WE HAVE - Something

Well it is not the best of deals, not the worst of deals, though pretty darn close to the latter. As both sides realized, however, a deal of some sort given the consequences was better than none at all. There are no revenue increases, which I think are needed, but it is possible (though not likely) that the new super committee responsible for the next step will actually recommend revenue increases. Without a future agreement there are across the board cuts in the next phase and both sides of the isle have sacred cows they want to save from this, i.e. Medicare, Social Security and military spending. With China drastically increasing military spending, some think the last category should not be cut. With an aging population, some think the former two should not be cut. So where do we give - perhaps with some revenue increases. So be it.

In any event, we avoided something worse than no deal. Obviously no guarantee that the credit rating agencies will not still downgrade us. I actually think it is likely as the deficit reduction is way too low and taking way too long. It is wimpy to say the least and I know some credit rating agencies are likely to give a thumbs down, so some of the consequences we sought to avoid here are likely not avoided.

And I read that the pressure is increasing on the Fed to do a further move, with little definition around that. I wrote a couple of months ago that QE3 is baked in the cake. Not going to happen just yet, but it will happen. Mark my words. Probably be close to the end of the year, but it will happen in one shape or another, even if not labeled QE3.

Have a good night.