Friendly Photo Ops Don’t Equal Fiscal Cliff Compromise!
Tuesday, November 20, 9:25 a.m. Markets rallied strongly yesterday on assurances from both sides that an agreement on avoiding the fiscal cliff will be reached in time. Let’s hope it can be that quick and easy when the tough work of hammering out a compromise on such long-time disagreements of what’s best for the country [...]

Tuesday, November 20, 9:25 a.m.

Markets rallied strongly yesterday on assurances from both sides that an agreement on avoiding the fiscal cliff will be reached in time.

Let’s hope it can be that quick and easy when the tough work of hammering out a compromise on such long-time disagreements of what’s best for the country begins.

The situation is complex, with widely divergent views on tax policies, defense and other spending, funding of entitlements, etc.

And reaching a compromise depends on a ‘lame-duck’ session of Congress, quite a few members not returning, either retiring or not re-elected, who can afford to remain obstinate in their views, as well as a session that will be interrupted by two holiday recesses.

When actual negotiations get underway, so also will the political game of playing the media, accusations, and stone-walling to see how little of their agendas each side has to give up in order to reach a compromise.

It’s been my contention all along that it will be resolved, or at least kicked down the road, but only at the very last minute.

That would mean plenty of time for the uncertainty to create lots of day-to-day market volatility as hopes rise and fall with each comment by one side of the other.

Other Voices:

Stephen Lewis of Monument Securities: “Don’t Mistake Smiles Across Aisles For Tough Cliff Action. Investors would do well to recall the scenes at the Andrews Air Force Base golf course on 18 June 2011 when President Obama, Vice President Biden, Mr Boehner and the Republican Governor of Ohio, Mr Kasich, were photographed at the end of a round joking together over beers in the clubhouse. By 23 July 2011, the talks between the President and Congress over budget cuts and the debt limit had broken down amidst harsh recriminations.”

Robert Schroeder, MarketWatch: “How badly does Republican Senator Lindsey Graham want a deal on the fiscal cliff? Bad enough to thumb his nose at a no-new-taxes pledge he signed back in 2002. The South Carolina GOP lawmaker told GreenvilleOnline.com that he’s ready to break the pledge he and other Republicans made. . . . To be sure, that doesn’t mean that Graham is ready to raise income-tax rates. Revenue should instead come from capping tax deductions, he said – something that he acknowledges violates the pledge.”

Marc Thiessen in the Washington Post: “Let’s go over the fiscal cliff. . . . .Letting the Bush tax cuts expire will strengthen the GOP’s hand in tax negotiations next year, and may be the only way Republicans can force Democrats to agree to fundamental tax reform.  . . . . If Republicans hold the line on taxes, and the Bush tax cuts expire despite their best efforts, it would not harm their reputation as the party of low taxes. But if they vote proactively to raise taxes as part of a “grand bargain”. the GOP brand would be irreparably damaged.”

Ethan Harris, economist at Bank of America Merrill Lynch: “While we are very concerned about the cliff, it is important to underscore that we do not expect a prolonged plunge over the cliff, or into a recession. We believe the markets – that is, the disgruntled passengers on this plane – will act as a disciplining force prompting a compromise in Washington.”

A comment: Does Harris mean that the market will go down so much it will force Washington to reach agreement?

The market remains short-term oversold.

More rally regardless of fiscal cliff news"?

The market was short-term oversold beneath its 50-day m.a. to a degree that usually brings an oversold bounce.

And even after yesterday’s bounce its remains short-term oversold.

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To read my weekend newspaper column click here: Defensive Stocks Are Failing Again As Safe Havens!

Subscribers to Street Smart Report: The new issue of the newsletter will be available later today in your secure area of the Street Smart Report website. And there will be an in-depth Global Markets there sometime tomorrow!

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Yesterday in the U.S. Market.

A big rally day, supposedly on relief that both sides in Washington made statements that they expect to be able to reach an agreement in time to avoid the fiscal cliff. Perhaps that was it, but there is a big difference in conciliatory talk and actually reaching a compromise on such long-time bitter differences. And the market was also very oversold short-term beneath 50-day moving averages, to a degree that would normally result in a bounce off the oversold condition.

In any event, and for whatever reason, it was a very positive day. The Dow closed up 207 points, or 1.6%. The rest of the market, with the exception of the utilities average, was even more positive.

But, there was no big stampede of sideline money back into the market. Volume was 0.7 billion shares traded on the NYSE.

The Dow closed up 207 points, or 1.6%. The S&P 500 closed up 2.0%. The NYSE Composite closed up 1.9%. The Nasdaq closed up 2.2%. The Nasdaq 100 closed up 2.4%. The Russell 2000 closed up 2.1%. The DJ Transportation Avg. closed up 1.9%. The DJ Utilities Avg closed up 0.2%.

Gold closed up $19 an ounce to $1,732.

Oil closed up $2.25 a barrel to $89.17 a barrel.

The U.S. dollar etf UUP closed down 0.4%.

The U.S. Treasury bond etf TLT closed down 0.6%.

Yesterday in European Markets.

European markets also closed up sharply yesterday for a change, and from a short-term oversold condition. The London FTSE closed up 2.4%. The German DAX closed up 2.5%. France’s CAC closed up 2.9%. Greece closed up 3.9%. Ireland closed up 1.3%. Italy closed up 3.0%. Spain closed up 2.3%. Russia closed up 1.1%.

Asian Markets were mixed last night .

The Asia Dow closed down 0.1%.

Among individual markets last night:

Australia closed up 0.6%. China closed down 0.4%. Hong Kong closed down 0.2%. India closed down 0.1%. Indonesia closed down 0.1%. Japan closed down 0.1%. Malaysia closed up 0.1%. New Zealand closed up 0.8%. South Korea closed up 0.6%. Singapore closed up 0.3%. Taiwan closed up 0.2%. Thailand closed down 0.6%.

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Markets This Morning:

European markets are mixed to down this morning. The London FTSE is down 0.2%. The German DAX is up 0.2%. France’s CAC is down 0.1%. Spain is down 0.6%.

Oil is down $.72 a barrel at $88.56.

Gold is down $2 an ounce at $1,730.

This Morning in the U.S. Market:

This week is a holiday-shortened week for potential market-moving economic reports, but they include Existing Home Sales, New Housing Starts, and Consumer Sentiment, etc. To see the full list click here, and look at the left side of the page it takes you to.

Yesterday’s reports were that Existing Home Sales were up 2.1% in October at 4.79 million, after a downward revision of the September report to 4.69 million. The 4.79 million was about in line with the consensus forecast for 4.8 million. And the Housing Market Index, which measures the sentiment of home-builders, rose 5 points to 46.

This morning’s report was that the New Housing Starts were up 3.6% in October at 894,000. That’s considerably better than the consensus forecast of a decline to 825,000. Starts in the Northeast fell 6.5% and in the South fell 2.5%, but were up 8.9% in the Midwest and surged up 17.1% in the West.

The early morning indicators were not affected by the additional positive economic report.

Our Pre-Open Indicators:

Our pre-open indicators are pointing to the Dow being down 40 points or so in the early going this morning – but it remains short-term oversold!

To read my weekend newspaper column click here: Defensive Stocks Are Failing Again As Safe Havens!

Non-Subscribers: We have updated the sample issue of the newsletter to a more recent issue you might find interesting. Click on link to sample newsletter in right-hand column.

Subscribers to Street Smart Report: The new issue of the newsletter will be available later today in your secure area of the Street Smart Report website.

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