Let's Get Fiscal

No, that's not a typo, although it's understandable you might think we meant "physical."

The Congressional Budget Office said today that the U.S. economy will end up growing a paltry 1.5% for the year. Some ascribe most of that weakness to a particularly harsh winter in the United States.

The CBO also said that the operating deficit (not the debt) will shrink significantly in 2014, although not as much as predicted - or hoped for. Hidden in those numbers is the fact that our projected shortfalls due to entitlements are still out of control.

This leads us to the state of the Congress. It's awful. It ignores its responsibilities on two fronts, the two parties digging in in their respective philosophical trenches.

It is becoming apparent that, while reducing the deficit is generically a good idea, reducing it in the teeth of a debilitating recession is not a good idea. Federal aid to states, counties and municipalities has fallen tremendously. That cuts employment, which cuts tax revenues, and so forth.

Republicans believe that balancing the budget or at least coming close is the utmost priority. Democrats believe that alleviating human suffering is paramount. Somewhere, there is a happy compromise, but given the attitudinal sickness drowning Washington, it will be hard to reach the middle.

One thing that the fed had not reckoned on is the hoarding of cash by banks, commercial and investment, and by corporations. The money is as inactive as money can get. Yes, investors are fueling a rise in equities, but the investment dollars are not serving the cause of either technological innovation nor an expansion in infrastructure, whether public or private.

This is the fetter that is on the U.S economy, and it is the same in Europe and Japan. Korea, Australia and Canada are better than their bigger counterparts, but they're not exactly acing the course. You cannot have such lame-brained approaches to rebuilding the world economy when those countries that account for well over half of total GDP cannot get their priorities straight.

If - and it's a big if - a government intervenes in the economy, it has been shown time and again historically that the best way to stimulate is by direct investment in projects, most of which are either baseline like roads, schools, sewers, and so forth, or they are exotics: space programs, smart grid, high speed internet.

The U.S and Europe have done very little in either respect, Europe being the worst of the worst.

But, this comes back to the inability of Congress to act and a failure on the part of President Obama to lead. (One of the few good things to happen, even through all the sturm und drang, is the ACA. The rate of increase in medical care spending has slowed dramatically. It is now within shouting distance of getting re-aligned with normal inflation.)

The President and Congress must get their fiscal act together.

Today, gold gained a small fraction of a percent due strictly to the decline in the dollar.

We saw very light summer volume in all markets and will see the same until business resumes after Labor Day in the U.S. on Tuesday.

Even rumors piled on rumors of more Russian involvement in the eastern Ukraine did not help regular trading.

Oil did a turnaround from yesterday, staying fairly much flat. Today traders focused on weak demand rather than stockpiles, which in a surprise (not really), were deemed stable.

The U.S. bond market remained the big draw for worldwide investors after their steamy affair with equities. Perversely, more interest in the bonds drives prices up but yields down.

As always, wishing you good trading,