A Debt Monger's Worst Nightmare or a Slap on the Wrist

Today's news of S&P downgrading the US debt stung the markets... kinda 

Can you really doubt S&P's logic on this one?

Hey America-- Get your Sh*t together

In 2003-2008, the U.S.’s general (total) government deficit fluctuated between 2% and 5% of GDP. Already noticeably larger than that of most ‘AAA’ rated sovereigns, it ballooned to more than 11% in 2009 and has yet to recover.

By only downgrading the US debt from stable to negative, was this move a debt monger's worst nightmare or just a slap on the wrist?

“Our negative outlook on our rating on the U.S. sovereign signals that we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years,” Mr. Swann said. “The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012.”

I say it is a slap on the wrist and also a creative response to Obama's recent debt plan to reduce debt by $4 trillion over 12 years.

Things I 'may' do over the next 12 years

• Buy a boat
• Have more kids
• Run a marathon
• Eat less red meat
• Meet an alien for coffee
• Win the $400 billion lottery
• Learn how to talk with my butt

I hope we are able to reduce the budget by $4 trillion in 12 years-- that would be great, however, who will be calling Obama up on year 11 with a report card?  If Obama wins again, all bets are off.  If he loses, all bets are off.  This is just political dodge ball at this point and should be taken like most Poly-tic talk and FED speak-- in one ear and out the other. 

As for actual cuts to the budget, they will need to be VERY creative.  Health Care and Social Security are creeping closer and closer to 50% of the budget.  These costs will only expand.  Where will the cuts come from?  Transportation and Education?  Been there, done that.  Click on the link below and scroll down for an interactive image for a breakdown of the 2012 budget

white house.gov 2012 budget

I think we will have to do one of 2 things to reach a budget that is achievable and sustainable.  (1) Raise taxes, or (2) Kill 40 million baby boomers.  We could also ask for massive pay cuts for higher levels of government.  Funny how I see a sea of dead boomers before I see that happening.   

S&P rating cuts are NOT about QEII

According to S&P, QEII has nothing to do with this decision, but FNMA and FHLMC are big contributors to the kinda downgrade.  dirty mortgage GSE's are killing everything.

One of the pressures on the credit is analysts' estimate that it could cost the U.S. government up to "3.5% of GDP to appropriately capitalize and relaunch Fannie Mae and Freddie Mac" in addition to the 1% of GDP already invested.

... and in other, yet related news, Home builders sentiment sucked bottom yet again.

The National Association of Home Builders/Wells Fargo sentiment index declined to 16 this month from 17 in March, data from the Washington-based group showed today. A measure of sales expectations for the next six months dropped to the lowest level since October, and a gauge of current purchases also fell. Readings below 50 mean more respondents said conditions were poor.

This is on a gauge of 50+ being good.  A 17 to a 16 is the equivalent of going from 'losing the family dog to bone cancer,' to 'finding spouse in bed with business partner.'  We are still a long way from the bottom in housing and the declines will start to wipe away equity at the rate of light speed at the pace we are going if we dump Fannie and Freddie (ie. mortgage financing as we know it).  No private investment will lend money for 5% for 30 years-- not without 50% down and about 20% upfront in fees.  Many buyers in this imaginary home-buyer pool of unicorns and talking marshmallow men.

Stocks fall and bonds... rise?

In a classic move, equity indexes shrugged off a sure sign of a drop in the market and ended up the day only down about 1%, while bonds... rallied?

You would think this would be bond negative, but if this slap on the wrist becomes a debt monger's worst nightmare, raising short term rates would mean lower equity prices and strength in long bonds.  It's a long shot, but it could happen. 

QEII is ending soon as well, which makes EVERYONE question what will happen next-- the S&P was up 26% since QEII and there are many forces that say these gains are all fluff and once the feds go away from the market, the gains will follow. 

Time to go long TLT?

TLT looks to have bottomed at around 88 in early Feb and has had strong support at 90 other than this one incident.  With QEII ending in about a month and a half, investors look to be dipping back into bonds, and today despite a debt kinda downgrade. 

Of course, wizards can always ruin what should be a 'sure thing.' 

