Intractable Negotiators
Research for Online Investors

by John Dalt

6/03/11

Moody’s warned on June 2, 2011 that it “would consider cutting” the U.S. credit rating. Moody’s placed a time limit on the negotiations to make substantial progress on negotiations to raise the debt ceiling until mid-July.

Treasury Secretary Geithner went to Capital Hill and met with first term lawmakers. The House Republicans in the freshman class are fire breathers on raising the debt. Geithner said he had a “good meeting.” Representative Kristi Noem said, “Secretary Geithner doesn’t get it…we are not going to give this administration a blank check to spend even more.”

You may not know any of the freshman republicans that were elected with help from the ‘Tea Party.’  It would be amusing to let them handle the negotiations with the White House.  President Obama has played his hand on certain changes he will not accept.  After the negotiations for the last continuing resolution, he told an audience on a campaign stop he asked the republicans “Do you think I am stupid?”

That has never been a term I have heard applied to the president.  But are the republicans?  What would happen if the republicans were intractable with their demands?  Who would blink?  Why not go for broke?  Look at the two sides, one wants to shrink government, one wants to grow government.  Doing nothing shrinks government.  One side does not have to move to accomplish their goals.

When you look at the negotiations in this way, any concessions by the House are done voluntarily.  If the Senate and White House do not pass and sign the House’s legislation, who is to blame if the debt ceiling is not raised?  If you think this is extreme, just remember the reason  our government is in the present condition it is in.

Rahm Emanuel said, “Never waste a good crisis?” Now, the shoe is on the other foot, and the republicans have a crisis that allows them to move their agenda. Why should they negotiate? Did Nancy Pelosi negotiate? Harry Reid? President Obama?

The end result is the government shrinks.

In business dealings over the years, I have had to deal with people that were intractable with their positions. The choice becomes clear after a few meetings. Either do business their way, or don’t do business. One simply has a decision to make.

If House Republicans do not follow this path, they allow the President to claim credit for any improving economic conditions during the coming Presidential campaign.  The only path to victory for our country and the elections in 2012 is to destroy his ideology, now.

A good start would be a House resolution instructing the Treasury Department to take no more 'extra-ordinary measures' concerning the debt limit and the Administration to begin shutting down the government, spending only money received until raising the debt ceiling is resolved.

Would someone please explain this to House Speaker Boehner?  Any concession is voluntary.  They are not going to like or respect you in the morning!  Get over it.

Today's market news:

The U.S. Bureau of Labor Statistics released the May Nonfarm payrolls numbers this morning before market open. The market expected 169 thousand jobs to have been added in May, which was down from the 244 thousand added in April. The numbers were terrible, coming in at only 54 thousand jobs added. The unemployment rate increased to 9.1% One encouraging data point came in after the market open. The ISM Non-Manufacturing Index came in at 54.6, slightly better than expected and better than April’s numbers.

Today's chart illustrates the Dow's average performance for each calendar month since 1950 (blue columns) and the average monthly performance of the Dow from 1950 to the present (gray line). This chart shows the Dow has tended to perform best during the last several months and first several months of a calendar year. During the middle of a calendar year, the Dow has tended to struggle (with the exception of July). This reinforces the old saying “Sell in May and go away.”  It is worth noting that there have been only two calendar months during which the Dow has declined on average -- June and September.

Chart courtesy of http://www.chartoftheday.com

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The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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