I'll start with the ratings downgrades. They're bullshit! Morgan Stanley's stock price has been dropping like a stone since February 2011 and you downgrade them now? After all this time? It's bullshit.
the downgrades struck me as politically motivated at first because it happen the day after the Fed announced an extension of QE. There's no doubt the extension of QE factored into moody's decision to downgrade and maybe it should have. But that's a big maybe. If the Fed is trying to stabilize the economy why would you come out the next day with a destabilizing ass downgrade? It looks like the Fed is democrat and Moody's is republican. This is because it's clear to see that President Obama needs the market and economy looking stable to get re-elected and the republicans need it looking unstable to point at and say "this is why you need to elect us."
In the mean time real families and businesses hang in balance. To use people's livelihoods as political ammunition is disgusting. To use the future of our country as a bargaining chip is disgusting! Yet this is where we are right now.
President Obama shares in the blame and should take most of the blame because he was elected and came into office with the democrats having both houses. He promptly went about ramming a healthcare bill through that now looks like it's going to fail in the supreme court.
At the center of the controversy is the health care mandate that would require all Americans to purchase health care or pay a fine. At the core of that is what's been the knock on liberalism since it's beginning. The fact that you have to force people to do something they would other wise not do. The government does this a lot now in many ways and it's a strain on freedom. We've been trying to fuse conflicting views on social political theory in this country for 300 years growing by trial and error. This will continue because that's what democracy is. Trial and error.
The biggest problems come from not recognizing error for what it is, error. If we look for other major developed countries who have tried universal healthcare and learn from their errors we shouldn't make the same. The easiest example is the entire European Union. All EU countries have universal health care with some co-pay mixed in. To pay for it they have a value added tax meaning they have say a 16% tax on EVERYTHING they purchase. The people of Europe feel as though health care is a human right no matter what your income is. Americans feel the same to an extent, and that extent is high Europe like taxes.
These taxes are the error in that they are a constant drain on capital and some would say unsustainable. What happens when there's a crisis and the government has to choose between health care and the economy? The EU debt crisis is what happens. The world economy is thrown into a tailspin because no one is certain they'll be able to fix the economy and maintain the status quo. If they can't maintain the status quo and they have to choose between paying their debt or universal health care what do you think they'll choose?
Sovereign creditors are in a pickle in Europe because the people are trained to expect universal health care (among other entitlement programs like early retirement) and if they can't get it all hell will break lose. It's not commonly talked about but this is the real problem under the surface in Europe. When times of economic strain pop up Europe has little or no leeway on entitlement expenditures. All they can do is either print or raise taxes, neither of which is good for economic growth.
We in the United States of American are in a position where we for the most part have clean canvas to work on when it comes to our health care. Our current system is broken beyond repair and we do need to build a new one but the way the president went about it was all wrong. It will take years of debate and trial and error to get it as close to just right as possible. We need to start with the prices we pay for medicine. We are the biggest customer to big pharma and we pay retail for meds. This is the crony capitalism bullshit of the big pharmaceutical companies using lobbyist to help them keep prices high. This isn't a market phenomenon because Canada has cheaper versions of nearly all the drugs. We need to allow the market to tare big pharma a new ass. Let people get their meds from Canada or Europe. But before I get too far off subject, I digress... For now.
To make a long blog post short, we're in the eye of the shit storm so concentrate on preserving toilet paper. Anything Democrats do to help the economy republicans will do, or try to do, something to neutralize it's effects.
Which way the market leans the rest of the year depends on Europe. If they can get more fiscal union out of this crisis the world economy will be better for it. Even with the above mentioned entitlement problems the EU is still the largest most mature economy in the world. It can drive the world economy and it will. As for the US, we have some huge choices to make on where we want to go as a country. Socialism isn't new to America's economy. The "social safety net" we're so proud of is socialism like a mutherfukker.
China teaches us socialism by it's self doesn't work. They wouldn't be diving head first into the capitalistic waters the way they are if it did.
The economic crisis shows us that capitalism left alone doesn't work. Greed is too powerful an emotion to be left to it's own devices. Only the right balance at the right time will suffice and that balance and right time are always moving targets. Active government must stay active but acting in the best interests of 350 million people all at the same time is hard. But this is why our political races have to stop being popularity contests and start being more of a logic contest. This is why we have to educate the electorate better. This is why huge sculptures of your face get etched into the side of mountains. Because leading is difficult and leading large numbers of people is even more difficult. And power corrupts but absolute power corrupts absolutely so we need leaders who can fight that urge to be corrupted and win. I think Ron Paul is the best candidate for President. That's out of the question now so we have to choose between President Obama and Mitt Romney. Until that choice is made volatility in the economy as well as the markets will be here.
Speaking of the markets.
Volatility is here to stay but volatility goes both ways up and down.
The best risk / reward play right now and the easiest to take advantage of I think is long oil. Below is a weekly chart of the $cl_f and it's screaming "snap back!"
Taking a look at the broader market namely the $spx, technically the market looks bullish. Check out the $spx daily chart.
Last but not least my favorite as of late the $dx_f. Checkout the price action.
I had the fortune this weekend to have not one but two of my best trading buddies from twitter drop some guest posts on my blog that are very good reads. you can and should check those out here: Fear, Fear, And more fear. And here: Markets, Fed Juice! $alxn $crus $rut $compq $wwww.
Until next time traders happy hunting, stay low and keep firing, and protect your necks!