Thursday the 17th, US debt limit day approaches

Last week was a strange one for the markets. At the slightest hint of a possible compromise over the US budget and debt limit being raised the markets showed their euphoric side. However, the Republican proposition to extend the time until December so that further talks can take place was actually loaded with strings attached. These strings were again around ObamaCare, so it shouldn't come as a surprise that it was rejected. What was a surprise was that the market seemed to buy into the possibility that this might work.

If anything, what we saw towards the end of last week was a relief rally. Markets had been falling off for a while and they were prepared to grasp hold of anything that might suggest a deal was just around the corner. They are still living in hope that common sense will prevail and a deal will be done by Thursday, European markets are currently treading water in wait, while the US market is currently predicted to give back some of the gains made towards the end of last week. So far a big sell off has been avoided and the US bond market is closed today.

If you are an investor in shares these are troubling times. Perhaps not so much if you are a trader. Investors perhaps don't want to think too much about liquidating everything before Thursday, but also why would anyone open any new long positions before that date? Traders, especially those with short term time horizons will probably be out and waiting or looking to get out the closer the date approaches. They will also be looking at opportunities to short in the event of no agreement. Longer term investors may also look to hedge against the fall out of share price falls by taking out an index short, the more sophisticated may be using options. Many investors however, will probably just sit tight and hope the worst doesn't happen.

We should be under no illusion as to what a US default, even if it is only technical, actually means.

The stalemate is now damaging confidence and denting the recovery, bankers at a satellite Institute of International Finance meeting in Washington warned.

“It would be utterly catastrophic,” Deutsche Bank co-chairman Anshu Jain, said. “This would be a rapidly spreading fatal disease.”

JP Morgan chief executive Jamie Dimon added: "I think it would ripple across the global economy in ways you couldn’t possibly understand.” 

http://www.telegraph.co.uk/finance/economics/10376058/US-debt-ceiling-Markets-on-edge-as-talks-drag-on.html

The fact is that to a large degree it would be entering unknown territory, but markets do tend to react to such events in a way that is entirely predictable, they go crazy. There is a good chance of a market crash if Thursday comes and goes without a decision, because this is the way markets respond to such news. It's no good trying to be rational about it, it is unlikely the markets would simply respond by staying calm.

The reality is that many of us know that any deal before Thursday does not solve the problems the US face going forward in relation to its budget and debt, it is kicking the can down the road, but this is effectively what an inflationary money system does. The can kicking can go on for a long time, because for long periods it depends on whether you are good at controlling the can as it rolls on. Ultimately issues like debt and the budget have to be resolved, but within our current financial system it will always be relative to other things, like manageable debt. To stop the can kicking in total requires a different financial system, but whether it can ever be changed in a way that isn't destructive in a horrific way until something new replaces it is a much bigger debate.

One final point about the current Republican stance in relation to ObamaCare, is that the politics of this is saying they are doing this for their voters, or middle America, but how will this constituency respond to crashing markets if they push it to the wire? As they see their investments collapse, jobs and pensions in danger, recession or depression and the US name across the world being about as bad as it could get? If they default, who would lend to the US again at such generously low interest rates? Middle America has a lot to lose from a default, which is perhaps one of the main reasons why it is believed unthinkable that Republicans will go that far. They must know what the outcome would be from default?

The market still believes that a default is unthinkable, it is as Warren Buffett recently referred to as the financial market equivalent of using nuclear weapons. Are the US politicians really prepared to do that come Thursday?

Decision time ahead.

Well, here we are again heading towards a potential crisis point which let's face it was so predictable. Politicians in the US continue to argue and stand their ground on the issue of the budget, the debt limit and of course what appears to be holding it all up, the politics behind "ObamaCare". In the meantime the markets have gone cold, some profits have been taken. They have been falling session after session but no strong message has yet been sent to Washington that if this goes to the wire and beyond, crisis awaits.

According to Obama the votes are there to pass a clean bill, which would mean that they could then argue and negotiate afterwards for as long as it takes. The impasse appears to be that the President won't negotiate under threat and he won't back down on his health initiative, while elements of the Republican opposition see this as their chance to put a line in the sand and get what they want. The end result appears to be stalemate in the face of disaster that awaits elsewhere if an agreement isn't reached in the next week or so.

