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Bulls Push Dow To A Triple Digit Gain
Interesting developments to come - See what made the cut...

Bulls Push Dow To A Triple Digit Gain Bulls Push Dow To A Triple Digit Gain

Though Wall Street may have a mindset on the sequester, Dow Jones Industrial Average ended Friday with triple digit gain up just shy of 120 points at over 14000. Someone out there is feeling optimistic! Nasdaq closed the week on Friday, higher at over 3161, up over 30 points and S&P 500 tacked on a gain of over 13 points to close above 1515. The Bulls were in control as economic data out looks like the global recovery hasn't been compromised. While the markets broke a 7 week winning streak, for the Dow to end with a triple digit gain, could be signs of more positive direction, to come. Maybe Wall Street has priced in the dilemma of the upcoming week where politicians battle over preventing the sequestration from taking effect and causing more damage to the already frail economy.

Federal Reserve Chairman Ben Bernanke downplayed worries that the Fed has fueled asset bubbles that could hurt the economy during a private meeting earlier this month, with bond dealers and investors. Fears were eased by Bernanke that the central bank may end its easy money policies. Ahead of Bernanke's speech before the Senate Banking Committee on Tuesday, investors will anxiously await confirmation on his comments. Arguing the policy helps the U.S. economy, Boston Federal Reserve President Eric Rosengren and Federal Reserve Governor Jerome Powell both defended the U.S. central bank's asset-buying program.

On Friday, language was exchanged by resident Barack Obama and Japanese Prime Minister Shinzo Abe to bring the world's third-largest economy into negotiations on a U.S.-led free trade agreement in the Asia Pacific region. The two countries reaffirmed that "all goods would subject to negotiation" if Japan joins the talks with the United States and 10 other countries. A statement from the White House, "Recognizing that both countries have bilateral trade sensitivities, such as certain agricultural products for Japan and certain manufactured products for the United States, the two governments confirm that, as the final outcome will be determined during the negotiations, it is not required to make a prior commitment to unilaterally eliminate all tariffs upon joining the TPP negotiations." Since taking office in December, Prime Minister Abe, enjoying his first trip to Washington has vowed to revive Japan's economy with an expansive monetary policy, big spending and structural reform. By joining the TPP talks, Japanese companies and farmers would be exposed to more competition. The joint statement between the U.S. and Japan said the two governments would continue their discussions on the possibility of Japan joining the TPP talks. The White House would have to give Congress 90 days notice before starting talks with Japan. A final decision to allow Japan into the negotiations would have to be made by all the current TPP members consisting of the United States, Canada, Mexico, Australia, New Zealand, Chile, Peru, Singapore, Malaysia, Vietnam and Brunei.

Sequester Where We All Feel The Pain Sequester Where We All Feel The Pain

On Friday March 1, if the White House and Congressional leaders have not come to terms, the law requires the Obama administration to impose $85 billion in across-the-board spending cuts to military and domestic programs. These would be the beginning of cuts over the next decade to the tune of $1 trillion. The sequester is dominating the current political discussion in Washington and has the entire world intrigued as to the outcome. Sequestration requires the percentage cuts must apply to specific programs, projects and activities, all to the same cut by same percentage. This prevents agency managers from focusing the cuts on programs that may be ineffective or inefficient and protects those that may affect public health and safety.

Sequestration resulted from historical budget laws which periodically allowed the executive branch to make small across-the-board spending cuts to the levels initially appropriated by Congress. The Joint Select Committee on Deficit Reduction (Supercommittee) was to come to a deal to cut $1.5 trillion over 10 years and of course, this plan failed.

The White House Office of Management and Budget estimates the true impact for the final seven months to be closer to 9% for nondefense programs and 13% for defense programs because they would hit almost halfway through the fiscal year.

In 2011, House Republicans refused to raise the debt ceiling without significant deficit reduction. Enter the Budget Control Act (BCA). The BCA results in an agreement by Democrats and Republicans to cut domestic spending over the next 10 years by about $1 trillion. Democrats refused to agree to more cuts without additional revenue from taxes, and Republicans refused to agree to tax increases. Negotiators established a fallback mechanism which means automatic cuts to both military and domestic programs, would begin this year.

The sequestration process will consist of federal offices informing governors, contractors, grant recipients and others how much money they stand to lose and by the end of March, everyone will begin to notice changes. Around March 7, the first checks that go out to the unemployed will see a 9.4% reduction. The Defense Department’s civilian work force will begin to receive layoff and furlough notices, by April 6. Democrats are trying to force Republicans to the negotiating table with a pressure campaign aimed at the public.

Estimated breakdown of the sequester cuts to programs include:
$42.7 billion in defense cuts for a 7.9% cut;
$28.7 billion in domestic discretionary cuts for a 5.3% cut;
$9.9 billion in Medicare cuts for a 2% cut;
$4 billion in other mandatory cuts for a 5.8% cut to nondefense programs and a 7.8% cut to mandatory defense programs.

Other estimated sequester cuts:
Aircraft purchases by the Air Force and Navy cut by $3.5 billion
Airport security cut by $323 million
Border security cut by $581 million
Centers for Disease Control and Prevention cut by $323 million
Energy Department’s program for securing our nukes cut by $650 million
FBI cut by $480 million
FDA cut by $206 million
Federal prison system cut by $355 million
FEMA’s disaster relief budget cut by $375 million
Global health programs cut by $433 million
Head Start cut by $406 million, kicking 70,000 kids out of the program
Immigration enforcement cut by $323 million
Library of Congress cut by $31 million
Military operations across the services cut by $13.5 billion
Military research cut by $6.3 bil
Millennium Challenge Corp. cut by $46 million
NASA cut by $970 million
National Institutes of Health cut by $1.6 billion
National Science Foundation cut by $388 million
Nuclear Regulatory Commission cut by $55 million
Patent and Trademark office cut by $156 million
Public housing support cut by $1.94 billion
SEC cut by $75.6 million
Special education cut by $840 million
State Department diplomatic functions cut by $650 million
United States Holocaust Memorial Museum cut by $2.6 million
USAID cut by $291 million

Military salaries are exempt from sequester however, tuition assistance and TRICARE program are not exempt.

So in summary, sequestration will hurt everyone, in some way. We have to try to have confidence in our government, to do the right thing for all of us.

February 25, 2013

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