So the sugar rush from yesterdayâ€™s perceived good news about a deal that limits the rise in taxes for most Americans appears to have already worn off. While we have not yet had a full reversal of yesterdayâ€™s price action that saw a rally of about 2% in the stock markets and a rise to 1.86% in the 10yr, you do get the sense that any dramatic follow thru rally in stocks and heavy selling in bonds is highly unlikely.
So why not a push towards 14k on the Dow or a rise to 2.00% on the 10yr after a deal was cut that prevented a substantial rise in our taxes?? Â Very simplyâ€¦the deal addressed the revenue part of our budget problem in raising taxes on the rich but did absolutely nothing on the bigger problem which is Government spending. As many Republicans have said all along which I agree with is that the US does not have a revenue problem but a spending problem. When you have a 16 trillion dollar, yes trillion, deficit and growing (remember that website that I sent in the pastâ€¦Â http://www.usdebtclock.org/) there eventually needs to be some tough decisions made. This is where the Republicans are dead right and will do everything in the coming months to get Obama and the Democratic Senate to come to their knees. Especially after what is widely perceived as a defeat with taxes going up for the wealthy, the Republican controlled Congress will need to save face with their constituents.
With the backdrop of the next round of political battles which can very likely result in a temporary Govâ€™t shutdown in a few months, it is very hard-pressed to imagine any meaningful breakout of the current trading ranges in both bonds and stocks. In addition we in the fixed income world continue to have the support of Uncle Ben and the Buying Machine officially known as the Federal Reserve. I often wonder where the 10yr and mortgages would really be if not for the Fed. Think about it for a secondâ€¦you have an entity (US Govâ€™t) that spends money like a groom in a gentlemanâ€™s club the night before his wedding, that entity does not even come close to bringing in the revenue to match current spending let alone paying down past deficits, the leadership of that entity is dropping F-bombs at one another (Boehner reportedly did so yesterday to Senate Majority Leader Harry Reid) and yet the world is lending them money @ 3.07% for 30yrs!! Damn even a 900 FICO score only gets you a 3.25% 30yr!
And by the way tomorrow is the 1stÂ release of 2013 for the NFP Report. The consensus is for an increase of 145-150k for Dec. It will be nice to talk about something non-political for a change.