No Need for Vacation When You Can Fight Over the Fiscal Cliff
Republicans are not willing to let Democrats go over the fiscal cliff and take all of us with them – at least, not without a good fight.
Just the sound of it – going off the cliff – echoes disaster. But that is where we're heading if Congress doesn't act to extend the Bush tax cuts or avoid the automatic spending cuts that will go into effect Jan. 1.
Little can be expected to be resolved over the next month as Congress takes off for its annual five-week August recess.
However, House Speaker John Boehner (R-Ohio) vowed Wednesday to call the House back into session to cement approval if Senate takes action to prevent fiscal cliff. The GOP has made its commitment to averting the fiscal cliff crystal clear and is encouraging the Democrats to work out some kind of agreement.
"If the Senate follows the House in passing legislation to stop the entire tax hike-including the small business tax hike-in a manner that requires House approval before it can be sent to the president, it is our commitment that the House will reconvene immediately to ensure the measure is enacted at the earliest opportunity. But, in order to avert the threat to our economy, the Senate must join the House in acting to stop the entire tax increase," Boehner and three other House GOP leaders wrote in a letter to Senate Majority Leader Harry Reid (D-NV).
Heavy Betting in the Middle of Mayhem
There's going to be a lot of very heavy betting over the next few days, weeks, and months on what's going up, what's going down, and what's going around:
- How far will Facebook IPO price go?
- How far DOWN from here will JPMorgan go, with the FBI and DOJ now sniffing around?
- How far AROUND the globe will the fallout be if Greece loses its game of chicken?
If you don't have the stomach for what's going to feel like an out-of-control rollercoaster ride, sideline yourself.
If, on the other hand, you like a lot of action, welcome to Mayhem – the preamble month to what will likely be the Summer of Some Discontent.
That is, unless you like rapid-fire trading.
Which, by the way, is not just fun, but can be very, very profitable. I'm in, and so are the subscribers to my Capital Wave Forecast. We're gearing up for some heavy betting in the weeks and months ahead.
So, what's front and center today? You know. The big three headlines: Facebook, JPMorgan Chase, and Greece. Are you sick of hearing about them? I'm not. I like trading the headlines.
Here's my "heads-up" on the big three headlines.
He Predicted the Apple (Nasdaq: AAPL) Sell-Off … Here’s What's Next
The recent sell-off we've seen in Apple Inc. (Nasdaq: AAPL) shares came as a real stunner to Wall Street.
But Strike Force Editor Keith Fitz-Gerald saw the sell-off coming.
In fact, he predicted it.
Back on March 27, Keith wrote a lead story for Money Morning in which he articulated seven very clear reasons that investors should consider shorting Apple's stock.
And that was a couple of weeks after he detailed a "put" option strategy – in essence, a "short" trade – that resulted in a 47% profit (in just two days, no less) for the subscribers of his Strike Force trading service who followed his recommendation (a short-term reversal delivered those gains).
I wanted to know what tipped him off that a reversal was coming – as well as what he was predicting for Apple's shares going forward.
"BP, it was clear to me that this kind of reversal was coming – and sooner rather than later," Keith said during a private briefing late last week. "The shares had soared 75% in just five months – one analyst actually described the performance as "euphoric.' Suddenly, we're seeing all these mainstream-news-media stories explaining why Apple shares are going straight to $1,000. But I know from my own experience as a professional trader that even the shares of the best companies on earth don't go straight up. I happened to time it perfectly and help Strike Force subscribers take advantage of the reversal I just knew was in the offing."
Key Questions for Apple Stock
The way we see it, the Apple stock sell-off raises these three key questions for investors:
- No. 1: What's going to happen to Apple shares in the near-term?
- No. 2: If the stock is headed for a volatile stretch, is there any way to profit until the smoke clears?
- No. 3: What's the long-term outlook for Apple – both the company and the stock?
Having worked with him for five years, I've seen Keith make gutsy calls like this – and have them pay off big – time and time again. Since I knew you'd be as interested in his answers as I was, we wanted to share them with you.
