7/11/11 The Day Eric Cantor and the Tea Party Triggered the Collapse of the Stock Market

What set off this market crash.  Look back at the day it started and what triggered it.  On that day the S&P 500 had a high of 1343 and closed at 1320.  Today the market looks like it will open around 1090, some 19 percent off the 1343 level.  What can one say other than austerity and gridlock in a secular bear market are not good solutions. To see where this started read the article here.


Everything that is evolving in politics, the economy, and the markets ensure that this will be an interesting day, an interesting week, and a month to remember.  For a lot of technical reasons today should be a day to buy stocks, a day somewhat like March 6, 2009, yet a big ingredient is missing.  What is missing is that this mini-crash has been generated by politics and it will take reverse politics to end it, and I don’t see any sign of that appearing. 

It is true Bernanke is speaking today and we have some economic reports that could come out better than expected.  Ben has been doing a good thing lately with Fed actions designed to move the money to the right areas and keep it out of the speculators hands.

John Mauldin’s letters this week are good and address the two sides of the issue (see our links area or wave@frontlinethoughts.com).  I am partial to the interview of Paul McCulley as what he espouses has been my contention ever since the Tea Party and House Republicans started gaining strength.  Two of his better lines are: “if the private sector is delevering and derisking and your’re caught in the paradox of thrift, the public sector is supposed to go in the exact opposite direction;”  and the second line “Washington only comes to its senses when it has no other choice.”

So the big question is what to do today.  I have my buying ammo in gear, stocks are close to what could be major support and gold is near to what should be major resistance.  Now I am just waiting for somebody in Washington to say something smart.  People to watch are Ben Bernanke, President Obama, Eric Cantor, and Harry Reid ie “the worlds worst excuse for a Democrat”.  On the other-hand, since all of these names are kind of boxed in, maybe something out of left field will come to the plate, like a whoosh through the July 10, 2010 S&P low of 1010, that would get CNBC and Washington’s attention.

Update at 10:00 AM CDT

In watching Ben speak we heard one good thing and that was that politics is one of the big problems holding back the economy.  Based on that acknowledgement we went 30 percent long in our portfolios at around 1088 on the S&P.  Now we’ll watch with our long 30 percent stock / short 60 percent gold (face value numbers) position.

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