Thursday was one of those days where most of us would have done best to have stayed at home as the volume of business in the markets declined from a trickle to a drip. On ridiculously low turnover the Dow lost 62.44 points and the S&P gave up 4.22 points. In the greater scheme of things and given what is hanging over markets, this pretty much as good as unchanged. With the market seemingly beginning to run out of sellers and with the enormous piles of cash skulking around on the sidelines, upside risk now appears to be substantially greater than downside risk.
From an equity perspective, today will likely prove, in the fullness of time, to have been a better day to buy than to sell. That very short queue at the other end of the room is the one containing folks with both the courage and the authority to go out and buy.
What we are observing in Washington is both the very best and the very worst of democracy in action. It is said the a nation always ends up with the government it deserves and by swinging so dramatically from left to right in the 2010 mid-term elections, the American people expressed that they really don’t have a clue what they really want. It is easy to blame the conservatives on the left or the radicals on the right for a lack of progress in dealing with the debt ceiling but it is the people who chose to put them there. It is feature of a modern parliamentary democracy that 16% of the population owns and controls 84% of the wealth and that the 84% without will vote for whoever gives them hope of gaining access to wealth of the 16%. The difference between left and right is simply the method by which they aim to achieve this. Washington is not stuck defining the objective but simply in crystallising the methodology. As the old joke tells us, when you are up to your butt in crocodiles, it it easy to forget that the aim had only be to drain the swamp.
Of course, in the context of Uncle Sam, the word “default” is being bandied around with gay abandon. Newt Gingrich and his merry men took us to the brink in 1996 when he, as House Majority Leader (the first Republican since 1954), blocked the budget and closed down government. Fiscal inflows should cover treasury coupon payments with room to spare for a few weeks and the Government can selectively close itself down in order to preserve cash. Maturing debt can be rolled over. America is not about to hit the wall. Yes, there is an unholy mess in Washington. Yes, both sides are behaving like a bunch of children – spoilt ones at that. Yes, we could find ourselves in a very tight spot. But that is the price of of what we believe to be democracy. As much as we need to instigate a root and branch review of how our lawmakers spend our money, maybe we should also be prepared to review how we select and control our lawmakers. However, they control that process themselves and we all know the likely outcome of the poll when turkeys are invited to vote for or against Christmas.
Last night the Republican caucus decide not to take a vote on its own proposals as the lunatic fringe continues to proffer intransigence. The great Boston tea party of of 1773 was all about no tax without authority. The current Tea Party should understand that there is now no authority without taxes.
So markets will spend another day drifting around with neither rhyme nor reason. Traders, salespeople and money managers will be bored to death and dreaming of an early exit. Bottom fishers will probably be out and about trying to buy stock which nobody has in position and I’d be prepared to bet money, albeit a very small amount, that despite Asian markets closing weaker today, the US will end on a firmer note. We remain on hold.
Alas, it is that time of the week again. All that remains is for me to wish you and yours a very happy and peaceful weekend. May the weather be such that you can fire up your barbecue outside and grill some chops while the members of Congress will be locked indoors busting theirs.