Worst Week in the Financial Markets.......US Politicians to Focus on Economy

Sometimes it takes a punch in the gut to awaken the senses. Although it hurts at first, it is not fatal and if you are up to it, focus' your resolve to defeat the enemy. The "enemy" in this case, the economy of the United States. After enjoying a AAA credit rating for 100 years the country hosting the worlds most powerful economy had its own credit rating reduced. Yes, despite a $2.0T, yes trillion, error by one of the world's foremost rating agencies, they still downgraded the US debt to AA+. Now should we have not gotten that advice $2.0T of debt ago? Regardless, those that run, or mismanage depending on your point of view, were a little shocked and awed. How can this happen?, they protested.Well we looked at the budget since 1934 projected to 2016 and were surprised by a few things.

Did you know?:

•   The US budget expenses are automatically raised 7-8% regardless of Congress or the President
• When they  talk about reducing the budget it is only reducing the increase.
• Inflation has remained below 2% for 10 years        
• GNP only increases 3-4% on average (which includes inflation)
• 2008 Budget deficit was $450B
• US revenue has only decreased $250B per year since 2008 due to the recession and yes that includes the "missing" revenues from millionaires and billionaires
• If you took the 2008 deficit plus the revenue decrease the deficit should be $700B
• 2011 budget deficit should reach $1.5B

By looking at those 8 points your blood should boil. Why are we spending $800B more than normal. That is the question the punch in the gut should foster. Until they get down to answering that question the budget malaise will continue.

The financial markets are settling in waiting for the next shoe to drop. Italy, Spain even Great Britian are experiencing new pressures on their debt and monetary system. France may be the next victim of S&P. All these potential stories are setting September up to be choppy in the markets (that is being kind). The good thing is that the President and Congress are on vacation...vacation what is that?

We see less volatility until labor day with position stocks getting the most attention. Most funds have to have the blue chips with an emphasis on non-cyclical's getting the most attention. Gold and Silver are on the bubble watch, We would lighten positions. YHOO is still high on our radar followed by AAPL, DIS and INTC. We think September will see more merger activity however the IPO market will stay tepid. Groupon is the only HOT deal we see currently.

Remember you can never lose by taking a profit!

Prophet