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Bush Tax Cut Extension to Boost Markets?

Options Trading — Tue, 07 Dec 2010 14:24:44 +0000

The good news is that the Bush Tax Cut extension will likely boost markets (today), regardless of the longer term implications of the fiscal/tax policy. What the longer term implications are for the stock market and the US Dollar in general remain to be discovered. Here’s a few thoughts. Extentsion of Tax Cuts Sticker Shock: Price Tag to Exceed $600 Billion So we all love the idea that the government won’t be reaching any further into our wallets next year, but the ultimate cost to the taxpayers of the future is approximately $600-$800 billion (source: CNN Money). Given we intend to monetize as much of that new debt as the markets can absorb, the new debt will result in new dollars printed and higher (nominally priced) stock markets new term, presumably starting today. Big Deficits Loom: Ultimately Will the Markets Punish US Debt? Big banks / Primary Dealers with the Fed are playing a dangerous game with the debt levels today. Eventually the market will decide it has had it’s fill of US Gov’t bonds and walk away from the bid on new funding requirements. That’s the day the music will stop in the stock market. We’ve kicked the can [...]

An Economy with a Gun to Its Head: America’s Game of Chicken

Options Trading — Wed, 07 Jul 2010 14:30:56 +0000

In this economy equities markets lately are ultimately much ado about nothing. There are so many well known negative market influences these days it’s really painful to watch CNBC and other financial programs try to bloat what little positive news exists. In reality there is no positive news… there is only news (that if viewed from a long enough perspective) is “less negative.” We faced up to the reality that we had built a fraud based economy in September 2008 with the Lehman crash. People may be wondering how on Earth can that still be relevent 2 years later but it is the poster child of what our economy had become. What many traders have not realized is that in 2008 the Lehman collapse was the equivalent of pressing the reset button the markets and the economy. The phantom housing market economy literally evaporated and has only been propped up via repeated government stimulus. Even the historically low interest rates were not able to re-start the housing market engine. Governments Have Limited Tools to Stimulate Growth Sadly the reaction of politicians and bureaucrats has been to sweep the bad news under the rug and continue to stimulate the economy with [...]