The Political Forecast
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- Published on Monday, 10 September 2012 16:04
- Written by Andrew Snyder, Editorial Director, Inside Investing Daily
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There is a storm on the horizon. If this pattern follows the expected path, we are in trouble.
The last time this happened... the markets plunged by over 15%.
The last time this happened... America's perfect credit rating was permanently marred.
The last time this happened... we warned it would happen again.
Guess what, dear reader. The fateful day is upon us. It is happening again. Risk is rising by the minute, and the markets are setting up for exactly the same jaw-shattering blow.
I want to show you a set of charts.
The first one is an old chart. Pay particularly close attention to the date range. The chart starts in September 2010 and runs through August 2011:
Not a bad chart, right? It rises nice and steady for a gain of close to 20%.
Now let me show you another chart. This one's not old. In fact, if you look at the dates, you'll see it is a one-year chart that tracks the action right up through this morning.
You don't have to be an expert in chart analysis to see the similarities. These two charts are very similar. In fact, both of them show a gain of 19%. Eerie, isn't it?
But here's the thing. That top chart... it doesn't end so well. I cheated. I stopped it short of where it gets really ugly.
You remember what happened the last time Congress was forced to fight over the debt ceiling, right? And you remember what happened when Standard & Poor's downgraded Uncle Sam's credit rating, right?
If not, this chart will refresh your memory. It's the same as the first chart above... but I added a month to it.
Ruh-roh... If history rhymes, we're in for quite the dark poem.
But here's the thing: Will history repeat? Is Congress really dumb enough to screw this up again? Will Ben Bernanke save us?
Let's answer those questions with some facts.
First, our national debt eclipsed the $16 trillion mark last week. We are now just a hair's breadth away from the legal limit of $16.394 trillion. That means -- unless he can slow his spending -- Uncle Sam will need to cut up his credit card sometime in December.
But that's smack dab in the middle of what is widely expected to be a do-nothing lame-duck session of Congress. Washington is scheduled to close down and lock its doors come Dec. 14.
That means the fight will likely end up on the shoulders of Tim Geithner and his Treasury Department. They'll be forced to claim "extraordinary measures," which will allow the Treasury to keep borrowing for another month or two.
That means this mess will keep spinning right through January... when a fresh batch of politicos move inside the Beltway. Still trembling from their high-energy stump speeches, few lawmakers will be in the mood for compromise.
In other words... we're in for a doozy of a fight come January. The markets don't like fighting.
But let's remember, history rarely repeats like a skipping record. As we're so often reminded, it merely rhymes.
This year, it's not the debt ceiling that will pull the markets down (at least, not at first)... it's that dang fiscal cliff. And that fight will be on our laps far sooner than most investors expect.
Let's also remember, the House will be in session for only eight days in September and just five days next month. The Senate will be in town for just 12 days this month and won't be able to do much without the House in town in October.
Again... by all standards, nothing will get done between now and the elections. And a lame-duck Congress is not going to break its neck to fix any issues... especially if Obama is packing a U-Haul bound for Chicago.
For investors, the barometer in all of this is the Farm Bill. It's the spark that could ignite an inferno.
The five-year plan expires at the end of this month. When it goes, farmers will lose the safety net they rely on... and some 46 million Americans face reduced food stamp payouts.
According to my sources, there is virtually no chance of any meaningful action on the bill. That means it too will be a hot potato passed to the folks who show up in January.
Again, nothing will get done until next year. The markets will not like that fact.
The good news in all of this, though, is I'm told to we can expect the House to pass the "No More Solyndras Act" this Friday. It would eliminate loan guarantees for solar and wind companies.
But, alas, it's all for nothing. It's just another pre-election gimmick. The Senate has no plans to even vote on the partisan idea.
For the folks in Washington, your financial future is a sideshow. It's the same now as it's always been. That's why our charts above are so similar.
And it's why the road to wealth is about to get very bumpy... just as it did the last time this happened.
Editor's Note: While U.S. leaders are distracted by the election, the stock market will be attacked... Congress is about to be caught with its pants down. Distracted by the election, its actions will lead to a direct attack on the stock market. Research indicates this attack will occur on Oct. 1 -- just one month before the election. Two more attacks will follow until the market has crashed. The result will be devastating for your personal wealth... Unless you act right away to protect your money. I'll show you a more potentially profitable alternative to the stock market in this letter. With this information, you could be getting rich while the market panics.
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