Federal deficit on track for a record this fiscal year Government debt to exceed U.S. economy

President Obama‘s budget, released Monday, was conceived as a blueprint for future spending, but it also paints the bleakest picture yet of the current fiscal year, which is on track for a record federal deficit and will see the government’s overall debt surpass the size of the total U.S. economy.

Mr. Obama‘s budget projects that 2011 will see the biggest one-year debt jump in history, or nearly $2 trillion, to reach $15.476 trillion by Sept. 30, the end of the fiscal year. That would be 102.6 percent of GDP — the first time since World War II that dubious figure has been reached.

And the budget projects the government will run a deficit of $1.645 trillion this year, topping 2009’s previous record by more than $230 billion. By contrast, 2007’s deficit was just $160 billion altogether.

Still, amid the other staggering numbers in the budget Mr. Obama sent to Congress on Monday, the debt stands out because Congress will need to vote to raise the debt limit later this year, and because the numbers are so large.

In one often-cited study, economists Carmen Reinhart and Ken Rogoffhave argued that when a nation’s gross debt passes 90 percent it hinders overall economic growth. The government measures debt several ways. Debt held by the public includes the money borrowed from Social Security’s trust fund.

President Obama speaks Monday at Parkville Middle School and Center of Technology in Parkville, Md. At right is Jacob Lew, Office of Management and Budget Director. (Associated Press)

Actual debt held by the public will reach 72 percent of GDP in 2011 and will climb as the Social Security trust fund’s finances continue to deteriorate.

Republicans argued Monday that the Obama administration‘s new budget fails to appreciate the depth of the country’s fiscal plight. Read more

US Trade Deficit Widens to $40.6 Billion in December

The trade deficit widened in December, closing out a year in which America's trade gap ballooned by the largest amount in a decade.

AP

The Commerce Department says the deficit in December increased 5.9 percent to $40.6 billion. It grew because a 2.6 percent gain in imports outpaced a 1.8 percent rise in exports.

For all of 2010, the U.S. trade deficit rose to $497.8 billion, a 32.8 percent surge. It was the biggest annual percentage gain since 2000. In 2009, the deficit had fallen to the lowest point in eight years as demand for imports plunged.

Economists believe the deficit will keep widening in 2011 but that U.S. manufacturers will benefit from a weaker dollar, which makes their goods more competitive in foreign markets. Read more

Forex -eurousd

As stated earlier, Euro would move higher since breaking the fib 61.8 %.

UK Economy May Be Heading for a Double-Dip

Britain's "awful" gross domestic product figure for the fourth quarter is pushing the country closer to a double-dip and limits the central bank's ability to fight rising inflation, analysts and business leaders said Tuesday.

Sharon Lorimer / CNBC.com

The UK was the first country in the G7 to release economic growth figures for the last quarter of last year and the 0.5 percent GDP contraction, instead of an expected 0.5 percent expansion, sent the pound 1 percent lower against the dollar [GBP=X 1.5816 0.0003 (+0.02%) ] and the euro [GBPEUR=X 1.1549 -0.0004 (-0.03%) ] and knocked down European stocks.

David Blanchflower, a former Bank of England Monetary Policy Committeeknown for his dovish stance and currently a professor of economics at Dartmouth College, said the figure was "awful, dreadful." Read more

Price Drop Points to Likely Double Dip in Housing Market

U.S. single-family home prices fell for a fifth straight month in November and could plumb new lows soon, a closely watched survey showed on Tuesday.

AP Home For Sale - Reduced Priced

The Standard & Poor's/Case-Shiller composite index of 20 metropolitan areas declined 0.5 percent in November from October on a seasonally adjusted basis, though it was not as sharp as the 0.8 percent fall expected by economists.

Prices have fallen 1.6 percent in the past year, sharper than the 1.4 percent predicted by economists polled by Reuters.

"Everything in this report is unfortunately still sagging and still pointing downward," David Blitzer, S&P 500 Index Committee chairman, said in a CNBC interview just after the report was released. "The recent news across the board on housing except for existing home sales has been very, very disappointing. We still seem to be at best scraping along the bottom." Read more

Stock Sectors To Ride The Recovery

Yes, the U.S. recovery has been modest, but it still has legs—if wobbly—this year.

For starters, US economic growth is widely expected to out-muscle Europe and Japan, and the positive signs are increasingly heartening, pushing analysts to raise their GDP estimates.

“The recovery is real,” says David Darst, chief investment strategist at MorganStanley SmithBarney. “But it will, at times, be halting and anemic.” He predicts that GDP growth will notch four percent this year, compared to 4.4 percent globally.

Global Gorillas

So, many analysts, including Darst, are bullish on stocks—especially multi-nationals with high dividends and attractive price-earnings ratios. “Don’t be underweight in global gorillas that are under loved,” adds Darst.

Dynamic emerging markets will grow 6.4 percent this year, adding oomph to U.S. industrial stocks. Of the BRICs India and China are set to notch the strongest gains and Brazil the lowest, according to MorganStanley estimates. Read more

Forex -eurousd

Since Euro has broken the fib 61.8% and 100%. Expect this to move further up but since it is in overbought territory, there will be some pull back before moving further up.

Set to sell at high -fib 61.8%

Set to sell Euro at fib 61.8% or 1.3217 because the longer term trend is still a downtrend.