U.S. books big budget surplus, markets at record highs

Helicopter Ben comes through again. Budget sequester helps. Photo: Branco/via LegalInsurrection*

WASHINGTON, July 11, 2013 — After a depressing month of June in which bondholders and holders of high dividend stocks took a shellacking, July must already seem like fiscal manna falling from heaven. Financial averages have been on a tear this week. The reasons: Ben Bernanke’s QE-friendly pronouncements after yesterday’s close, and today’s late announcement that our profligate Federal government somehow managed to generate virtual black ink last month, due at least in part to the sequester that never was supposed to have been.

The Feds reported a rare government budget surplus of $116.5 billion in June, the largest for a single month in five years. The gain was due in large part to controversial $66.3 billion in dividend payments from Fannie Mae and Freddie Mac. The mortgage giants were taken over by the government at the height of the 2008 financial crisis and are now repaying taxpayers for the support they received.

But the many still-existing holders of Fannie and Freddie preferred stock are now clamoring for their fair share of the loot, and things could get interesting on this front in the coming months. In the meantime, these gigantic Bobbsey Twin slush funds continue to feed the Federal pig and are currently making things look fairly rosy in DC which, unfortunately, is likely to breathe a sigh of relief and look to initiate new spending programs. So it goes.

Aside from Fan and Fred, their payments, the once-so-scary budget sequester and higher tax revenue from a marginally stronger 2013 economy are key reasons the Congressional Budget Office estimates this year’s annual deficit will allegedly be $642 billion. It would be the first time since 2008 that the deficit has dipped below $1 trillion. But projections are not realities, and it remains to be seen what will unfold in 2013’s second half. And the government still owes trillions of inflated dollars anyway.

Whatever the case, Wall Street’s short-term trading brains, mainly resident in headline driven high-frequency trading (HFT) houses took hold of these positive headlines and ran with them today. The Dow Jones Industrials (DJI)—which ETF Digest’s Dave Fry frequently calls “window dressing for the tourists”—rocketed almost 170 points by today’s close. The roughly 1.1 percent move resulted in a record high close of 15,640, eclipsing the previous record, only recently set on May 28.

The much broader-based S&P 500 average jumped even higher—1.3 percent—to close at 1,675, vaulting over its own previous May high; and the tech-heavy NASDAQ, jumpy of late, shot up 1.6 percent by today’s 4 p.m. EDT close, to hit its highest level since September of 2000, which was right around the time that the dot.bomb tech bull market began its long and spectacular collapse.

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Monthly Federal budget surpluses are rare, and shouldn’t generate irrational exuberance over the longer term. But June’s surplus should actually give some comfort to the doomsayers who were quick to proclaim the American economy to be a dead man walking as the sequester cuts went into effect. Its long term effects remain to be seen.

But today, at least, traders enjoyed a hard fought victory over June’s short sellers at last, frightening June’s legion of once confident growling bears, most of whom seem to be turning tail and heading for the Adirondacks.

Until the next time.

     —AP contributed to this report.

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Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.

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Terry Ponick

Now writing on investing, politics, music, movies and theater for the Washington Times Communities, Terry was formerly the longtime music and culture critic for the Washington Times print edition (1994-2009) before moving online with Communities in 2010.  



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