Expect QEIII (it will have a fancy name, but if it sounds like a stimulated duck...) to follow as soon as the S&P retracts 10 percent, maybe less. 

All in all, a busy day, but nothing more than a slap on the wrist with a kinda downgrade. 

Coming next-- government to S&P:  Raise that debt ceiling!  And by the way, S&P, shove your 'rating' system. 

Getting uglier by the day!  

Obama's Foot in Mouth Disease. Common Side Effect of a Debt Addict

Another Day another few billion dollars: About 5 billion in Treasuries, maybe a few new planes to bomb some worthless African county that is Duh... Not winning and about 10,000 gallons of Jet Fuel to send ole' AF1 to the iron belt to talk about jobs to a bunch of 99ers (that's weeks unemployed).

All this on a random Monday in April.  

But can you hear the tick-tock-tick-tock-tick-tock in the back ground.  Listen closely-- no, it is not your Wife's biological clock telling you to sell your SLV to buy a minivan for another nino (or nina).  That is the sound of the US debt ceiling clock.  The tick-tock is getting louder and louder as the date gets closer to the debt ceiling.

Timothy 'Paper Tiger' Geithner has been screaming like a little girl for the last few weeks that the $14.3 trillion-- yes Mr. Obama-- that is Trillion with a 'T,' debt ceiling needs to be raised or the government will run out of money to fund many a program on May 16th. America running out of fake money.

Obama has a case of foot in mouth disease on this one.  As a senator in 2006 Obama voted against raising the debt ceiling.  In his defense he probably had no clue at that date that he would be President in a few years or that he would be in the presence of a Master Wizard at the head of the Fed.  How could anyone know that? Major bummer dude. In 2006 Obama was still sucking down Marlboro's and telling his buddies how the world would change if he had his 15 minutes... how right he was.

OBAMAS SPEACH IN 2006:  FOOT IN MOUTH

Enjoy this diddy in full: 

Whoops. Obama in 2006. Dude wishes he had a Delorain

***DRINKING GAME ALERT!***

I will add a Homer Simpson:  DOH!  Where necessary... 

You should drink every time you see a DOH!

 Mr. OBAMA. to Mr. President:  I rise today to talk about America’s debt problem. DOH! The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure.DOH! DOH! DOH! It is a sign that the U.S. Government can’t pay its own bills. DOH! It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies.DOH! Over the past 5 years, our federal debt has increased by $3.5 trillion to $8.6 trillion.DOH! That is  ‘‘trillion’’ with a ‘‘T.’' DOH! That is money that we have borrowed from the Social Security trust fund, borrowed from China and Japan, borrowed from American taxpayers. DOH! And over the next 5 years, between now and 2011, the President’s budget will increase the debt by almost another $3.5 trillion. Numbers that large are sometimes hard to understand. DOH! Some people may wonder why they matter. DOH!... 

Sorry to stop off the fun-- I don't want you to get too hammered! 

HAVING A DEBT CEILING IS THE SAME AS RIDING A PINK POLKA-DOT UNICORN ON THE MOON

Does it really matter if there is a 'debt ceiling?'  No.  Money is not real-- not to the US government!  The Federal Reserve Note that is a dollar is about as real as a Pink Polka-Dot Unicorn.  The idea of a debt ceiling is about as realistic as riding said Pink Polka-Dot Unicorn on the moon.  Does the governement really care if there is a debt ceiling?  No... No they do not. 

OBAMA IS JUST ANOTHER DEBT ADDICT

Every president has to eat their words at one point in their presidency (NO NEW TAXES anyone?).  But this is just bad timing-- right after the 'almost' government shut down.

I think it is fair to say that Obama is a debt addict.  There is no re-election with 'only' a $14.3 trillion dollar debt ceiling.  Not at 8.8% unemployment!  He knows that printing money is easier than creating jobs or paying it back.  Balance the budget-- that is funny!

• Obama was worried about a $12 Trillion dollar budget by 2011 in his speech-- he will not increase that 'debt ceiling' to over $15 Trillion.

The ceiling will be lifted and the spending will continue.

(And it won't stop at Obama).