Monday, July 20, 2009
Net spending slows again, suggesting rally could be in trouble
Some of the market averages have rallied to recent highs in reaction to ramped-up net spending (Treasury outlays minus Treasury receipts) through the 14th of July. (See chart below.)
However, there is a sharp pullback in net spending underway now and that will likely translate into a renewed market downturn. (See below.)
The Administration seems wary of continued "pump priming." Each time they see the deficit expanding they pull back, however, without job growth or renewed lending (neither of which are happening), government spending is the only way to support aggregate demand. They don't seem to understand that.
As a trader, I would be a seller of stocks here.