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Jobs, Debt, Deficit and Credit - Factors to Consider

This weekend Mr. Geithner claimed the US will never lose its AAA credit rating and that the deficit will shrink.  Word to the wise, never say never.  Moody's Investment Service recently voiced concern over the debt load and annual deficit the US is running, stating that pressure exits on the US credit rating if either the economy doesn't show robust growth or the deficit is not reduced.  Furthermore, actions speak louder than words and seeing that the US Congress has had to raise their credit limit taking the debt ceiling to over 14 trillion, one should wonder how Mr. Geithner's statement has any credibility.

The last half of last week has given us some insight into the negative impact unsustainable debt will have on the markets and the economy.  The market averages pushed values down towards the 200-day EMA on concerns of the debt load in Portugal (NYSE:P), Ireland (NYSE:I), Greece (NYSE:G) and Spain (NYSE:S) - the PIGS and somewhere in there should be a U for the USA.  Last weeks bearish move overshadowed positive earnings data from Corporate American and the surprisingly lower unemployment rate.

Of course, in order to reduce the deficit Government has to increase revenues and cut spending and the current Government plan to increase revenues is to increase taxes on its citizens and hasn't heard of a spending cut its willing to impose.  It's quite curious that we hear the talk of decreased spending and deficits, yet the walk is opposite of the talk.  Obama's recent budget proposal confirms the walk that contradicts the talk.

This week brings little in major fixed economic or market fundamental events, but momentum starts the week on the Bears side with the technical trend and concerns from overseas.  So as you look to understand what will drive the markets, consider that job creation is vital as a fundamental source of Government revenue and most jobs come from Small Businesses of which we see a declining trend.  If Geithner wants to see the US keep its credit rating and reduce the deficit then Government needs to allow the Small Business entrepreneur to grow and succeed, otherwise we're in for more downside movement.

Summary:  With any move a correction is always around the corner, so while we're currently in a correction of a bull market, the bearish trend may find a small correction early in the week.  If the overseas debt issue is removed from market concerns, the market trend may find traction to head up to continue the longer term uptrend as we are near an area of expected support.  The prudent play would be to hedge and protect.

Disclosure: No Positions