 47% of the government teet... The cliff will force them to start PAYING taxes. A novel concept to the leech class...
Wake up America!
There only five days to the Fiscal Cliff. We think that the president has tried very hard to make terms to prevent the Cliff, while the Tea Party, and behind curtains, guys like Ryan and many others radical Republicans are fomenting discord and hatred among the more tolerant and fair members of the House of Representatives proposing phantom rejections not to attained an acceptance consensus among them! These rejections, all done with malice with a purpose of not accepting any proposal at all from the president. We, the Democratic Base are crying loud to our president not to try any longer, as any concession will be not accepted by the dissidents of the worse Congress we ever had. We think the American people know well by now of the trials and tribulations of the president to prevent the Cliff, but we, the hard core Democratic Base ask for him to stand firm, no more nice little or big concessions, no more rolling over, no more giving the other chick to get slapped around! If the president does gives in, the destruction of our solid Democratic Base will be destroyed for ever instantaneously! We hope the president take the bitter pill with all of us, knowing that he has tried the best for these long four years to domesticate the beast, with no evident of any success. Let it be Mr. President! Win one more time with the million of us applauding you for your courage, and your firmness against the worse assault against the people of America since 911 fateful day of infamy against our dear citizens of America!
I'm really quite lucky I missed all this.....It wasn't worth reading and actually the skim was more then enough...But I forgot to vote thumbs up or down....??
Oh, that's right I seldom do that, mostly never....Too much trouble.
Now I can't even remember what any of this was about.....Lucky me...
Wake up America!
The unfortunately selection by the Republican Base voting for the Tea Party runners in 2010 had explosively undermine our country progress in the economical front, and placed all citizens in a perilous path to a total disaster in the failure of the extreme efforts taken by the president Obama to deal for a satisfactory solution for the Fiscal Cliff situation, placed it there by the Republican Party long ago! The moral of the history, the whole Democratic Base need to work extra hard in 2014 to totally eradicate these kind of people fully unwilling to cooperate with our president for the benefit of the people of America! If they continue there for long, we will witness the destruction of the American way of life! Also, the removal of Mitch McConnell from the Senate is now imperative because of his lack of empathy for the American people, and his lack of respect for our president Obama!
INSMARTER...TRULY AN EXCELLENT , HONEST AND WONDERFUL POST! ONLY THE TRUTH WILL MAKE US SMART TO GET OUT OF THE MESS THE TEA PARTY AND REPUBLICANS HAVE CREATED FOR ALL OF US CITIZENS OF THE USA!
The Tea Party Patriots’ mission is to restore America’s founding principles of Fiscal Responsibility, Constitutionally Limited Government and Free Markets (capitalism and reasonable regulations).
We think the Obama Agenda will finally sink in by 2014....
We will gain control of Congress and impeach the traitor.
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