The Senate Will Vote Today to Pass a Debt Ceiling Deal That Nobody Likes

I have been travelling of late and so have not been posting much. However, I wanted to comment on the Debt Ceiling.

Yes, the debt ceiling will be raised following the Senate's approval, no surprise there. Economic data, however, remains weak and the debt ceiling deal is no solution.

Growth rate estimates for 2nd quarter GDP show an abysmal rate of 1.3%, unemployment continues to be a problem, the ISM manufacturing data was terrible as released yesterday, personal income and personal spending levels have come in lower than expected, and looking back to 2008, all prior stimulus programs have thus-far been failures. The current debt deal does nothing to solve any of these problems. The bill does propose to cut $2.4 trillion in Fiscal spending over the next decade, but none of these cuts go into effect until 2013. The popular phrase of late, "kicked the can down the road," applies here. The majority of the bill is just rhetoric. Spending cuts are in the writing, but that doesn't mean they will be executed. In the end, the US government is enabling the country to go into more debt. Of course it would, the United States would not be solvent otherwise.

In any case, market is currently weak. Markets should see a short-term rise from over-sold levels following the rise in the debt ceiling, but overall the market is showing significant weakness and I expect lower lows on the horizon. Its a volatile summer. Be careful if you are trading on highly leveraged accounts. You don't want to be forced out of a solid position because of a margin call.

On a side note, gold and silver continue to hold up well amidst the uncertainty. South Korea’s central bank bought 25 tons of gold over the past two months in its first purchase in more than a decade. South Korea has joined a growing list of Central Banks who are purchasing gold as a hedge against inflation. Interesting to think about for those who consider precious metals a bubble commodity.