It Takes Two to Fight
Research for Online Investors

by John Dalt

7/08/11

President Obama wants to meet with Congressional leaders over the weekend on the debt limit.  House Speaker John Boehner said yesterday there was a 50/50 chance of a deal to raise the debt ceiling in the next couple of days.  Optimism is a rare commodity in Washington.  We think it is over-rated when it comes to these negotiations.

Unless the Republicans go wobbly, a deal won’t be finished until liberals and progressives cry “uncle.”  We wrote on June 2, in Intractable Negotiators, that conservatives had no reason to raise the debt ceiling.  Conservatives want to shrink government, progressives do not.  What better way to shrink government than to stop borrowing?

The government will not default if the debt ceiling is not raised.  Spending on discretionary items will have to be cut dramatically.  Tax money comes into the government every month.  The treasury would have to pay their bills with the money available and cut other expenses.  Like most Americans, we pay our mortgage first, then our credit card bills and car payment.  If there is any left over, we get to eat out at a restaurant.

The government would pay interest first, then Social Security, then defense (minus Libya)…and way down the line would be White House Czars and the EPA.

We don’t mind raising the debt ceiling if cuts to current spending occur, future spending growth is slowed and a Balanced Budget Constitutional Amendment is passed by the house and senate.  That would be a good day’s work.

The closer we get to the deadline of August 2, the shriller the voices become.  President Obama is trying to sound like Harry Truman, telling the congress they need to do their job and pass a bill to raise the debt ceiling.  Does President Obama really want a deal?  We don’t know.

A good argument can be made that it is in his political interest not to agree to a deal with those ‘rascally’ republicans.  Up until the last two weeks he has avoided the negotiations, leaving the Vice-President to conduct meetings.  When those talks broke down, he railed against the congress for not doing their job.  Harry Reid kept the Senate in session over the Independence Day recess to consider trade agreements.  Nothing got done.

This morning’s Non-Farm payrolls report showed the U.S. economy added just 18,000 jobs last month.  Unemployment went up to 9.2%  Obama called a press conference to blame congress for not doing anything to create jobs.  He didn’t take any questions, but we could imagine ours if allowed to ask, “Mr. President, does this jobs report completely discredit your actions for the last 25 months?  Have your party’s priorities actually damaging the U.S. economy?”

You won’t hear that asked by any reporters in the mainstream press!  David Brooks wrote an article to assist the President in his task of blaming the republicans.  The Mother of all No-Brainers proposes that republicans should just say yes.  The president is ready to accept some cuts to spending, if he can just have some tax increases.  Brooks believes the progressive wing of the Republican Party should accept the trickery and say yes.

Brooks argues that if republicans do not accept the president’s offer, they will be to blame and voters will “conclude that Republicans are not fit to govern.”  Thanks for the help David.

This is the story line the White House is pushing. The republicans are to blame if a deal doesn’t get done.  The republicans have been clear; cuts must be made and they will not raise taxes.  Why doesn’t the president agree?  Like my mom always said, “It takes two to fight.”

Our SwingTrader subscribers bought the TBT etf this morning.  This Ultra short 20-year Treasury ETF moves higher when long-term interest rates increase. I know it is easy to forget, but Moody’s warned on June 2nd that if significant progress was not made on raising the debt ceiling within six weeks they could downgrade the U.S. sovereign credit rating.  That was five weeks ago…yesterday.  You can read their warning, Moody’s warns of U.S. credit rating downgrade if no debt ceiling deal comes soon.

We suggest buying the TBT etf under $34.00 with a first target of $37.00  If things in Washington get ugly, it could go higher…quickly.

The mailbag:
You know John  I really don't want be a smart a?*, but I've been watching Sam Collins too,,for a long time.   Honestly I could have made a ton of money doing the opposite he recommended... I have never seen an analyst,,more wrong..I'm just sayin''.  Your bleeding heart, liberal, big fan---subscriber J.P.

John: Kind of like Cramer?  I don’t follow either.   I thought his point of the industrials confirming the bull move in transports was worth sharing.  I like to read as many views and opinions as possible to verify or question the projections I am forming.

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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