As I was doing some “big picture” research on Sunday night in doing some homework as to what some of the major topics of discussion may be this year, one term kept coming up: “debt ceiling.” The definition of the term “debt ceiling” is pretty much what one thinks it may be: a “debt ceiling” is the highest amount of debt that a government can accept- usually decided by entities such as Congress. At the current time, the U.S. currently has a debt ceiling of $14.29 trillion. Guess what? The country currently owes $14.04 trillion (up $1 trillion in the last seven months). In order to spend past this ceiling, Congress must vote to raise the ceiling. In the last 10 years, Congress has had to raise the debt ceiling seven times. The reason this is an issue is that it is a major political issue with most Congressional Democrats desiring a near $2 billion boost in the debt ceiling while most Republicans posturing to maintain the ceiling where it is. The bantering is already starting. For instance, the chairman of the While House Council of Economic Advisers (Austin Goolsbee) was recently quoted on ABC’s “This Week” that “playing chicken” is not the way to go with the ‘need’ to raise the country’s debt ceiling. He intimated that by failing to raise the debt ceiling, the country could theoretically default on its debt which of course would lead to a much bigger economic crisis than the one all the way back in 2008. In the interim, people like Darrell Issa, the incoming chairman of the House Oversight and Government Reform called President Obama’s administration “one of the most corrupt administrations” on “Fox News Sunday” on Sunday and noted he will try to get rid of rest throughout the federal bureaucracy. Now, while it is not for me to say who is right, it is a near certainty that the debt ceiling will indeed have to be raised early this year for the federal government to function. Note I am not saying “function as it is now,” but “function.” If the budget calls for a deficit yet Congress doesn’t approve, it seems so simple that the budget would be cut just as that is how it’d go for you or me but that’s not the way it works in Washington particularly in this era of modern history. The issue for the markets is to whether this does indeed become a game of ‘chicken” and how the bond market in particular would react if inaction becomes the rule in Congress as the winter progresses. The likelihood of a ‘default’ is almost zero, but it will be fun to watch. This is certainly an issue to monitor for day traders as trading may become rumor driven should things become even more contentious on the Beltway.
Markets overnight were mixed throughout the world with Tokyo up 0.1%, Hong Kong down 0.4%, Frankfurt down 0.3%, and London down 0.6%. The dollar is marginally stronger against the euro and yen on the jobs number as well as worries about Portugal. Oil is up slightly. gold down almost 1%, and bonds are up marginally. The main number of the morning has been the mixed unemployment data with job creation worse than expected but the unemployment rate better than expected. Futures are down slightly. it looks to be a fairly quiet day particularly with snow forecast for the New York metro area. Look for much of the action to be done in the first couple of hours of the day in a choppy mixed session. The focus will likely be on the rare earths, biotechs in the news such as DNDN, financials in the news such as AIG, and the myriad of companies which reported earnings shortfalls last night.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
BLUD- decent earnings
DQ- closed near a high after raising earnings guidance
NVDA- closed near a high after the company said it will begin developing central processors for PCs based on a design from ARMH
VRX- closed near a high after raising its earnings guidance
GSL- closed near a high
YOKU- closed near a high
POT- closed near a high
HAUP- closed near a high on a new AAPL-related iPhone streamer
HDY- closed near a high
CVBK- closed near a high
MTH- closed near a high after being upgraded by Wells Fargo
MCO- closed near a high after raising its earnings forecast
FRC- featured on “Mad Money” last night
AIG- issued warrants as part of US Repayment plan and agree to a relatively small settlement over premium issues
BBY- decent December guidance
RBN- decent earnings
KBH- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
SHAW- poor earnings
SCHN- poor earnings
LIZ- terrible earnings guidance
XRTX- terrible earnings guidance
GS- closed near a low
RES- closed near a low
MSB- closed near a low
MCP, REE, AVL- closed near a low
XOMA- results came out from the phase 2a trial of XOMA 052
TGT- closed near a low after posting poor same store sales data
SABA- poor earnings
VLTR- poor earnings guidance
LOCM- warned on earnings
BTU- warned on earnings
Earnings:
FRI JAN 7 BEFORE
KBH
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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