The Not-So-Super Committee
Downbeat news out of Europe largely took a backseat to the disappointing — but not wholly unexpected — news out of Washington, D.C., on Monday that the so-called “super committee” in Congress failed to do its job. The result was a market that got slammed in Monday’s trading, with the Dow down more than 340 points before a final-hour recovery hoisted the Industrials off of their lows. Still, the Dow finished down 248 points, with all 30 components closing in the red.
This not-so-super committee, comprised of six Democrats and six Republicans, couldn’t even agree on how to trim a miniscule $1.2 trillion in the rate of federal spending growth over the next 10 years. That failure is like a regular family of four not being able to find a way to keep from taking one trip to a fast-food restaurant each month.
I guess it should come as no surprise that politicians in Washington can’t get it together enough to put the interest of the American people ahead of their own political interest. In fact, railing about this condition is really just a futile effort. What I don’t think is futile is recognizing that this failed debate sets up is a clear battle line for the November elections.
The way I see, voters have two choices. Do you want to be on the side of politicians who favor spending more and tax more, or do you want to be on the side of politicians who want less spending and lower taxes? I know which side of the ledger I fall on, and I suspect that many of you might agree.
Now, politics aside, what we have seen during the past couple of weeks is that all of the difficulties in Europe have trumped the super committee’s failure to reconcile our debt issues. Since November, the value of the U.S. dollar vs. rival foreign currencies actually has surged, indicating that America still remains the dog with the least amount of fleas.
The chart above of the PowerShares DB US Dollar Bullish (UPP) shows how there’s now a confirmed bullish trend in the greenback. The flight-to-quality we’ve seen in the dollar is something we’ve also seen in Treasury bonds.
The chart below of the 10 Year Treasury Note Yields ($TNX) shows that yields remain extremely low. That means the cost that the Treasury has to pay to attract capital from investors remains at near-record low levels.
Contrast our low cost of borrowing with that of European nations like Italy, which recently saw its bond yield spike to 7%. That high of an interest rate is just unsustainable for any nation, and particularly those with revenue issues like the sort we’re seeing in Greece, Italy, Portugal and Spain.
The bottom line here is that despite America’s political issues, we still remain one of the safest plays for international capital. On this Thanksgiving week, that’s something all of us can be thankful for.
Jim Woods is a 30-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor.
His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. Read more about Jim Woods.