Chances are it will be a disaster if there is no agreement as history shows that ultimately markets will throw a hissy fit to get what they want, but this goes slightly deeper than what has gone before. If the US were to default, even if it is only a technical default, then trust will go, the chances are the rating agencies will come out with US downgrades and the stock markets will crash. Maybe some on the Republican side can live with this out of principle, but will their voters and what about their financial backers? The Republican Party might be feeling some heat right now from those that back them to get a deal done, otherwise the money that finances them will drain up. Unless of course, you believe in conspiracy and that the financial elite want this crash and the crisis to come to further their ends.

There is a general view that while the markets have been falling recently an agreement is ultimately expected, because the alternative is pretty dire. Sooner or later the politicians, or enough of them, will cobble together some agreement that will stop the immediate crisis, but in reality simply pushes things further down the road. Nevertheless this should be enough to at least placate the markets for now.

In the meantime, hold on to your hats.

Whatever happened to....Part two

So, tapering seems to be taking a back seat for the moment, but markets seemed to go awfully quite on that other big outstanding issue, the US debt ceiling. It is interesting how markets can choose to ignore something as and when they choose to do so, perhaps in part because they want to draw in the unsuspecting before they have a sell off. It isn't as if the debt ceiling issue had gone away or even looked like being resolved, if anything attitudes on both sides seem to have hardened.

It's been a while since we read this sort of news.

A potential shutdown for the U.S. government by Monday weighed on sentiment. Fears the Treasury will hit the debt ceiling by mid-October only added to investor worries. 

Naeem Aslam, chief market analyst at AvaTrade, said traders are “taking the profits from the table.”

“With political opera taking place in Washington, with the government shutdown threat and the Italian political crisis in Italy, volatility in the market is extremely elevated and perhaps sitting on the sidelines could be the best option for traders,” he wrote in a note.

http://www.marketwatch.com/story/stock-futures-sag-on-shutdown-fears-2013-09-27

Given that the poilticians will probably take this down to the wire, it is difficult to feel comfortable going long in the market right now. For those that feel comfortable however, shorting might offer better opportunies, as long as you keep one eye on the prospects for a deal.

Whatever happened to....

Tapering, the debt time bomb, US debt limit talks, EU crisis, need I go on?

In the US the Fed has been meeting and is due to report today on its latest findings and whether they will taper their bond buying sooner rather than later, or just keep things on hold again awaiting better data. Markets seem to be in hiding, waiting for the latest from Ben Bernanke. Each time he has reported, without giving too much away on what the Fed intends to do, markets have tended to want to sell off a little on the news or rather lack of it. I was reading yesterday that markets might actually be relieved once the Fed starts to taper as at least they would then be doing something. Markets would then no doubt move on to something else that they might worry about.

So, whatever happened to the US debt limit talks?

President Barack Obama won't negotiate with congressional Republicans over the U.S. government's borrowing limit, he said in an interview that aired Sunday.

Obama told ABC News' George Stephanopoulos that he would not cooperate with House Speaker John Boehner's demand for budget cuts in exchange for House Republicans' allowing the government to continue paying its obligations.

"I'm happy to have a conversation with him about how we can deal with the so-called sequester, which is making across-the-board cuts on stuff that we shouldn't be cutting, while continuing tax breaks, for example, for companies that are not helping to grow the economy," Obama said on ABC's "This Week." "What I haven't been willing to negotiate, and I will not negotiate, is on the debt ceiling."

Much of the federal government will shut down unless Congress passes a budget, or a temporary spending bill, by next month. Not long after that, the U.S. will run out of borrowing authority, with potentially catastrophic consequences for the world economy if the government defaults on its debts. Some Republicans want Obama to gut his own health care law in exchange for a functioning government.

http://www.huffingtonpost.com/2013/09/15/obama-debt-ceiling_n_3930243.html

This is a potential calm before the storm. US politicians have a habit of doing last minute deals, but they are usually dragged along by all sides to get the best political result that suits them. This is not what the markets want to see. So, we could be heading into a period of volatility after a period of relative calm. It's not an easy time to call the markets. US charts look more positive than the UK, but that could change quickly if some of these old fears take hold in the market again and it's been a while since that happened.

