Wednesday, October 16, 2013

Rally on Rumor - Version 4.0

Here we go again.  I remain convinced that if the powers that be had come to an agreement on 9/30 to keep the government open and increase the debt ceiling we'd probably have lower stock prices than we do right now.

Remember, that despite all of the gloom and doom predictions, stocks are roughly 1-2% HIGHER today than they were when the government shutdown on 9/30.  Why?  Principally, it's two factors in my opinion -

1) The headline reading computers buy everything in sight, whenever the words "deal" hit the wire.  Yet, when the deals hit a snag they only sell off slightly.  So stocks go up 0.5% on rumor and only go down 0.25% on the real news so at the end of the day they end up higher.  Do that for 5 straight days and the markets go higher.  Right now the stock market is REWARDING the stupidity in DC - Congress will look at the headlines which will all read "MARKETS SET NEW RECORD ON DEBT DEAL" and say "See we did that".

2) The media only watches stocks.  No one but the geekiest of Wall St. geeks follows the t-bill market.  However, short-term debt is acting like there is a high likelihood of a fly entering the ointment.  I honestly can not see the happening but I never thought we'd be talking about the lack of a debt deal in mid-October.

It sounds like Rep Boehner will bring the Senate version up for a vote (which will pass with 20 moderate Republicans jumping on board).  The removal of this catalyst (what, you mean there won't be any debt deal rumors tomorrow?) could cause a bit a vacuum in the markets but we'll have to see how it plays out.

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