Widening Deficits

Today's guest is Olivier Garret, CEO of Casey research. Oliver is going to give us his take on the ballooning deficit. Enjoy and be sure to leave us a comment giving us your thoughts on the deficit!


On March 20, 2009, the bipartisan Congressional Budget Office (CBO) released its latest forecast in an effort to take into account the impact of the recently released Obama budget.  The verdict?  A whopping $1.8 trillion deficit for 2009, approximately four times larger than the all-time record established in 2008 ($455 billion).

The concerns raised by this latest forecast are many:
1)    A mere two months ago, the CBO’s estimate for 2009 was “only” $1.2 trillion. They have already grossly underestimated a deficit that will most likely continue to balloon in the coming months.

2)     While the new administration has focused its attention on the spending side of the budget, it has paid little attention to the other side of the equation.  What will happen when tax revenue comes in much lower than current projections?

3)    Even ignoring the likely expansion of the projected deficit, where will we get the $1.8 trillion needed to cover the CBO’s estimated deficit? Foreign investors? Higher taxes? Or that old standby, the printing presses?
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Turkeys, Trillions and Thanksgiving

Have you ever built or remodeled a house? If you have, then you know that it always takes longer and cost twice as much as you first estimated. This is exactly the position that the US government has put itself in, only this time the house is the whole country. Now we have to gut the country and totally redo everything. It's likely to take twice as much time and cost US taxpayers twice as much money to get out of this recession.

Do you know how many zeros there are in a trillion dollars? I really didn't know myself, as that is way above my pay scale. So, I looked it up on Google and there are 12 zeros behind the 1. When this mess is all over, we will be lucky if the government doesn't spend 5 trillion dollars (5,000,000,000,000) to get everything back to some form of normalcy in the US markets.

We are continually seeing new people being trotted out in front of the cameras and microphone saying that this bailout is going to cost $700 billion and something else is going to cost $350 billion. I have a deep suspicion that they have no clue and no belief in what they are saying or doing. It's also amazing to me that the people that got us into this mess in the first place on now in charge of getting us out of this mess. This does not seem like a very smart idea to me.

One of the most interesting things about the markets is that they never tell you when a bottom is in place until much later. I think that the many economic problems that are currently sitting on the back burner, will warrant this market to continue its slide to the downside. If you haven't seen my video, "How Low Can The Dow Go," I recommend that you check it out.

The technical outlook for the stock market remains negative in my opinion. There's a great deal of overhead resistance in this market which leads me to believe we will still see further downside erosion. Unlike a bull market that constantly needs to have positive inputs like earnings and positive outlooks, a bear market simply can fall on its own weight.

One thing we rely on to tell us when the market switches gears from a negative to a positive trend is our "Trade Triangle" technology. Presently all of our "Trade Triangles" are in a negative mode for all the indices, and show little or no signs of turning up.

So what's an investor to do?

Do you buy and hold because it looks cheap? That is not the way I believe you want to trade this market. The closest parallel we have to this market is the crash of 1929 and the bear market that lasted into the early '30s. We've only been in this crisis mode for a little over a year and I believe we have a way to go before the recovery begins.

We still have a downside projection for the DOW at 6,600 and we see little or no reason to change that technical target at this time.

Make no mistake about it, these are difficult times for many people, and many people will lose their jobs before business and the markets pick up. There's still the mess with General Motors (NYSE_GM), Ford (NYSE_F) and Chrysler to take care of. How much is that going to cost? In my opinion, the auto industry has been in decline and denial since the '70s, and any money that is given to them is like throwing money down a rat hole unless there is a major new business plan and a severe downsizing of those industries.

No matter what rough times lay ahead, keep the faith, keep your head down and the computer on, because there are some great trading opportunities that I know will be coming up soon in the marketplace.

From all of our staff both at INO.com and MarketClub, we wish you success in the future. To all of our American friends and clients, we wish you a very Happy Thanksgiving. We still have a lot to be thankful for in this world.

Adam Hewison
President, INO.com
Co-creator, MarketClub

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