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U.S. stock index futures were pointing to a significantly lower opening
on Tuesday. The Euro was below 1.22 on the dollar. Asian took heavy
losses and European markets were under significant pressure. There
doesn't seem to be anywhere to hide right now.
News For Thought
Report: Minerals Management Services agency failed in its mission. According
to The Washington Post: "The federal agency responsible for regulating
offshore oil drilling repeatedly ignored warnings from government scientists
about environmental risks in its push to approve energy exploration activities
quickly, according to numerous documents and interviews. Minerals Management
Service officials, who receive cash bonuses for meeting federal deadlines
on leasing offshore oil and gas exploration, frequently altered their
own documents and bypassed legal requirements aimed at ensuring drilling
does not imperil the marine environment, the documents show. This has
dramatically weakened the scientific checks on offshore drilling that
were established under landmark laws such as the Marine Mammal Protection
Act and the National Environmental Policy Act, according to those who
have worked with MMS, which is part of the Interior Department."
High seniors expected to boost momentum for legalizing marihuana. According
to The Washington Post: "Long a fixture among young people, use of the country's
most popular illicit drug is now growing among the AARP set, as the massive generation
of baby boomers who came of age in the 1960s and '70s grows older. The number
of people age 50 and older reporting marijuana use in the prior year went up
from 1.9 percent to 2.9 percent from 2002 to 2008, according to surveys from
the federal Substance Abuse and Mental Health Services Administration. The rise
was most dramatic among 55- to 59-year-olds, whose reported marijuana use more
than tripled, from 1.6 percent to 5.1 percent."
And not surprising, as The Post points out: "Observers expect further increases
as 78 million boomers born between 1945 and 1964 age. For many boomers, the drug
never held the stigma it did for previous generations, and they tried it decades
ago. Some have used it ever since, while others are now revisiting the habit,
either for recreation or as a way to cope with their aches and pains." |
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As voter anger increases, a significant number of incumbents
in the U.S. Congress have seen their careers come to an end in the primary
season or through attrition, retirement, or scandal. But, under the surface,
there seems to be an underlying unifying factor, the losers are all members
of key appropriation committees.
An interesting report, via Rasmussen Reports.com notes: "This month, three members
of Congress have been beaten in their bids for re-election -- a Republican senator
from Utah, a Democratic congressman from West Virginia and a Republican-turned-Democrat
senator from Pennsylvania. Their records and their curricula vitae are different.
But they all have one thing in common: They are members of an appropriations
committee."
And the report is clear on the connection as "There is an old saying on Capitol
Hill that there are three parties -- Democrats, Republicans and appropriators.
One reason that it has been hard to hold down government spending is that appropriators
of both parties have an institutional and political interest in spending." Yet,
the defeats of the appropriators suggest that things may be changing in an electorate
that is tired of footing the bill for programs that aren't delivering on what
they promised.
This is in contrast to the U.S., where Fannie Mae and Freddie Mac, along with
the Federal Reserve periodically disclose some semblance of the amount of toxic
assets that they each have on their balance sheets. To be sure, this isn't any
less daunting, given that Fannie and Freddie will likely never be solvent again,
and that they account for 90% of the insurance on U.S. mortgages. But at least
the markets and individuals have some sort of number to hang their hats on.
Here's where the big change has emerged. In the past, as the report points out "In
the past, rebellions against fiscal policy have concentrated on taxes rather
than spending. In the 1970s, when inflation was pushing voters into higher tax
brackets, tax revolts broke out in California and spread east. Ronald Reagan's
tax cuts were popular, but spending cuts did not follow. Bill Clinton's tax increases
led to the Republican takeover and to tax cuts at both the federal and state
levels, but spending boomed under George W. Bush." But, now, things have changes
as "The rebellion against the fiscal policies of the Obama Democrats, in contrast,
is concentrated on spending. The Tea Party movement began with Rick Santelli's
rant in February 2009, long before the scheduled expiration of the Bush tax cuts
in January 2011."
