Monday, stocks in Asia turned slightly lower, while those in Europe rose 0.3%. In the U.S. trading seemed affixed to news related to the actions of Congress with respect to the “fiscal cliff.” Based on trading volume, it’s as if nobody cares—after all it’s New Years Eve. The fear index fell about 8%. Another drama played out Monday afternoon as both the Dow and NASDAQ indices struggled to close above 13,000 and 3,000 levels respectively. IBM too, vied with the $190 per share point. By the close, the positive wave drove prices strongly upward. The VXO fell nearly 20% to close at 18.53 as stocks rose 1.5% on low moderate volume.
For the year, stocks rose about 13% while precious metals gained 5%. The 10-Year U.S. