Startlingly Calm Out There

 | Dec 02, 2012 | 6:30 PM EST
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With apologies to Alfred E. Neuman, the market is certainly telling us this much: "What, me worry?"

How do I know this? Well, have you seen the new-highs list recently? Some of the biggest winners so far are names like Costco (COST), eBay (EBAY) and (CRM), to name a few. The major indices are mostly up in the double-digits since January and, with a month to go until the end of 2012, it appears we'll see solid gains for the year. Equities might actually outperform U.S. Treasuries and gold, even with the latter up more than 10% so far this year.

Market volatility is low, mostly due to the removal of major uncertainties from the Federal Reserve, from the European Central Bank and even from China. The CBOE Volatility Index (VIX) is hovering near 15 (see chart below) -- and, with a potential crisis looming in the form of the fiscal cliff, it's startling that the market is taking all in stride.

VIX -- Daily

After all, the last major crisis in this arena -- which was kicked down the road in August 2011 -- spurred a supreme rise in market volatility to nearly 50, double the level from 25, seen just four sessions earlier! The expectation is that something will get done, and when that uncertainty is removed we can then move on to more important things. This entire "fiscal cliff" debacle is great theater for the politicians and the media, but constitutes little else.

Perhaps former House Speaker Newt Gingrich has it right, and there is no fiscal cliff. He recently had this to say on the matter: "At any point they wanted to, the President and the Congress could reduce the 'cliff' to a series of foothills by breaking the problem into 10 or 20 component parts. They could then focus on solving each problem on its own merits and out in the open with public hearings, public understanding and public involvement. Public understanding, however, would limit the level of waste, favoritism and special interests which could be funded. That is exactly the opposite of what the Washington establishment wants."

They say the holidays are the most wonderful time of the year -- but this holiday season seems full of very tense moments from here to China. We all hope the politicians will do the right thing and make a deal that works somewhat well for both sides. This is by no means a small issue, but let's get it done and move ahead. There's nothing like a fresh start to the new year.

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