Thursday, October 10, 2013


Stocks soar on hopes for deal to avoid US default

No kidding.  Only, I guess market participants forgot that a possible default wasn't actually priced in to stocks.  So, the Dow (^DJI) ended the day up over 2%, or over 300 points.  And why?  Because of this:
The gains accelerated after House Speaker John Boehner told reporters that the House would take up a short-term extension of the government's borrowing authority.
Okay, I guess that's good news, since the deal would avoid a default next week.  But, isn't that really just ensuring yet another crisis over the same thing in what, a few weeks or months?
"It allows politicians to turn down the heat a bit while still keeping the broader issues on the front burner," Ablin said.
The last time the debt ceiling became an issue was 2 years ago.  The way I see it, Congress has had 2 years to figure out what to do this time, since it hasn't been a secret that we would yet again reach the debt ceiling.  It definitely hasn't been a secret since sometime in May when Treasury said it was implementing special measures to prevent hitting the debt ceiling.  All this accomplishes is a delay, and an even bigger crash should a default actually materialize.  Awesome!

Worst of all, this just shows the government doesn't even need to spin things any more.  Investors will provide their own spin.  So, remember that post I wrote yesterday about the market risk premium being surprisingly close to historical norms?  Well, I haven't figured it yet, but I'm sure it's back to some really comfortably low number now.  And more than that, I'm fairly sure that low beta stocks are even more under-valued relative to high beta stocks now.
In another bullish signal, small-company stocks rose even more than the rest of the market.
And small-company stocks tend to be high beta stocks.

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