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VIDEOThe US Budget Should Focus on Main Street First
Problems must be solved at the foundation.
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G-7 to Keep the Money Spigot Open
Global economic leaders will keep on spending in hopes of repairing battered economies around world. The problems in countries such as Greece, Portugal, and Spain have been caused by too much spending resulting in debt levels that can't be sustained.
I wouldn't spend one thin dime to help another country in financial stress when most US states are in worse financial stress. “Help Main Street USA First” is my theme.
In America, we're piling up debt and have raised the debt ceiling to $14.2 trillion, to which we must eventually add the $6.3 trillion of Fannie Mae (FNM) and Freddie Mac (FRE) debt and mortgages under conservatorship.
Instead of doing so, President Barack Obama’s budget keeps these Fannie and Freddie obligations of US citizens on Main Street under the rug of the US Budget.
The problem is the fact that trillions have been lent to keep Wall Street and global investors in toxic securities afloat, while Main Street sinks further into the abyss of consumer and real estate debt without similar relief.
As an engineer, I learned that solving a problem requires solutions to fix the foundation or the cause of an event. This isn't what's happening in our housing meltdown, and our banking system continues to falter as bad loans rise.
The “Volcker Rule” is a step in the right direction as are other measures to remove the mantra of “too big to fail”, but despite the president’s line in the sand, these effective measures appear dead on arrival.
Consumer Credit Continues to Decline
Consumers reduced debt for the 11th consecutive month in December, paying down credit card debt, but there was some increased borrowing for cars and other products. This improvement may have helped the stock market rebound in the final hour on Friday, but didn't do so by enough to abort the confirmation of the weekly key reversals for the Dow and S&P 500.
Consumer spending is 70% of US economic spending and credit card debt declined $8.5 billion, while other types of loans increased by $6.8 billion. Keep in mind that November’s consumer spending was revised to a $21.8 billion drop, the largest decline since records began in 1943. Even with the record monthly length of declines, consumer borrowing is still $2.46 trillion.
Consumer spending actually increased $40 billion in 2008, which was the first year of recession, then declined by $142 billion in 2009 as the economy was supposedly exiting recession.
The Dow & S&P 500 Confirm Weekly Key Reversals
The lower closes over the past two weeks confirm the key reversal for the Dow and S&P 500, which occurred three weeks ago. From the January 19 high of 10,729.89 to the February 5 low of 9,835.09 the Dow lost 8.3%.
I've been in a sell strength mode since the beginning of 2010 and thus helped traders and investors in agreement to capture a portion of an 895 point decline for the Dow. This is wealth “created or saved” for traders and investors willing to short stocks or who had 50% to 75% in cash, as I suggested.
The daily and weekly charts for the Dow are negative with the daily chart oversold again. I believe that last Friday’s low should hold this week and that daily and weekly pivots at 10,073 and 10,144 will be tested. This is the weekly graph:
Source: Thomson / Reuters
Be aware that my annual pivot should be the ceiling at 10,379 and that there's risk to quarterly support at 6,705. The next warning would be a close in February below 10,067, or even worse a close below the five-month modified moving average at 9,710.
With the FDIC facing two feet of snow in Washington DC, only one small private community bank was closed on Bank Failure Friday. The 16th bank failure of 2010 was overexposed to C&D and CRE loans.
Send me your comments and questions to Rsuttmeier@Gmail.com.
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