Killing the Mood

 | Dec 11, 2012 | 4:30 PM EST  | Comments
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There wasn't any particular reason for it, but the market was in a pretty good mood until Senator Harry Reid killed the upbeat action. Reid commented that he doesn't expect a deal by Christmas and that the Democrats have no intention of naming any specific spending cuts. The market has ignored most of the public posturing lately, but these comments were shrill enough to kill the positive mood.

I suspect the upbeat action may have been due, in part, to hope of something friendly when the FOMC issues its interest-rate decision tomorrow. It is generally anticipated that Operation Twist will be replaced with outright purchases of mortgage bonds. The market loves those cheap Fed dollars and usually reacts favorably when Ben and his Merry Pranksters crank up the old printing press.

The bearish thesis is that the market has run up a bit too much and there's no really positive news. We have stuck our head in the sand while we focus on the fiscal cliff debate and, eventually, we will have to deal with the reality of a very tepid economy.

The market has decided it isn't going to worry too much while there are still indications that a fiscal-cliff deal will be made. As I commented in my prior post, if we are close to Christmas and still don't have a deal, the market is likely to become very nervous very quickly, but we still have nearly two more weeks and optimism will likely stay high even though politicians like Harry Reid are likely to keep blathering.

Fear of being left out as the market runs higher is overwhelming all other fears and worries. These moves often continue longer than seem reasonable.

Have a good evening. I'll see you tomorrow.

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