House Republicans Move Closer to the Wall: Scratching My Head
I honestly have very little insight this morning as the shenanigans in Washington reminds me of two novice chess playing children, devoid of any other pieces, pointlessly chasing each other around the board solely with the king without their realizing a stalemate has occurred. I suppose my declaration of a vacuous commentary hints that readers should simply come back tomorrow for a fresh approach at analyzing the markets, but since you have already come this far, you might as well patronize me and finish today’s offering.
After scanning the various opinions on the current crisis, I have yet to find any other strategist who claims that not only is a deal a lot closer than appearances would indicate, but also that Speaker Boehner knows he has no chance of winning and only displays obstinance in an effort to secure his electoral base which swept him into power last November. I have argued that his two step plan represents the only chance he has of not losing. The bill, never a popular option beyond the House, has lost even more momentum as it did not make it to the floor for a vote on Tuesday as Congressional staffers must tinker with the language to ensure the claim of $1.2T in cuts to the deficit. Even the Tea Party members have voiced their displeasure.
As a frivolous non sequitur, I find it a bit comical that these aides who do work tirelessly on the behalf of representatives are often twenty-somethings right out of school. College interns, with little more than Econ 101 under their belts, will likely lend a hand with the writing as they typically flood the District during the summer, working on the Hill during the day and sampling the local watering holes at night. I suppose both the staffers and interns are qualified to construct an appropriate piece of fiscal legislation, for my old Stanford classmate and former Fed Governor Warsh had roughly the same formal training prior to his working on the Bush economic team and then as a member of the FOMC.
With Harry Reid’s plan likely to pass through the Senate in the next 24-48 hours with the tacit understanding that it would avoid a credit downgrade, House Republicans will start to feel their backs juxtaposed to the wall forcing them to acquiesce. Throw in crashing websites and flooded phone lines from the deluge of constituents begging them to compromise, and I can envision no way out for Mr. Boehner and his faction to maintain their ideological stance without guaranteeing a deep recession for the U.S. economy.
I imagine that I could enhance today’s note by providing an analysis of the optimistic uptick shown in the Consumer Confidence figures from yesterday or supplying a preview for this morning’s Durable Goods Report or the 2PM release of the Fed’s Beige Book. However, these data points represent a state of the world soon to be rendered irrelevant by the imminent actions in Washington. On the other hand, if my prediction that the issues surrounding the debt ceiling and the budget resolve favorably comes to fruition, then it would precipitate a sharp rally to easily push the S&P 500 well beyond year-to-date highs as companies continue to report solid numbers and the recovery shows signs of modest acceleration. If I misjudge the preferences of those in power, then along with significant dislocations throughout all asset classes, I would at least have something substantive to write about come August 2.
S&P 500 SEP E-Minis Key Technical Levels
Support: 1325.50, 1322.00, 1310.25/1308.25/08.00, 1300.50, 1291.25, 1278.00
Resistance: 1335.00, 1340.25, 1342.50/43.75/44.25, 1352.75, 1356.25/57.25, 1367.00, 1370.00, 1380.00