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It's Not About Who's Winning

Daily State of the Markets
Wednesday, December 19, 2012

Good Morning. For the vast majority of this year, the two political parties have been at each other's throats, each purporting that their vision is best and that if given the opportunity, those on the other side of the aisle would surely send the country into ruin. Thus, the thinking seems to be that the opponents must be stopped at all costs and that winning any and all political fights is all that matters.

During the Presidential election, I will have to admit that I too became passionate about the outcome. Although I rarely get involved in politics at all (frankly because I don't follow the game and don't consider myself qualified to comment on many of the issues), I thought this election was about economics; a subject that I do in fact know a little something about. But, this election taught me that economics is indeed a complex subject and that most of the American electorate doesn't comprehend the basics of supply and demand, let alone the complexities of monetary, tax, and/or fiscal policies.

But now that the election is over, I am happy to report that "I'm over it" and am back to hoping that the American economy will do what it usually does and simply overcome any or all obstacles thrown at it. As I've said a time or twenty in this space, I'm a card-carrying member of the glass-is-at-least-half-full club - especially when it comes to the U.S. economy. The bottom line is that while nothing is perfect, our economic system is still the best game in town, bar none.

But for the political die-hards, the fiscal cliff negotiations have presented an opportunity to continue the heated public debate between the Republicans and the Democrats. The core beliefs of both sides are easy to spot in each offer and counter offer. The Republicans want to cut spending and reduce taxes while the Democrats feel they have a mandate to tax the rich and keep the status quo with regard to entitlements. The bottom line is the public posturing and the political rhetoric (aka "the blame game") is so thick you can cut it with a knife right now.

One of my colleagues called me Tuesday afternoon wondering why the stock market was still up on the day. He informed me that Senator Harry Reid was throwing a bit of a tizzy at the moment, telling the press that dealing with Republicans is like Charlie Brown and the football and that Boehner's "Plan B" amounted to the Speaker "walking away" from the negotiations. My friend's point was that, in his opinion, Reid's comments were sure to sink the market. And yet, other than a quick algo-induced dip of about 3 points, the S&P didn't appear to care.

I think this brings up an important point. As history shows, the stock market is not terribly political. Ms. Market is neither a Republican nor a Democrat and if I'm not mistaken, the market has actually performed better over the years when the Democrats controlled the White House. Thus, the question of who actually "wins" the fiscal cliff debate really isn't terribly important.

In my humble opinion, the real key to the current market isn't who wins or loses. It isn't about which proposal is finally accepted or whether the plan is "balanced" (and on that note, I might suggest that both sides need to invest in a $4.99 calculator right about now) or not. No, the key issue at hand - at least as far as the stock market is concerned - is whether or not the economy goes over the cliff.

Sure, the issue of our debt rating is something of a concern. And the concept of economic growth is certainly important. But for right now, the only question the market appears to care about is if a deal will get done to keep the economy from going over the cliff.

So, when you take a step back from the partisan politicking, the posturing, and the name calling, it does appear that there are serious negotiations going on. Neither side has said, "We give up, let's just go over the cliff." Nobody has made a "final offer." And with both sides having made concessions, the assumption in the stock market appears to be that a deal - some kind of deal - WILL indeed get done.

This is not to say that the process will be smooth or that either side will be happy. And yes, there will likely be some emotional outbursts, some name calling, and perhaps even a bit of brinkmanship before it is all over. But as far as Ms. Market is concerned, it isn't about who wins or loses... No, the only thing that matters is that a deal gets done.

Turning to this morning... Stock futures are pointing to a higher open on Wall Street as sentiment toward a fiscal cliff deal continues to run high. In addition, FedEx reported earnings that without the impact of super storm Sandy would have beaten estimates handily.

On the Economic front... We'll get the Housing Starts and Building Permits this morning.

Thought for the day... It requires less character to discover the faults of others, than to tolerate them. -J. Petit Senn

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets:
- Shanghai: -0.02%
- Hong Kong: +0.57%
- Japan: +2.39%
- France: +0.42%
- Germany: +0.25%
- Italy: +1.02%
- Spain: +1.43%
- London: +0.47%

Crude Oil Futures: +$0.62 to $88.55

Gold: +$3.30 to $1674.00

Dollar: lower against the yen, euro, and pound

10-Year Bond Yield: Currently trading at 1.827%

Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +4.16
- Dow Jones Industrial Average: +32
- NASDAQ Composite: +11.51

Positions in stocks mentioned: none

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