Ron Jaenisch's  Instablog

In addition to noting the reversal in the S&P today, where lower prices will most likely prevail by the end of the week........HDB came up and we are long.

At the end of January this stock treated us to a substantial drop and we took profits and walked away.

Now things are different.

For those that are really daring TVIX is available.

(click to enlarge)

Disclosure: I am long TVIX.

Additional disclosure: And long HDB

As America gets closer to the sequester deadline, most Americans are numb to the news about government budget follies. Polls show that they believe that they elected a president that had their back. That he would not raise taxes on those making less than 100K a year as he promised prior to his initial election. Since he constantly talks about balanced approaches, the overwhelming majority supports his approach. Like the President, in their own minds, they generalize, distort and delete the actual truth.

Looking at the reality of no tax increases for those making under 100K year, the president showed the public what fools they were his first weeks in office. One of the first bills he signed into law, raised taxes on cigarettes. Anyone who would attempt to make an argument that a significant percentage of Americans making over 100K smoke and there for will pay more taxes, would find themselves being laughed at.

Later he pushed through Obamacare. According to the US Supreme Court ruling, it imposes a hefty tax on everyone not covered by health insurance. This of course impacts those making less than 100K the most because those earning six figures and more nearly always have health insurance. Additionally those that have health insurance will now have their rates go up double digits because he is imposing a nearly 10% excise tax on health insurance companies. Still to this day he claims that he is reducing the cost of health care.

The bill also impacts taxes on the sale of residences. If a family makes less than 100K a year and sells their home it may be subject to a tax of less than 5% on the proceeds, but that also impacts those that make over the threshold amount.

In late 2012 the Republicans appeared to give B.O. a big win. He achieved a tax increase on the 1%. This was in addition to allowing the government to use their perpetual credit card until May 15, 2013, to pay bills authorized by the congress.

At the end of February 2013 the dreaded sequester goes into effect and the government will need to cut spending by about $85 billion this year.

There are three facts about this that are relatively unknown. 1) The $85 billion is equal to about 5% of the $400billion pentagon outlay on a jet that they have discovered doesn't work so well. 2) The pentagon will be hardest hit by the sequester and can easily reduce its costs by normalizing its work force. At present time there are a historically high number of highly paid commissioned officers doing jobs that were previously handled by equally effective and less expensive non-commissioned officers. 3) The man behind the sequester idea is Obamas' candidate for Secretary of the Treasury.

If the congress does not act to stop the sequester, unemployment may go up a little, but it will provide some relief for the budget hawks. This will give them some confidence for the critical battle.

The real impact upon the markets can come with the congressional fight over the continuing resolution. This is required authorization by the congress to the president to spend money on pretty much everything. Without it passing the government grinds to a halt.

This time the republicans temporarily have the moral higher ground. Not permitting the president to pay the congressionally authorized bills by capping his credit limit is considered irresponsible by most Americans.

Deciding what the expenditures will be is what the American people believe the duty of the Congress is. This is the grand opportunity of the Republicans to shine and they will try to take advantage of this. The actual outcome will be a disappointment to many. This is the emotional nature of compromise.

Let the good times roll.

What good is it?(click to enlarge)

Disclosure: I am short EZPW.