Solid week for stock markets. Dow, S&P 500 and Nasdaq advanced sharply higher. Now, all attention will focus on this week's Federal Open Market Committee meeting (FOMC).
The likely outcome will be the announcement of a limited tapering program. Meaning, the Fed will announce a slight reduction in its monthly bond-buying activities. Currently at $85B per month, we could see that reduced by as little as $5B, or as much as $25B.
The market has likely baked most of this in. Still, don't be shocked by an uptick in volatility. At this point, the stock market is like a heroin addict in a methadone clinic. Still addicted to stimulus. But, soon to be weaning. If slowly.
The data reveals an economy that continues to slowly improve. Now, we are many billions of stimulus dollars into a recovery that is only recently registering on the EKG machine. Forget that corporations have accomplished most of their gains atop higher margins accomplished from lower labor costs.
In 2012, the Fortune 500 earned a near-record $820B. That's 60 percent more than it earned in 2004. And it did so with only 10 percent more employees.
Still, the economic data is improving. Improving economies are, generally, bullish. This bull market has been intact since Q1'09. It will take more than tapering to disrupt the positive trend.
Further, all appearances point towards a lower probability of military intervention in Syria. Yes, it took an embarrassing diplomatic parachute provided by none other than Vladimir Putin to get the White House off of the hook. But, at least we got off. For now.
Finally, Larry Summers withdrew from consideration for the Fed chairmanship. The market is up on the news. Investors feared that Summers would bring QE to a dramatic, non-market friendly end. 10-year Treasury yields had been rising on that idea recently, as no other news existed outside of his frontrunner status.
Everyone says that Summers is a smart guy. No disputing that. However, he's also a very political guy. With an ego. And he's a consummate tinkerer. The last person the Fed needs at its helm? A hyper-political, megalomaniacal, attention hound who's willing to constantly tinker with fiscal and monetary policy. Plus, it would seem that we might benefit by a woman's touch. Perhaps Janet Yellen is the best guy for the job.
Score one for John Q. Public.
Russia, a second rate regional power was weakened, begging for respect. Now, Putin has turned a U.S. diplomatic gaffe into a windfall. Bluffing his way to a tactical victory, right as the U.S. was about to call his bluff by carrying out a unilateral military strike in Russia's neighborhood. But, like any good enforcer, Russia stepped up and prevented the U.S. from entering the community, providing cover to its controversial, erstwhile ally. And soiling the image of its powerful, mistake-prone rival.
Vlad Putin, strengthened by his recent victory, will now travel to Tehran to discuss Iran's burgeoning nuclear strategy. Imagine that. The guy regularly appears online clad in a mankini, toting an AK-47, while jumping from planes at mach one. One minute, he's the Russian alter ego of Dos Equis' Most Interesting Man in the World. Now, he's Henry Kissinger.
Expect him to utilize this surge in prestige to flout U.S. foreign policy as he strengthens his own hand, consolidating relationships and propping up other U.S. adversaries. Don't be surprised to see Russia achieve some unexpected diplomatic concession in six to nine months.
For the third time in two years, we will soon face another humiliating game of debt-ceiling roulette. The first two times, the Republicans attempted to play hardball, damaging the nation's financial credibility with little party benefit. The GOP better figure out how to whistle a new tune during this go-round. Else, the nation may begin to tire of the same old song.
Democrats haven't helped. They are currently taking all the credit for the rapidly shrinking budget deficit. They're declaring no need to take action on Social Security, Medicare and Medicaid. Yet, the Congressional Budget Office isn't playing along.
The CBO shows that the recent deficit declines stem from recently initiated higher tax rates, and the increase in one-time tax receipts from inept companies and government sponsored enterprises who borrowed billions in taxpayer dollars following the credit crisis.
Worst of all, President Obama issued strong comments over the weekend. Essentially refusing to negotiate over the debt ceiling.
The debt-ceiling issue currently bearing down upon us could spark a disaster. If we spook foreign debt buyers. Send interest rates rocketing. Run stocks down. Affect short-term credit markets. In other words, spark another financial panic.
The beltway crowd, heavy on pathos and light on prudence, are just the clowns who could spark such a circus. Investors beware.
The Hypocritical & Ugly...
One last thing worth mentioning. Last week, in the normally hallowed halls of the U.S. Senate, law makers acted like rival teenagers at a Friday night football game when the honorable gentleman from Louisiana demanded that U.S. legislators abide by the same healthcare strictures that the rest of the nation will under Obamacare.
Allegedly, opposing Senators then determined to deny Federal healthcare subsidies to anyone who felt the same. And, no healthcare for any lawmakers who had been busted for soliciting prostitutes. Which the offending rabble-rouser "apparently may have been" in 2007.
Check out the story here. Remember: these clowns will soon be determining whether the nation is open for business after the next and upcoming debt ceiling showdown. Comforting...
Major markets finished higher last week. The DJIA rose 3.04%, the S&P 500 gained 1.98%, and the Nasdaq added 1.70%. Small cap stocks climbed 2.37%. And the 10-year Treasury bond yield fell 6 basis points to 2.88%. Gold fell 4.71% per ounce.