Bring On Austerity

I said quite some time ago, the debt ceiling issue would resolve itself in the form of cuts to the government. I also said that these would not overtly harm business in the U.S.; we’re not going to double dip.

The finish line for those predictions is drawing near, and we’ll see how everything shapes up.

In the coming days, a proposed solution to the budget impass will need to be voted on, and I am fully expecting a Republican, full mass, red-flags-blazing-in-the-sun victory. That means massive cuts to government programs.

And I don’t think for a second that the market is discounting this outcome. It just seems like everyone has been so preoccupied with Europe over the last few days that they forgot what started the sell off.

But if Medicaid or Social Security get taken to the corner, then I think people will remember.

It’s hard for me to envision a situation where entitlement is reformed but consumers don’t feel the need to cut back.

On another point, China is behaving most interestingly, and I am sceptical of everything they do. Watch closely for a Chinese economy slowdown, as that would be the harbinger of death to this rally.

All in all, I still believe in a stronger U.S. dollar. Despite rhetorical arguments being issued by certain bow-tie sporting fund managers long to the teeth in commodities, the commodity space is not being discounted. If anything, it is still very crowded; it never flushed out properly (not including silver).

Oil can and will go below $90. The act of it going below $90 will cause it to go much lower still. And the outcome of this Congressional session will be a promising act that leads to a turnaround in the currency of the American citizens.

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