Thus: "What we are seeing is a spontaneous rush of previously inactive citizens
into political activity, a movement symbolized but not limited to the Tea Party
movement, in response to the vast increases in federal spending that began with
the TARP legislation in fall 2008 and accelerated with the Obama Democrats' stimulus
package, budget and health care bills." And the biggest dynamic involved is the
fact that "Federal spending is rising from about 21 percent to about 25 percent
of gross domestic product -- a huge increase in historic terms -- and the national
debt is on a trajectory to double as a percentage of gross domestic product within
a decade. That is a bigger increase than anything since World War II." More important,
is the notion that as all this spending is rising, so is joblessness, which doesn't
seem to be showing any significant improvement.
And if you add the lack of response by the government to the recent crude oil
spill in the Gulf of Mexico, something which the current administration used
as a campaign issue, when it referred to the Bush administration's response to
Hurricane Katrina and New Orleans, government continues to show itself to be
ineffective in dealing with crises, much less ongoing problems such as rising
deficits.
The real question is whether the public will remain angry and focused on changing
the makeup of the next Congress, or whether, as history has shown, their memory
will be short. We suspect that the employment situation will have a major part
to play in whatever happens.
Conclusion
Europe is imploding in front of the world's eyes. Whether via widespread strikes,
violent or otherwise, or via capital flight into the dollar, there seems to be
significant damage being inflicted upon the continent, on multiple levels.
Now, the winds of change, on a different level may be starting to sweep accross
America, where the public seems to sense that Europe's fate is what America could
look like in a few years if the course of current events isn't altered.
The message is clear. The public is getting rid of big spenders in Congress.
The question is what they will be replaced by, big spenders under different skins?
Or something else, something more radical, or even more daunting; there is no
way to know.
The market's collective attention has now moved on to Spain, where we have had
rumors and expectations of problems. Now information is starting to leak out.
There are big problems in Spain's banking. There are billions of Euros worth
of dead loans somewhere in the system, either on bank balance sheets, or somewhere
on the central bank's balance sheet. No one knows for sure, how many, how much
they may be worth, or where they are.
Still, the winds of change are clearly upon the world, and they will likely sweep
into Congress as well.
We'll be on Twitter
some time today before the market closes with some updated comments.
Know when to sell and how to make money when the market falls. Get
a detailed trading plan in your pocket. Read Dr. Duarte's All
NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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Last week the
Currency Shares Eurotrust ETF (NYSE: FXE) tried to bounce.
But in a few days it's trading at significantly lower levels.
Chart Courtesy of StockCharts.com
The Euro is facing extinction, or at least an even rougher
spell than it's seen in the last few months. Think about
this, since November of 2009, the Euro has lost 18.5% of
its value. That means that Europeans, and others who use
Euros as a currency have lost 18.5% of their purchasing
power while a similar amount of their wealth has evaporated
during the period.
At this rate, the Euro could theorically be at zero in the next two years, and
the potential for a total economic collapse of the Eurozone would likely follow.
To be sure, no one knows if this likely to happen or not. But it is now plausible,
assuming that the current rate of decline of the Euro remains in place over the
next 24 months.
You'd hope that the European governments would do something by then. But so far
their response has been middling and clearly ineffective. That's because Europe
isn't really a country, as it's pretending that it is by using a single currency.
Indeed, it's still a collection of culturally diverse people with a decent rail
system uniting them, and a single currency. Beyond that, it's just Europe, where
Spaniards think of themselves as Spaniards, and Germans do likewise. That means
that there is no ideological unity, and no will to create the institutions that
could handle, or attempt to handle the current situation more effectively.
Currency speculators know this, which is why they are relentlesly selling the
Euro, and are very likely to continue to do so for an extended period of time.
Follow Dr. Duarte on Twitter |
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