Market Analysis: US

The US did not release any economic data last week, so all we're left with is the performance of the markets.  Let's start with the SPYs:

Remember that the overall daily chart is losing upward momentum.  While we see a rally from mid-November 2011 to early August, we now have prices moving in more od a sideways pattern.  A big key to this chart is the declining momentum in the MACD.  Also note that volume flow has been weaker. 

What is most likely happening is an overall price consolidation as the markets wait to see what happens in Washington.  Notice the red line that connects the lows of late August and mid-October.  This line would be the lower line of a symmetrical triangle consolidation pattern.  Right now a price drop below 164.5/165 would be the key technical development lower, with a move below 162-162.5 being utterly deadly to the bulls.

Bulls would need to move the market about the 178 area for a break-out to occur

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A thought for Sunday: an out-of-the-box proposal to solve the debt ceiling crisis

- by New Deal democrat

On Thursday I wrote a post the thesis of which was pretty straightforward: when the threat by a sovereign to not pay any of its bills - including selective payment of those bills - goes from trivial to non-trivial, based on the increasing frequency of the threat and the increasing brinksmanship associated with that threat, I would expect buyers of that sovereign's bonds to price in the risk of even partial or selective default. Even though, to date, that sovereign had never in history defaulted on any of its obligations. Even if the government of that country chose to prioritize payment of bondholders over other obligations, I would expect the second-class parties to hire lawyers and try to freeze some or all of the payments to sovereign bondholders while they argued their case in court.

In fact, he more I've though about it since, the more it looks like the S&P downgrade of US debt in 2011 - due to that brinksmanship - wasn't political at all (the source of much criticism at the time), it was dowright prescient.

So here we are, only days away from what could be a calamitous economic event, casued entirely by voluntary actions of government, with no apparent way out.

Or is there? Here is an out-of-the-box suggestion:

The number 1 priority of the GOP is to extract one or more real concessions in return for its hostage-taking.

The number 1 priority of the Democrats is to make sure that hostage taking is not rewarded, so that the GOP never takes hostages again.

The parties are at loggerheads, and we have a crisis because these priorities appear to be intractable.

Except actually, they aren't.  *Both* priorities can be satisfied.

The secret is that the debt ceiling law itself is just that - only a law. It was enacted 100 years ago when the US put World War I on its credit card, causing the biggest US inflation of the 20th century.  Now that the US government has many continuing obligations, including Social Security and huge treasury debt payments, this law is a loaded loose cannon on deck, capable of inflicting great damage.  I am shocked that we haven't already seen further downgrades of US debt by credit agencies (but give it a day or two).

So, here is the out-of-the-box solution.  The democrats add a demand: they insist that the debt ceiling act itself be repealed, ending the chances of hostage taking forever.

The GOP rejects this.

Then the two parties negotiate what of the GOP's current demands the democrats are willing to concede, in return for the debt ceiling law itself being repealed.

The GOP gets what it wants - actual concessons for the hostage taking. The Democrats get what they want - the GOP can never take hostages again.

And the US public never have to go through this again.

__________
P.S.: If someone thinks this is worth cross-posting at a political blog, be my guest. But I won't.

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Weekly Indicators at XE.com: you're gonna want to read this

 - by New Deal democrat

Weekly Indicators has been published at XE.com. Click on the link and you'll go directly to the article.

Because the federal government is no longer reporting economic data during the shutdown, these indicators are especially important. And let's just say, "stuff" is happening.

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Weekend Weimar, Beagle and Pit Bull

See you Monday

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Yes, Virginia, There is an Economic Cost to the Shutdown. And It's Bad

From Bloomberg:

Claims for U.S. jobless benefits jumped last week to the highest level in six months, providing the first statistical warning that the damage from the partial federal shutdown is starting to ripple through the economy. 

While half the increase came from California as the state worked through a backlog following a switch in computer systems, another 15,000 reflected the furlough of non-federal workers from employers losing government business, a Labor Department spokesman said as the data was released to the press. Applications (INJCJC) for unemployment insurance benefits surged by 66,000 in the week ended Oct. 5 to 374,000, the most since late March, figures from the Labor Department showed today in Washington. 

“The economic costs of a shutdown are going to increase the longer the shutdown occurs,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania and the second-best claims forecaster over the past two years, according to data compiled by Bloomberg. “If this drags along for the next couple of weeks, the economic toll will be even more significant.” 

What I find truly amazing about this whole process is that people don't think there will be a negative cost to Washington's Stupidity.  I still find that utterly baffling. 

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Yes the Shutdown Will Slow the Economy

From the Washington Post: 

Beginning next week, thousands of home buyers will be unable to get approvals for their mortgages because of the government shutdown, potentially undercutting the nation’s resurgent housing market.

Without paperwork from the Internal Revenue Service, the Social Security Administration and in many cases the Federal Housing Administration, banks and other mortgage lenders will be less willing to make loans, if they can make them at all. For instance, lenders rely on the IRS to confirm borrowers’ income and on Social Security to confirm their identity.

Every day that government offices remain shuttered will delay an ever-larger fraction of mortgage closings, industry leaders say, jeopardizing mortgage and interest-rate approvals and spooking sellers. About 15,000 new home mortgages and 18,000 refinancings on average are completed across the country each day.

And the reason?  When the economy is weak, fiscal multipliers are higher:

This paper investigates the relation between growth forecast errors and planned fiscal consolidation during the crisis. We find that, in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected, with the relation being particularly strong, both statistically and economically, early in the crisis. A natural interpretation is that fiscal multipliers were substantially higher than implicitly assumed by forecasters. The weaker relation in more recent years may reflect in part learning by forecasters and in part smaller multipliers than in the early years of the crisis.

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Is the Oil choke collar beginning to give way?

- by New Deal democrat

New post up at XE.com at the link.

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