US budget - down to the wire again

No one should be surprised that the latest news on deadlock over US budget cuts seems to be going down to the wire again.

The US Congress has adjourned for the weekend without reaching a deal to avert steep automatic budget cuts.

The cuts, worth $85bn (£56bn), are due to take effect on Friday. Democrats and Republicans are blaming each other for the deadlock.

President Barack Obama has invited congressional leaders to the White House for negotiations.
Mr Obama warned that the cuts will harm the economy. The IMF said they could have a global impact on growth.

On Thursday budget bills from both parties were defeated in the Senate.

http://www.bbc.co.uk/news/world-us-canada-21610813

The pattern of leaving things to the last minute is well set in US politics and historically some sort of deal is usually, eventually, cobbled together. Markets seem quite relaxed thus far about the lack of agreement, but as everyone knows this can quickly change. It's possible that what we are seeing is a calm before the storm and that markets at some stage will use any US budget impasse to sell off and correct the impressive bullish run of the last 2-3 months. Markets may want to give the politicians a reminder of their power at some stage if no decision is forthcoming, so we all should be ready for at least the possibility of a wild ride in the markets going forward.

FTSE100 - Best start to the year since 1999

Reading this morning that the start to this year is the best for the FTSE100 since 1999 makes me feel that this new found bullishness in the market could be a two edged sword. On the one hand it looks like shares are being seen in a more positive light, on the other the move up since early December does look a little stretched and might be getting ahead of itself. It could quite easily suck people in here as the fear of being left behind takes hold. Then just as you buy, the correction comes. The trouble is, waiting for pullbacks which often never come or are never as bad as you might hope for, are often themselves a two edged sword, you never quite get the price you were hoping for and curse all the times you missed getting in. The market has a habit of leaving you behind, there are no easy answers

First some figures.

At close on Friday the FTSE is up for this year by 3.8%.

The FTSE All World index is at its highest level since May 2011.

Money flowing into equities is the highest for 5 years. Flows into equity funds were £13.8 billion in the week up to Jan 9th, the highest since September 2007.

World markets have also been enjoying an early new year rally, the S&P reached a 5 year high last week. Emerging markets took a lot of the new money mentioned above.

Already there is talk that the risk play is back on, away from the more safer investments and trades.  If so, this may be good news for more risky shares, especially in commodities, energy, mining, etc. If the money feels that emerging markets are the place to be then that is usually bullish for companies that sell and have their business in those markets. This may however be a false dawn, the euphoria of a Fiscal Cliff part deal still having its effect on markets. Soon, politicians will get back to talking about spending cuts and debt reduction, volatility and a move to the downside could then return, especially if as usual everything goes to the wire.

Source; http://www.investmentweek.co.uk/investment-week/news/2235961/ftse-enjoys-best-year-start-since-1999

The trillion dollar coin

Is it April first already? There has been quite a lot of talk about the US producing a £1 trillion dollar platinum coin to help it bypass its Fiscal Cliff spending difficulties, even the mainstream media seem to be reporting it, in the UK the BBC joining in.

A campaign is gathering pace on the American left to mint a single platinum coin and assign it a face value of a thousand billion dollars as a neat way of resolving the impending row between Congress and the White House over the US debt ceiling.

A Democratic congressman has endorsed the idea and a Republican one has introduced a bill to block it. 

http://www.bbc.co.uk/news/world-us-canada-20954258

So here's the question.  If it really was that easy why not just mint 20 and then the US could wipe out all its current debt and have a nice surplus as well.  In fact, the amount could be any figure.

The workaround would come from exploiting a 1997 law that allows the Treasury to “mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the secretary, in the secretary’s discretion, may prescribe from time to time.”

The idea was that a secretary might authorize the creation of a commemorative eagle coin, for instance, to be put on sale for collectors. But the law inadvertently gave the Treasury secretary the power to mint, say, a $1 trillion coin, or even a $5 trillion coin, or even a $1 quadrillion coin.

