And a mighty fine “Good Morning” to you too! Watching the Dow pop out a 400-point move to the upside is a nice way to start the day. And, it is nice to see the S&P 500 jump past resistance at 1205. As I write, the index is sporting a healthy 42-point gain so far today. Lots of good news today, but none of it makes me feel as good as the VIX dropping below 28 for the first time in some time. Fundamentally speaking, as far as the market goes, a dropping VIX tells me fear is lessening, which could explain the size of the pop today.
So why would traders/investors be less fearful about a geopolitical world falling apart, a global economy heading into recession, a Eurozone crumbling from its massive debt problems, a Chinese economy on the verge of collapse from its policies to contain inflation and invigorate domestic demand, and a U.S. political dynamic many see as a harbinger of doom
It’s a good question, but the premise is, of course, all wrong. Geopolitically, the world is coming together not on all, but on many fronts. Europe might be contracting from its problems, but the U.S., China, Japan, and the BRICS countries are not contracting. The two big problems that have driven the VIX up are Europe and the U.S., both of which have huge political problems, aside from the massive debt issues both entities face. At least so far today, traders and investors are less fearful about both of those issues.
However, if we have learned one thing in the past two years or so, it is this: the seemingly intractable political and fiscal problems of both the U.S. and Europe are real and extremely dangerous. The pop today does not reflect a sense of resolution; it reflects a sense of relief from all the pressure. The catalyst for the relief is the news that Europe took another meaningful step toward resolution and the U.S. managed to put partisan politics aside in the interest of the USA as a whole. Economic news from Asia and the ADP report on private sector employment in the U.S. opened a little pressure-relief valve as well.
- The world’s major central banks took joint action to ease banks’ access to dollars, reducing fears of a global credit crisis.
- Republicans in Congress on Tuesday threw their support behind a payroll tax cut extension.
- Japan’s factory output increased 2.4 percent from September, rebounding from a 3.3 percent drop.
- China surprised with its first cut in its banks’ reserve requirements in nearly three years, moving into easing mode as Beijing looked to soften the country’s economic slowdown.
- The ADP National Employment Report showed private employers added 206,000 jobs this month, surpassing economists’ expectations for a gain of 130,000 jobs.
- Sales of new homes rose in October and the supply of homes on the market fell to its lowest level since April of last year, showing some healing in the battered housing sector.
The last one above is a bonus, a throw in, a feel good piece of data that tells us nothing, really, but it makes us feel good. Aside from that, we have a long way to go to get it all right, to get the whole machine running in high gear, but the really good news is the world is heading in the right direction. One day at a time, thank you very much …
Trade in the day – Invest in your life …
