Learn the trade here. Make it on tradeMONSTER

Options Trading News

November 13, 2012  Tue 8:22 AM CT

SPX: SEE CHART GET CHAIN FIND STRATEGIES
What forces the hands of Congress and the president to make a budget deal before taxes shoot up and spending slams down? What inputs do they need in Washington?

I see three potential pressure points. The first is a precipitous decline in the stock market. We have two precedents for the market to matter, the TARP vote and the deal in Europe.

After TARP initially failed the market took a real hammering and that was because sellers knew they had to get out before the banking system collapsed. You have heard a series of banking CEOs say their institutions wouldn't have collapsed if TARP had failed to pass. That's nonsense.

Short sellers controlled the market and they could bring stocks down, which then caused ratings agencies to panic, which then stopped funding to banks and then brought collapses. The bank CEOs couldn't stop that trend, and they should stop pretending they did. Congress swung into action only after the hideous selloff.

Then there is Europe. There's no secret to the when the central bank got a deal to move along: When the stock markets collapsed and the bank stocks look like they would be rolled.
So my simple take is a 1,000- to 2,000-point bone-crusher comes first and a deal later. Chances: 50/50.

TheStreet.com logoThe second pressure point? The beginning of a sharp rise in employment claims as everyone from the biggest executives to the smallest of small-business men know it is time to fire. Why not? We rewarded executives who "saw it coming first" with higher stock prices and "saw it coming" meant who fired the most the fastest. You will see that from the claims. I don't have to put odds on that. The game is already happening.  

Third, the CEOs who contributed to the Romney campaign and to opponents of the Democrats recognize they backed losers and actually asked the members of Congress they invested in to make a deal rather than have a recession that will kill profits, lower stock prices, and maybe even cut compensation in the corner office. This may not happen because No. 2 says they can slash hiring and still do well personally, but there must be some executives who say they are not going to continue to support losing, divisive leaders.

Of course, the Tea Party people are willing to crucify hiring upon a cross of 15 percent tax rates for hedge fund managers, perhaps the greatest bit of Grover Norquist-inspired insanity yet. But as a former hedge fund manager who paid ordinary income, I could see selfish hedge funds really funding financial Armageddon because they can get short and make up the lower tax rate that way.

Oh come on, that's not cynical--that's just good business. The prospects of business leaders actually helping to get a deal done has increased to 50 percent also simply because they are money men and backing losers turned out to be a really bad strategy.

So there are the players and the game plan. I don't like the odds because No. 2 has already started, and you can gift-wrap a 2013 recession come no deal by Christmas.

For investors, that means staying lean, buying shares of companies that don't have to rely on the U.S. consumer, who will be hammered and just waiting for the punishment from having Washington sink into partisan politics.
Share this article with your friends


Related Stories

SPX

ECB, jobless claims top calendar

October 2, 2014

The European Central Bank's monetary announcement is the main event on today's calendar. That will be followed by weekly jobless claims and factory orders.

SPX

Stocks remain lower after job data

October 1, 2014

S&P 500 futures are near their lows of the morning despite better-than-expected private-sector payroll gains. European markets are down more than half a percent.

SPX

ADP, ISM data dominate calendar

October 1, 2014

Today's big event comes at 8:15 a.m. ET when ADP announces private-sector payroll gains for September. The Institute for Supply Management's manufacturing index at 10 a.m. ET.

SPX

Futures higher ahead of key data

September 30, 2014

S&P 500 futures are up 0.36 percent, while the Nasdaq 100 is indicated higher by 0.6 percent. Europe rose as well, led by gains of about 1 percent in France, Spain, and Italy. Asia was mixed overnight.

SPX

Case-Shiller, consumer data on tap

September 30, 2014

Today's agenda brings a mix of items, including European inflation data, the Case-Shiller index of home prices, the Chicago Purchasing Managers Index, and consumer confidence.

Premium Services

Free Webinars

How Can Equity Traders Beat the Algos

Education & Strategy

When to go in or out of the money

Some of our subscribers recently asked how to gauge positions that are in or out of the money, so I...

View more education articles »
optionMONSTER stockMONSTER tradeMONSTER