Rather than selling it, he might deposit it at the Federal Reserve. Presto! The shiny new asset would erase a trillion dollars in debt liabilities. 

 http://www.nytimes.com/2013/01/10/business/a-trillion-dollar-coin-brings-a-jackpot-of-jests.html?_r=0

Surely they haven't run out yet of paper printing inflation making ideas that this would be taken serious? If this ever happened, you wonder how long it would be before they felt the need for that $1 quadrillion coin.

FTSE hits 6000, almost 6100 partying like its 1999.

So, the FTSE finally managed to get over the 6000 mark as the US Fiscal Cliff part agreement euphoria took hold and now has a little daylight as it is just below 6100. It did get to 6000 back in 1998, spending much of 1999 and 2000 above this level, looking like it might even get to 7000 at one stage, but not to be. 7000 still looks a long way off. For most of the last decade the index has been up and down, spending most of the last 4 years regaining the lost ground brought on by the financial crisis.

What has changed quite a lot over that time is the make up of the index itself and this is something that isn't talked about as much, often giving the false impression that the index is somewhat fixed in terms of its constituents. The index itself can potentially change every quarter depending on the cap value of the lowest FTSE100 compared to the top cap values of those in the FTSE250. One of those recently promoted was Melrose, while companies like Man Group have dropped out in the last year.

What did the index look like in 1999?

January, historically an important month for the markets.

January is usually an important month for markets as it is often the case that as January goes so does the rest of the year. 

Data below is for the US markets.

Market Watch reports:

Since the late 1800s, when the Dow Jones Industrial Average was created, it has gained ground in 63% of the Januarys. The comparable proportion for all other months of the calendar. in contrast, is 57%.

Largely on the strength of these increased odds, the average January gain for the Dow since the late 1800s has been 0.9%, in contrast to 0.6% for all non-January months.

It goes on.

Since the late 1800s, an “up” January has been followed by an “up” rest of the year 67% of the time. The comparable percentage for a “down” January, in contrast, is 55%. The difference in average 11-month returns is 8.3% (follow an “up” January) vs. 4.2% (following a “down” January).

http://www.marketwatch.com/story/how-special-is-january-2013-01-02?link=MW_story_insert

If January is a very good month then the rest of the year often follows suit.

Since 1970, there has been 13 times when the US market has been above 3.75% in January. Every time the index completed the year with a substantial gain.

The 13 Januarys with returns of 3.75% or greater were in 1971, 72, 75, 76, 79, 83, 85, 87, 88, 89, 91, 97 and 99.

The average gain for the rest of the year was a surprising 19.6%.

http://www.marketoracle.co.uk/Article32875.html

While there is a need to be weary of such stats in that there is no guarantee that history will always repeat, it is worth noting as part of an investment/trading strategy that some months do tend to see better performance than others and as with behaviour in general, the markets often repeat what they have done before. It will be interesting to see how long and how much of a positive Fiscal Cliff sentiment carries on into the new year.

Some popular posts from 2012

Here are some of the more popular posts, in terms of hits, from the last year (or 6 months or so that the blog has been going).

It would appear that we all like something that is free, even better if it is helpful as well. There are quite a few good free online trading, investment magazines and when I find something new I add it to the list.

Something for free - online trading/investment magazines

What time frame are you trading/investing in

Should you follow the news?

Vodafone

Dividend Payers

Technical Analysis

US Fiscal Cliff

History about to repeat itself?

Well, as predicted politicians in the US have taken the Fiscal Cliff negotiations to the edge. The political process in the US has a habit of doing this, both sides usually playing their cards close to their chest right up to the final round, then bluffing and counter bluffing, not wanting to be seen to give anything based on their principles. In reality principles are difficult things to stick with when it comes to politics, they can get you into a world of hurt when the financial markets decide they don't like them.

2008 saw a taste of that when Congress initially voted against TARP. On principle there were many good reasons to vote against it, but faced with a market backlash of big market falls, the politicians quickly got back together to say what was for many perhaps a reluctant yes. Back then the market was in free fall as the financial crisis took hold, markets falling on the back of the TARP vote was the threat of worse to come if the politicians didn't play ball.