Here's what Keith had to say.
Earnings Fuel Stock Market Gains – Dow Jones Soared More than 100 Points Midday
Yes, Friday was all about the earnings.
The stock market rallied Friday thanks to a roaring round of positive earnings reports – with a little help from positive news out of Europe.
With little on the economic calendar to close out the week, and no major reports due, market participants focused on encouraging first-quarter results from a spate of several large and market-influencing firms.
"There's been a wrestling match all week long between strong earnings and weak economic data. At the moment earnings are winning," Lawrence Centura, portfolio manager at Federated Investors told the Associated Press.
Strong Earnings Push Stock Market Gains
To date, quarterly earning has been pleasantly strong.
"The number of companies reporting positive surprises is much higher than it typically is at this stage in the game," Fred Dickson, chief market strategist of D.A. Davidson & Co. told CNN Money. "They're only beating by a little, but it's still a significant number of companies and that's the wow factor."
Of the 212 companies in the S&P 500 that have reported, better than 80% have exceeded expectations, according to Thomson Reuters. During a typical quarter, the percentage of companies that top forecasts is 60%.
Here are some recent highlights:
- Tech giant Microsoft (Nasdaq: MSFT) lead Friday's gains in the broad-based rally after beating expectations late Thursday, reporting sales growth of 6% thanks to its Window and Office products. MSFT gained 4.55% Friday to close at $32.42.
- Investors also ate up better-than-expected numbers from fast-food king McDonald's Corp. (NYSE: MCD), which ended the day up. The company proved it remained a worldwide favorite with same-store sales up 8.9% in the U.S., 5% in Europe and 5.5% in Asia-Pacific, Middle East and Africa. Revenue rose 8% (excluding currency fluctuations).
- Robust earnings from General Electric (NYSE: GE) pushed its stock up 1.15% to $19.36. GE narrowly beat expectations with quarterly profit of 34 cents a share, a penny higher than expected, and revenue of $35.18 billion compared to a forecast $34.7 billion.
- Meanwhile, traders traded E*Trade (Nasdaq: ETFC) up some 6% on better-than-expected first-quarter results. E*Trade's first-quarter profit rose 38% from a year earlier.
- Technology manufacturer Honeywell (NYSE: HON) beat on both earnings and revenue, sending the honey pot buzzing. First-quarter income climbed 17% from a year earlier, and the company raised its 2012 forecast.
2012 Financial Crisis: Wall Street's Latest Scheme Uses Your Bank Account to Create the Next Crash
In 2008, reckless credit default swaps nearly obliterated the global economy. Now comes the next crisis – rehypothecated assets.
It's a complicated, fancy term in the global banking complex. Yet it's one you need to know.
And if you understand it, you will get the scope of the risks we currently face – and it's way bigger than just Greece.
So follow with me on this one. I guarantee that you'll be outraged and amazed – and better educated. You'll also be in a better position to protect your assets at the end of this article, where I'll give you three important action steps to take. So follow along…
Monday's Stock Market News: UPS Inc. (NYSE: UPS), US Steel Corp (NYSE: X), Glencore
Monday's stock market news from United Parcel Service Inc. (NYSE: UPS), U.S. Steel Corp. (NYSE: X), and Glencore International Plchelped drive gains in U.S. markets. The Dow moved up a slim 0.05% to close at 13,239.13; the S&P 500 climbed 0.4% to close at 1,409.75; and the Nasdaq rose 0.75% to 3,078.32.
United Parcel Service Inc. (NYSE: UPS) biggest deal in company history: UPS announced Monday a $6.77 billion deal to buy Netherlands-based delivery service TNT Express NV to bolster global sales growth.
TNT is Europe's second-biggest express mail company. Its acquisition will double the UPS presence in Europe and give it about the same market share as the region's industry leader DHL. The deal also will boost UPS's international sales to 36% of its total from 26% currently – a significant leap towards the company's goal of 50%.
Downward Mobility is Crushing the American Dream
Forget about getting ahead. For many in the middle class these days it's more about not sliding backwards.
