Markets headed mostly higher last week, as investors accepted the ugly realities transpiring in the nation's capital as the prom queen might accept a bulbous nose wart. With dreaded resignation.
In politics, if a particular outcome is beneficial for most, then that outcome will usually be achieved. That in mind, I optimistically absorbed the rumors that the Senate leadership is working to avert a debt-ceiling disaster.
And while the ongoing updates from "in-the-know" types have about as much credibility as the altruistic activities of the Reverend Al Sharpton, I believe that a solution will soon be presented.
President Obama plays the long game. Chess, to the checkers being played by the GOP. The president believes that, if we enter a full-blown budget crisis, he can pin the blame on Republicans. If democrats are successful in this endeavor, the GOP will pay handsomely in next year's midterm elections.
The president believes that the key to achieving his legacy and avoiding two years as a lame duck president rests on the democrat's ability to retake the House while retaining the Senate.
Republicans, in their zeal to blow up ObamaCare, walked right into the trap. Now, like a fly struggling to escape the spider's web, Speaker Boehner is desperate trying to break free.
The Good
Janet Yellen was nominated for the Fed Chairmanship last week. We think that Yellen could be a market-friendly Fed leader, prospectively improving upon some of the mal communications practices of practiced by Mr. Bernanke.
Economically, Scott Grannis, of the Calafia Beach Pundit blog (here), provides a splendid array of charts and data that, on balance, continue to point to an economy that is expanding at a relatively slow pace.
Finally, data from Bespoke Investment Group shows that last week's bounce was not simply due to short-covering, as was widely reported by the media. Moreover, there was genuine buying enthusiasm when positive news coincided with positive valuations in the eyes of buyers.
The Bad
The International Monetary Fund warned of slowing global economic growth, and highlighted some key threats to global growth. First among them was the current U.S. debt ceiling impasse.
Last week saw jobless claims spike higher. Nor will the government shutdown be helpful.
Consumer sentiment was disappointing, reaching a ninth-month low. It appears that the current political issues, even if/when solved, could have a dramatic impact on confidence and the economy.
The Ugly
Investors will sometimes turn to newsletters, looking for stock tips and market advice. Mark Hulbert, of the Hulbert Financial Digest, recently reported in Barron's that many newsletter writers are taking liberties with their performance reporting (here). In other words, they're not providing the returns their literature often purports. Caveat emptor!
Regardless of your political stripes, this will boil your blood...
Following the government shut down, National Park Service rangers were told to prevent all visitors from visiting the veteran's WWI and Vietnam memorials, as well as the national mall. You understand, "make life as difficult for people as we can."
Veterans who ran afoul of those instructions were evicted from the parks. Veterans walking on canes. On walkers. In wheelchairs. Our nation's last, unselfish generation.
Days later, thousands of illegal aliens were invited to rally for amnesty on that very soil. That from which American veterans had just been expelled. Forcibly. And told they were not welcome.
Your Federal government permitted this charade.
The Bottom Line
The stock market trend remains upward until it reveals otherwise. For all of the uncertainty and volatility emanating from D.C., the market has remained remarkably resilient.
The St. Louis Fed's Stress Index shows that, while volatility levels have crept upward on recent news, the index remains at historically low levels. While not a tool for market timing, the SLFSI has been a solid indicator as to rising levels of market volatility and alarm. Right now, it reveals a relatively calm, non-panicking marketplace.
There remains a real possibility that the debt issues are not resolved by Thursday's deadline. Till then, the market will rise and fall on every piece of news.
Sooner than later, we will be through this. And investors can focus on Q3 earnings and future expectations. Till then, hold on tightly.
Weekly Results
Major markets finished mixed last week. The DJIA rose 1.09%, the S&P 500 gained 0.75%, and the Nasdaq fell 0.42%. Small cap stocks climbed 0.56%. And the 10-year Treasury bond yield rose 5 basis point to 2.69%. Gold fell $38.62 per ounce, down 2.95%.