On Sept 15, 2008, Lehman Bros filed for bankruptcy sending the Dow plummeting 504 points.

On Sept 17, the Dow falls 449 points in reaction to AIG bailout.

On Sept 29, the Dow tumbles 777 points after House votes "No" on TARP.

On Oct 3, the House passes Financial Rescue Plan (TARP) The Dow falls 818 points.

Investors still lacking market confidence?

As we head towards 2013 with the FTSE approaching another attempt on 6000 and US politicians still talking over their fiscal cliff, it shows how much a confidence game investing and trading in shares is that a recent report suggests that investors still haven't totally bought into the recovery in markets since 2009 regardless of how strong it may look.

Assets in equity mutual, exchange-traded and closed-end funds increased about 85 percent to $5.6 trillion since the bull market began in March 2009, trailing the Standard & Poor’s 500 Index’s 94 percent advance, according to data compiled by Bloomberg and Morningstar Inc.

The retreat shows that even the biggest gain since 1998 failed to heal investor confidence after the financial collapse that wiped out $11 trillion in U.S. equity value was followed by record price swings in equities, a market breakdown that briefly erased $862 billion in share value and the slowest recovery from a recession since World War II. Individuals are withdrawing money as political leaders struggle to avert budget cuts that threaten to throw the economy into a new slump.

“Our biggest liability in the stock market has been the total destruction to confidence,” James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $325 billion, said in a telephone interview. “There’s just so much evidence of this recovery broadening.” 

http://www.bloomberg.com/news/2012-12-24/americans-miss-200-billion-abandoning-stocks.html

What applies to the US could equally apply to the UK. The FTSE may be knocking on the door of 6000, but that is still some way off the 6750 or so back in 2007 and a long way off the almost magical 7000 mark back in 1999. So, it has been a tough 12 years or so for UK shares and tougher to make money when there are so many bigger issue economic matters that always seem to put a stop on the possibility of markets going higher, they seem to be in a constant state of trying to get back to where they once were mode.

The fact is, and the internet, forum and blog comment is often a good guide to this, many people will have missed this bounce since 2009 because they probably thought worse was to come, the financial and economic world was at an end, never ending crisis to follow. Plenty of evidence shows how poor shares have been as an investment in recent times in the UK.

Market update - A sea of red

So, after a period of Fiscal Cliff hope the markets are a sea of red this morning on the news that a Republican Plan B to reduce taxes couldn't even get enough votes from Republicans to get through Congress. However, with markets falling like a stone on such news it really does show how dumb they can be. Dumb because even though the markets seem to be going up on the news of this Plan B, it was clear from the start it was never going to get very far, President Obama had already clearly said if it got through he would veto it. 

Why then were markets going up on such news that would have lead to a sell off anyway? Plan B was never going to get anywhere yet markets were rising on false hopes. I suppose that is the way markets work, if you are looking for logic and rational behaviour then look elsewhere. At this stage with the politicians doing their usual let's take it right up to the wire act because that is what we always do as we play the game of politics, markets were clinging on to any hope. Still, the charts were showing that the current run was extended, for it to go further and extend the gains of the early Santa rally, more Fiscal Cliff good news was needed, even if a Plan B vote was doomed to fail the markets were clinging to anything.

So, FTSE 6000 which seemed very near just a few days ago is now in retreat. Santa probably won't deliver that present until the new year, assuming that the politicians in the US do cobble together some sort of deal. Looking at the FTSE and Dow daily, it does look like they are in the process of a move down, indicators look negative, the only hope being that the latest 20/50 dma crossover to the upside does appear to be offering the potential for support. Price is currently hovering between the 20 and 50 dma. However, the charts are telling us that the markets are set up for Fiscal Cliff failure if no deal is made.

Charts:

Knocking on the door of FTSE 6000

Well, it seems to be getting closer, I write this at 5975 and the FTSE100 is on the verge of touching 6000. A month or so ago this seemed about as likely as England winning a cricket Test Series in India, but life is full of surprises. Given the momentum behind the market right now it will probably be more of a surprise if it doesn't get to 6000 from here, the peak is now within touching distance. Looks like the Santa rally did arrive after all, although with just a few more trading days left for this year, there is still room, one way or another, for a Fiscal Cliff surprise.

