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Fade the debt ceiling rally

It is hard to find anyone who is surprised we reached some form of compromise over the weekend. Stocks have dutifully responded by starting the day higher, but I think that is from a few people lifting relatively small hedges, a few investors pushing their longs, and some investors who crawled out from under a rock and think this weekend's events will actually surprise some people. We may get one more rally once the deal is actually approved, but I think that almost all of this has been priced into the market. I think after the vote, we will see a lot of investors waiting for someone new to take them out of their long positions, only to find that there is no new money. Everyone is already longer or less short than they would otherwise be. There has been a lot of talk about how the uncertainty of a deal has impacted the U.S. You might be able to convince me that the uncertainty had an impact on the real economy, but that would take some work. For the markets, the uncertainty has been supportive in my opinion. Far more money has been scared of the relief rally than was willing to bet against some form of debt ceiling limit increase. Investors were scared to go short because it seemed obvious some deal would get negotiated and that would spark a rally. Once the debt ceiling rally is over, what is the next spark? While the market was largely focused on the debt ceiling and inevitable rally, we managed to ignore a few things. The latest European bailout rally has been fading. We still have some gains from the lows, but we are well of the tights reached on July 22nd. If that latest program unwinds or continues to disappoint it will be difficult for the U.S. to ignore it. The data has been generally weak, and the GDP data was downright horrific. The market would have sold off much harder on Friday if it wasn't for the anticipation of the debt ceiling resolution. Investors will now have time to figure out what it means that the data is showing an economy worse than most people thought. Earnings have been mixed, but not as supportive for stocks as in the prior few quarters. One big question is what will we do if the data continues to deteriorate? Another stimulus package seems like it would be hard to get done given we allegedly just agreed to keep spending in check. After the latest bits of data, even the most staunch supporters of QE must have some doubts as to its effectiveness. The Bernanke Put and the Obama Put may be difficult to implement going forward. The market has relied so much on government intervention that it will be interesting to see how strong it can be if investors lose faith in the government's ability to provide a strong backstop on any bit of weakness. On a separate note, the government may want to review our participation in the IMF? The head of the IMF is critical about most things we are doing, yet seems more than happy to accept our money to indirectly bailout her beloved banks. Talk about biting the hand that feeds you.