Do we fade any rally based on deal talk and buy every dip based on dashed-deal talk?
When it comes to Washington/crisis investing, that's been the best way to approach things. It's not like we are going to wake up one morning and find a deal has been done. We tend to trade in the wake of deal talk, not ahead of it. So when we get feel-good news and the market goes up, it's almost always followed by bad news that comes from those who have more to gain by standing on principle -- and the principle is NO COMPROMISE.
Think of it like this: What happens to your portfolio today if House Majority Leader Eric Cantor comes out and says that President Obama's stance is still unrealistic? What happens if tax lobbyist Grover Norquist holds a lunch and demands that people pledge fealty publicly? What happens if Congresswoman Nancy Pelosi says, "Entitlements can't be on the table"? How about if someone from the extreme portion of the Republican Party says that the Speaker doesn't represent the interests of the Tea Party and, therefore, doesn't have legitimacy?
That's been the pattern. It will be the pattern until a deal is reached.
We've been in the grips of Washington for five years. We have learned definitively that you don't get a big jump in the market and then good news in Washington, you get a big fall in the market and then good news because of the action-reaction motions I just traced out.
Hence, the need to fade ahead of the next person who grabs the microphone in Washington, because we are due for someone to talk about how compromise is a betrayal of principle and Rising Above is the devil's playground.