Market Update - FTSE100

The FTSE100 is still looking positive as we go into Christmas and the possible Santa rally, but is it possible that the market is running out of steam? The recent run is now well extended and it could be that Santa came early this year.

The last few days have seen the market largely going nowhere, no doubt waiting on more Fiscal cliff news, but the charts are beginning to look more positive towards a continuing move to the upside, although it is tentative. We have a 20/50 dma crossover to the upside, backed up by various indicators. The potential negative is that the FTSE is now facing resistance and the MACD on the daily chart could be weakening, the market might not go much further without good news to push it on. Still, the charts are nicely set up for a Fiscal cliff move to the upside if a deal comes in the next week or so. However, if there is no deal or the talks suddenly go bad, then we could see that MACD weakness on the daily chart roll over quite quickly as we get the next downward move. On balance and given no bad news, the charts look better for bulls than bears, but after the recent run you would expect a pullback soon anyway. 

Charts:

FTSE100 Update

Surprisingly perhaps, the FTSE 100 is actually looking more positive on the longer term charts. It's a surprise because over the weekend lots of negative comment regarding the US fiscal cliff seem to dominate the financial news. So far this week the markets seem to have taken it in their stride. In part this is a continuation of the recent recovery trend that can be seen on the charts, but it also might be suggesting that despite all the political position taking by the politicians, the markets are pricing in a deal that has to happen. There is some justification for this as history shows.

....seasoned Washington hands say that once this rather gloomy back and forth has played out - and it might take another week or more - the work towards reaching a solution that both sides can sell to their parties and their lawmakers will begin in earnest.

A deal by Christmas, a week before the fiscal cliff deadline, remains uncertain but not out of the question. The so-called fiscal cliff is a combination of U.S. government spending cuts and tax increases due to be implemented under existing law in early 2013 that may cut the federal budget deficit but also tip the economy back into recession.

The pattern of little happening until very close to a holiday is well-established on Capitol Hill. The past three pre-Christmas seasons brought important eleventh-hour developments on health care in 2009, tax cut extensions in 2010 and the payroll tax holiday in 2011.

It's so ingrained that many Capitol Hill veterans routinely, and sometimes mistakenly, dismiss as theater pronouncements of progress or stalemate that occur more than a few weeks before the holiday.

"The Congress doesn't work on the clock; it works on the calendar," said Republican Senator Roy Blunt of Missouri, who in 15 years of serving in Congress, including leadership jobs, has been through plenty of tough scrapes.

"There is just that required moment when something has to happen because you've run out of time," said Blunt. In the meantime, "there is a desire to maximize your negotiating position until you realize you don't have any room any more to negotiate. It almost invariably works that way."

http://articles.chicagotribune.com/2012-12-03/news/sns-rt-us-usa-fiscal-congressbre8b205w-20121202_1_fiscal-cliff-representatives-john-boehner-payroll-tax-holiday

So, there you have it, politics will play its part and its a system where things regularly go down to the wire because that is part of the game. On this occasion neither side will want to be seen as being responsible for there being no deal that results in a panic and puts the US economy back towards recession.

For the markets the time up to Christmas with no deal in sight is still likely to be a rocky one, but if a deal is reached then the charts suggest we are setting up to go higher. The Santa rally may still be on.

Charts:

Not more fiscal cliff worries surely? Or even hope?

So, the market news has again been dominated by fiscal cliff worries that either go up or down depending on fears of not enough progress being reported, no news at all, or grabbing the occasional statement from a participant that gives a little hope. Markets the last couple of days have been going up on this hope.

Last night US stocks pared losses after Republican Speaker of the House John Boehner said that he was “optimistic that we can continue to work together to avert this crisis sooner rather than later.” He said that Republicans were willing to put “revenue on the table” as long as it is accompanied by spending cuts. 

Furthermore, Obama told the public in a press conference the same day to pressure Congress to act to avert the automatic tax increases, saying: “When the American people speak loudly enough, lo and behold, Congress listens. 