It's called downward mobility and it's crushing the American Dream.
According to a study conducted by the Pew Charitable Trusts, nearly one out of three U.S. citizens born into middle class households in the 1960s have lost their economic status.
And because the study used data from 2004 to 2006 – before the Great Recession – the numbers today could be even worse.
"Being raised in the middle class is not a guarantee that you'll have that same status as an adult," Erin Currier, project manager at Pew's Economic Mobility Project, told CNNMoney. "With all the economic turmoil in the past four years, there's good reason to think that downward mobility is more severe."
Pew used three different criteria to assess the economic status of the study subjects. According to two criteria, 28% dropped out of the middle class; a third measure showed downward mobility for 19%.
Pew defines the middle class as those falling between the 30th and 70th percentiles of income.
It compared the households of the target group in 1979, when middle class meant incomes between $32,900 and $64,000, to their income in 2004-2006, when middle class meant making between $53,900 and $110,000.
Any middle class workers hit by the current recession will have a long road back.
In another Pew study, half of people who lost 25% or more of their income during better times in 1994 were still making less money four years later. One third of the group had not recovered even after 10 years.
With the unemployment rate still at 8.5% and so many people working at jobs making less than they once did, it will take years for the middle class to recover – if it ever does.
No Longer the Land of Opportunity
Once envied as the land of opportunity, the United States is no longer the best place to climb the economic ladder – far from it.
The Market's Next 1,000-Point Move
Stuart Varney, host of the aptly named and very highly rated "Varney & Co." program on Fox Business, put the following question to me in his usual direct style: "Will we have an agreement on Wednesday out of Europe and what will that mean for the markets?"
Yes, I began, we probably will – but for all the wrong reasons, and it will never last.
There are three reasons why:
1. You have 27 nations that now have to agree to review what, in effect, is the treaty that holds the European Union (EU) together. That's not conducive to anything even remotely resembling quick decision-making.
2. What's happening in Europe is much the same thing happening here, in that the debt situation has become government at the people rather than for the people or even by the people. That means politicians are still smoking in bed while the house is burning.
3. They have to say something to avoid contagion but that's already baked into the cake if you examine the cost of credit-default swaps (CDS). The data suggests traders are now turning their crosshairs on Italy, Portugal and Spain even as leaders work towards a solution. So recapitalizing the banks to the tune of a few hundred million euros is but a one-shot deal; the continued thing to focus on is the near-complete lack of fiscal discipline at the government level.
The bottom line: This is not over by a long shot. In fact, I expect it to drag on well into next year.
Still, in the short-term, the next 1,000 points the market moves in either direction are going to be the direct result of whatever "solution" comes out of Europe tomorrow (Wednesday).
The better we understand this situation as a nation and as investors, the better off we'll be.
A Misguided Mission
At issue is the very nature of the "recapitalization." The fact is Europe's debt has gotten to the point that it can no longer be sustained.
Much like our own debt situation here in the United States, there are many causes, including completely incompetent government, irresponsible decision-making, feckless leadership and paltry economic growth.
Citizens on both sides of the Atlantic understandably have had enough.
But the problem is that the policies that led Europe to this point were decades in the making. So it's unreasonable to expect them to go away any time soon even if the EU announces a solution on Wednesday.
Furthermore, the use of comparatively healthy public balance sheets to shore up irresponsible banks and speculative trading houses is a big mistake that removes the free hand of risk that is a required element of capitalism.
Now, this could come to a quick resolution – if the politicians would stop their meddling. Yes, companies would fail, banks would fail, and the markets would take the brunt of it on the chin.
But – like Iceland, which fabulously ignored international advice and undertook a complete reboot – the sooner we take our medicine, the sooner we can begin healing.
It's not too late, but whether it becomes too late is a question for the world's central bankers and policymakers who have yet to become serious enough about what's needed.
The Downward Spiral
Barring any sort of massive economic growth, neither the EU nor the U.S. can make a dent in the debt cycle and the stuff eventually will hit the fan.
When it does, there are four ways out: