By Surly Trader
Not so much…
Italy and Spain are still waiting for some tremendously good news (as referenced by their CDS spreads shown below). Aside from the European disaster, we should probably be focusing on the elections and the coming “fiscal cliff”. As we all witnessed, when the federal reserve did not expand its “quantitative easing”, the market was disappointed. We also know that Ben is the maestro when it comes to non-traditional monetary policy. If Romney wins, he has already stated that Ben is out. By itself that might have interesting implications for the market.
The larger overhang comes from the automatic expiration of many stimulative policies in early 2013 which have been estimated to be a 4-5% negative GDP drag if they all expire. That is a huge uncertainty that can only be solved by productive political arguments over the next 6-12 months. How likely is that in 2011? How likely is that in 2012 during an election cycle?
(Italy & Spain CDS Spreads)
Lastly, we have the same debt ceiling issue coming to the forefront in September. The first go around caused a tremendous amount of nonsense in the markets. Why exactly with this debt ceiling expansion work out better?
Durable goods orders were great though, that should boost us! That optimism fades a bit when you look at the citigroup economic surprise index…