The Debt Ceiling deadline continues to tick down towards August 2nd with still no agreement in sight.
A rare positive story on the housing market recovery.
The financial headlines for today are:
1) Debt worries drag down the stock market- From the AP
Not even a string of better earnings reports could stave off worries about debt on Monday.
Europe's banking troubles and an impasse over lifting the U.S. government's borrowing limit helped drag down stock markets in the U.S. and Europe. Gold rose above $1,600 an ounce as investors sought safe places to park money.
The S&P 500 index dropped 10.70 points, or 0.8 percent, to close at 1,305.44.
The Dow Jones industrial average and Nasdaq composite index gave up their gains for the month. The Dow fell 94.57 points, 0.8 percent, to 12,385.16. The Nasdaq fell 24.69 points, or 0.9 percent, to 2,765.11.
The results of stress tests on European banks released last week came under deeper scrutiny. Eight banks failed the test aimed at measuring how well they would hold up under additional financial strain.
But the tests didn't take into account how banks would fare if Greece or Italy defaults, says Dan Greenhaus, chief global strategist at BTIG. Greece and Italy are among the countries most at risk of defaulting on their debts.
Italy not only has Europe's third largest economy but also the world's third-largest bond market at 1.8 trillion euro ($2.5 trillion). "So far European officials have failed to stabilize a country as small as Greece," Greenhaus said. "So we have little reason to have faith they'll fix a country as big as Italy."
In the U.S., the debt limit debate remains at a standstill in Washington. The Treasury Department says the limit must be raised by Aug. 2 or the government risks defaulting on its debt.
But a deal needs to be reached soon, possibly as early as Friday, to have legislation ready for President Barack Obama to sign by the deadline. Rating agencies warned last week that the impasse puts the country's triple-A credit rating grade at risk.
House Republicans are preparing to vote Tuesday on their plan that would lift the debt ceiling but also slash spending. The proposal includes a balanced-budget amendment to the U.S. Constitution. President Barack Obama pledged to veto the bill.
The latest delay in reaching a deal is beginning to weigh on markets.
U.S. banks stocks, which would get hit hard in the event of a default, fell sharply. Bank of America slid 2.8 percent, to $9.72, the biggest drop for the 30 stocks in the Dow average. The bank recently announced an $8.5 billion settlement with a group of mortgage bond investors and reports earnings Tuesday. It's the only major bank trading in the single digits.
Gold rose for the tenth day in a row, jumping 0.8 percent to $1,602.40 an ounce. That's another record in dollar terms, but it's still below the high reached in the early 1980s once inflation is taken into account
2) Moody's Suggests US Eliminates Debt Ceiling-From CNBC
Ratings agency Moody's on Monday suggested the United States should eliminate its statutory limit on government debt to reduce uncertainty among bond holders.
The United States is one of the few countries where Congress sets a ceiling on government debt, which creates "periodic uncertainty" over the government's ability to meet its obligations, Moody's [MCO 36.02
-0.43 (-1.18%) 
] said in a report."We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty," Moody's analyst Steven Hess wrote in the report.
The agency last week warned it would cut the United States' AAA credit rating if the government misses debt payments, increasing pressure on Republicans and the White House to come up with a budget agreement.
Moody's said it had always considered the risk of a U.S. debt default very low because Congress has regularly raised the debt ceiling during many decades, usually without controversy.
However, the current wide divisions between the House of Representatives and the Obama administration over the debt limit creates a high level of uncertainty and causes us to raise our assessment of event risk," Hess said.
Stepping further into the heated political debate about U.S. debt problems, Moody's suggested the government could look at other ways to limit debt.
It cited Chile, widely praised as Latin America's most fiscally-sound country, as an example.
"Elsewhere, the level of deficits is constrained by a 'fiscal rule,' which means the rise in debt is constrained though not technically limited," Moody's said, adding that such rule has been effective in Chile.
It also cited the example of the Maastricht criteria in Europe, which determines that the ratio of government debt to GDP should not exceed 60 percent.
It noted, however, that such a rule is often breached by the governments.
In the United States, Moody's said the debt limit had not effectively curbed the rise in government debt because lawmakers regularly raise it and because that limit is not related to the level of expenditures approved by Congress.
3) Beginning of the End of the Entire Crisis? From Yahoo Finance
The time to buy is when the blood is running the streets, right?
Well, what about housing? It's been dead for so many years that its blood long ago stopped flowing. Surely this famous piece of advice from Nathan Rothschild doesn't apply to that sector?
Don't be too quick to dismiss the possibility.
Consider the iShares Dow Jones U.S. Real Estate Index fund (IYR - News), an ETF that is designed to represent the real-estate sector. Just one week ago, it traded at a 52-week high. The same goes for the iShares Cohen & Steers Realty Majors fund (ICF - News) .
What does the market know that the rest of us don't?
For answers, I turned to an investment service called Sound Advice, which is edited by Gary Cardiff and Steve Horwitz. The service regularly devotes a couple of pages of each issue to an in-depth analysis of the real-estate market.
And we should pay attention to their analysis because their service has a superb long-term record: Over the last 15 years, according to the Hulbert Financial Digest, it has outperformed a buy-and-hold by two percentage points per year on an annualized basis.
According to Cardiff and Horwitz, there are several good fundamental reasons for not dismissing the real-estate market out of hand.
A key one is the steady decline in foreclosure rates. They say that this is an early indication that the real-estate recovery is about to begin. Indeed, they point out, "in the late 1980s [in the wake of the S&L crisis], this was the best indicator for knowing when the recovery was near. As foreclosure rates dropped, the ensuing recovery began."
According to these two advisers, foreclosure rates began to ease in last year's fourth quarter. To be sure, that decline has been dismissed by many as being merely temporary, caused by various banks' freezes on foreclosure actions and massive delays in the processing of foreclosures.
But Cardiff and Horwitz detect at least one straw in the wind that suggests the declining foreclosure rate might be more enduring.
This straw is the falling number of new default filings. Since a foreclosure has to begin with a default filing, such a decline must eventually translate into a more lasting drop in the number of foreclosures.
Compared to around 100,000 new default filings that were recorded each month in the spring and summer of 2010, they dropped to less than half that level beginning last October and have remained that low each month since.
In light of this, Cardiff and Horwitz say that they "believe we are witnessing the beginning of the end of the entire crisis."
This, then, may be what the recent 52-week highs among real-estate ETFs are reflecting. Though those highs may seem counterintuitive, given how awful the news headlines about real estate have been in recent months, it's worth remembering that the stock market is forward looking. By the time we read about something in the newspapers, it has long since been reflected in stock prices.
Of course, the market is not a perfect discounting mechanism, by any means. But it's also true that most who bet against the market end up regretting it.
So don't be surprised if the news in the real-estate sector is better than expected in coming months.
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