“So today I’m asking Congress to listen to the people who sent us here to serve. I’m asking Americans all across the country to make your voice heard.” 

http://www.digitallook.com/cgi-bin/dlmedia/security.cgi?csi=50058&action=news&story_id=20531224

You can, more or less, read whatever you want into these statements. Boehner is basically saying what he has said before, taxes are on the table as long as there is give on spending cuts. No one knows how big a "give" though, or whether the price of Republican support on tax hikes for the rich, means much bigger cuts in more Democratic supported social programs. Obama's appeal to the people can also be seen as a negative, suggesting that he wants to put pressure on Congress from voters to get the deal done. The positive side is that both are still talking sooner rather than later on a deal, but they've only got a few weeks to do it.  After that, no deal and you can be sure that the markets will throw another fit of displeasure and probably head south.

The markets do seem to be in a set pattern of behaviour when it comes to picking the potential crisis as an excuse for the latest sell off.  All of these crises, at least since 2008, never quite reach absolute crisis proportions, but do enough to leave uncertainty, much of it more to do with the markets own fears of what potentially might happen rather than what actually does happen.

Moody by name, moody by nature, who'd trust a ratings agency?

So, no great market reaction to the downgrade of France by the ratings agency Moody's yesterday.

France said its economy was sound and reforms were on track after credit ratings agency Moody's stripped it of the prized triple-A badge due to an uncertain fiscal and economic outlook.

Monday's downgrade, which follows a cut by Standard & Poor's in January, was expected but is a blow to Socialist President Francois Hollande as he tries to fix France's finances and revive the Euorzone's second largest economy.

"The rating change does not call into question the economic fundamentals of our country, the efforts undertaken by the government or our creditworthiness," Finance Minister Pierre Moscovici told a news conference on Tuesday.

http://uk.reuters.com/article/2012/11/20/uk-france-moodys-idUKBRE8AI17I20121120

Is the market setting up for a Santa rally?

Well, it's back to all doom and gloom right now, after all, the markets were not aware of the prospect of a fiscal cliff in the US a few weeks ago were they. That is of course cynicism, but this is the way markets seem to behave, from almost one extreme to another. One minute the market seems to think that the problems out there are going to be solved, any bad news is brushed aside, etc, markets are going up. Next minute, everything is suddenly gloomy again, good news is ignored, put to one side or overlooked in favour of a bit of doom. The bears and gloom and doomers' are back in force, not that they ever go away, but there has been a change in recent weeks that supports the more negative stance.

Charts were telling us of this potential change in trend a few weeks back, the spring/summer upward run seemed to be exhausting itself and now a downward trend appears to be setting in, the question is for how long?

A few weeks back I mentioned whether we would have the traditional Santa rally this year. At that time the market hadn't sold off and it was difficult to see how an upside could be maintained through to the new year. There was the prospect of further bad news, topping it all being the US fiscal cliff talk which is now looming over the market as we head into December.

Now the fun, or not, begins.

So, perhaps the US markets really did want Romney to win after all?  Obama gets a second term and the markets, after a calm start, have a hissy fit and throw their toys out of the pram. At one stage the Dow was in positive territory, then later hit -300, ending up 312 down. The UK FTSE joined the early celebration party, then caught the bad mood as the day went on.

Was it thoughts of the fiscal cliff ahead or the fact that Europe came in with some less than encouraging economic numbers that gatecrashed the party? Oh, and to top the day off the Greeks, their politicians that is, are voting again on more austerity. Not much of a party going on in Greece right now.

Of the economic numbers, the one that may well have scared the market the most was news that Germany's industrial production contracted at a faster rate than expected in September. Output was down 1.8% month-on-month, instead of the 0.7% fall expected. Now people can probably see why Germany doesn't want to take on the burden of all of Europe's economic woes and why they seem to be standing pretty firm on what others should be doing to clear up their debt mess.

Obama says the best is yet to come, if anything the markets went back to the volatility of the recent past. Fiscal cliff fears will be with the market until the politicians agree on the next cobbled together compromise as surely they must. They probably don't have much of a choice.