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Deal or No Deal... Nothing Was Fixed

Phoenix Capital Research's picture




 

 

 

A month back I warned that the US political class was adopting the very same tactics employed by EU politicians in combating our growing economic/ financial problems.

 

Those tactics are as follows:

 

  1. Stage a meeting/ talk
  2. Spread rumors that a solution had been reached (verbal intervention to prop the markets up)
  3. Fail to address any real issues or provide solutions
  4. End the meeting with a PR campaign that much was accomplished without providing any details
  5. Wait for the markets to realize that nothing was fixed and fall
  6. Repeat the whole process over again

 

This strategy has allowed EU officials to drag out the Greek issue (a country whose economy comprises only 2% of the EU’s GDP) for over two years with little political consequences for the key players. Seeing this, the US political class is now employing these tactics in full force as revealed by the fiscal cliff debacle.

 

Regardless of one’s political affiliation or beliefs, from an economic and fiscal perspective, the cliff deal has accomplished nothing of import. The tax increases will raise $620 billion over the next ten years. So that’s roughly $62 billion in new tax revenue per year.

 

The US has run a $1+ trillion deficit for four years now. $62 billion is barely even 6% of this. When you combine this with the proposed $15 billion in spending cuts (less than even 2% of our deficit) presented in the “deal,” it’s clear that nothing of significance has been addressed or solved.

 

Regardless, the markets rallied on this news, just as they’ve rallied on countless rumors of a Greek solution and other announcements from EU leaders over the last two years. Verbal intervention is a key force for the political class. They will use it as much as they can.

 

In broad strokes, this is the official playbook for political leaders in the Western world. Facilitating this is the ongoing monetary easing by the global Central Banks who have collectively pumped $10 trillion into the system since the Great Crisis began. In simple terms, Central Banks provide the glue to hold the system together while politicians meet and negotiate without ever really solving anything.

 

This will work until the bond markets finally begin to crack. With Central Banks buying much of the bond issuance coming out of the Western world, once the bond markets really drop it’s game over for this scheme as the Central Banks won’t have the firepower to keep the system together.

 

On that note, the S&P 500 continues to trace out a large rising wedge pattern. We’re at a critical juncture: overbought in the middle of the pattern. Whichever way we move from here will outline the intermediate trend.

 

 

Meanwhile, the 30-year Treasury is once again testing its upward sloping trendline. Bernanke better hope this line continues to hold because he’s fast running out of ammunition.

 

 

 

For more market commentary, investment ideas, and macro-economic research swing by www.gainspainscapital.com

 

Best Regards,

 

Graham Summers

 

PS. We also offer a FREE Special Report detailing the threat of inflation as well as two investments that will explode higher as it seeps throughout the financial system. You can pick up a copy of this report at:

 

http://gainspainscapital.com/gpc-inflation/

 

 

 

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Wed, 01/02/2013 - 17:32 | 3116279 Joebloinvestor
Joebloinvestor's picture

The one thing the Americans don't do is have meetings in 5 star hotels and dine the night away.

Wed, 01/02/2013 - 17:03 | 3116142 WhiteNight123129
WhiteNight123129's picture

Interest rates and inflation are going to mean-revert because the Fed manipulation, and when they will revert they will be mean.

 

Wed, 01/02/2013 - 16:53 | 3116088 Snakeeyes
Snakeeyes's picture

I agree with what he was saying,  sort of. Nothing was fixed, but MADE WORSE. $4 trillion in new deficits? We ARE Greece!

http://confoundedinterest.wordpress.com/2013/01/02/the-day-after-republi...

Wed, 01/02/2013 - 16:41 | 3116026 sixbilliondollarman
sixbilliondollarman's picture

...It's not necesarily that "he's wrong" so much as the MOTHERFUCKING DOW goes up over a couple hundred points on joke resolution news. That's what the problem is...the RIGGED SCAM MARKETS..at least the EUR/USD figured out some sanity [a bit later].

Even though this Dude needs to make a living [like you & me] selling his forcasts...he is an interesting writer & has some good points.

BUT- HOW THE FUCK CAN YOU PERDICT A 200 POINT DOW BLAST out of nowhere for no reason other than pure theater??

Our prez on a 7 million tax payer paid dime...now can fly {BACK AGAIN] to Hawaii to chill [after the theater drama].

Basically- how the fuck do you call this shit correct to make any money???huh??? Technically? Right! Any shorts today get their asshole blown apart from this rally today??? Of course!!!

BECAUSE YOU [OR ME OR ANYONE] CAN'T PREDICT SHIT IN A SCAM MARKET- so why try???

Seems long term fundamentals possibly are the only markers to follow to even have a chance...but if you join this "DOOM & GLOOM" group [who are correct]...you'll be insolvent by the time you can prove it.

So, at least someone is trying...exact opposite of the dipshit idiot who prospin positive shit for the front pages of "Yahooofinance".

I'm trying to sign up for foodstamps, free phone, wellfare & unemployment...while there's still some left.

 

Wed, 01/02/2013 - 17:01 | 3116127 Panafrican Funk...
Panafrican Funktron Robot's picture

I've lost a lot of money clinging to the ideas of fundamentals and technicals.  If the action the last couple of days doesn't cause you to throw in the towel, I don't know what will.  Get out of debt, but phys, spend the rest of your days happy and sane.  

Wed, 01/02/2013 - 16:21 | 3115951 Whatta
Whatta's picture

Most of us have figgered this out.

Today's market rally gives a good spot to buy SDS calls cheap. Should be a nice payoff in a day or two when everyone runs for the exits.

Wed, 01/02/2013 - 17:02 | 3116132 Panafrican Funk...
Panafrican Funktron Robot's picture

Said the guy about to get blowtorched by 85 billion in unsterilized direct injections per month.  

Wed, 01/02/2013 - 18:34 | 3116569 Ned Zeppelin
Ned Zeppelin's picture

So true - the thing is Graham is right, but since March 2009 it's been "so what?" to that kind of thinking.  We all know it, except for the CBs, and innumerable other market participants who see things a completely different way.  The right move since March 2009 was to be long, not short.  The right bet, aside from a couple of setbacks, has been to stay in, leverage up and bet big on things going UP not down.   And the Fed has really told us so all along.   You do otherwise to your peril, even if you have that uneasy feeling of stepping out onto a ledge with all of the other crazies. 

Our common sense telling us about gravity and what goes up etc. is what is making this impossible to go along with.  I look at Europe, shake my head and think they are ahead of us so wathc what happens there. The end will come, but not a soon as you might think.  It will show up when we think there is no chance that it will.

Wed, 01/02/2013 - 16:20 | 3115950 XtraBullish
XtraBullish's picture

The Summers Indicator is back! Go long AAPL immediately! Sell all puts and bear ETF's now! The world is coming to an end tomorrow so sign up to my newsletter at http://www.helpmepaymymortgage.com !!!

Wed, 01/02/2013 - 16:10 | 3115907 digitlman
digitlman's picture

He is right in that nothing was fixed. 

 

Even a broken clock is right twice a day.

Wed, 01/02/2013 - 16:06 | 3115881 Jack Sheet
Jack Sheet's picture

Any idiot can connect 2 random points on a chart with a straight line and call it a trend.

Wed, 01/02/2013 - 16:02 | 3115856 mrktwtch2
mrktwtch2's picture

tyler please get rid of this guy he has been wrong for 3 yrs..lol

Wed, 01/02/2013 - 17:45 | 3116337 HpDeskjet
HpDeskjet's picture

Actually his analysis of fundamentals are right like 95% of the time, but markets dont care about fundamentals... Economy is dying, but printed money ends up in financial markets...

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