It is quite clear the markets are in rally mode. Nothing moves in a straight line, but assuming Europe does succeed in advancing its voluntary debt forgiveness but this is not a default according to law plan, markets may levitate for a while.
But there is a fly in the ointment on multiple fronts. First there is this Christmas sales. The US Economy is still judged by public consumption. So if sales are poor, or margins cut deep, companies may not have a good season.
But lets assume that sales do OK, what else is on the horizon?
Think back to August, what news was on every tv, every hour, and had a buzz about on every news program?
Wait for it......
The US debt default, end of the world. How quickly we all forget the end of the western world almost happened in August. And it was true! right? It wasn't political.....wait....maybe it was overblown slightly. It was a crisis right?
I am here to tell you there was ZERO crisis. But it doesn't matter about reality, it is the perception that matters. And at that time, the debt ceiling increase passed, but under the condition of a special super committe is formed to determine government spending. That the committee must come up with 1.5 trillion debt reduction over 10 years.
What a freaking joke. The government will agree to basically cut 150 billion a year on a 3.7 trillion dollar budget for 10 years. Does anyone at all believe any of this?
Again, it doesn't matter about the reality. But one thing is for sure, next year is an election year. That means the Republicans and Democrats are going to be filling the airwaves AGAIN about budget, this time deadline November 23rd.
So before we look to the sky for how far the market will run, consider that the news will once again be financial topics, and being spun loudly for November 23rd. The market hates uncertainty.
My bet? I don't want to be long markets into November 25th, right after Thanksgiving. Between the Christmas sales and newly passed budget cuts, I am not betting on a new market high.
Between now and then, Gold goes up, dollar goes down, markets climb or trade in a range. I'll stick to gold, gold miners, and silver.
UPDATE: 10-28-11 @ 8:50 am Election worries drive deficit talks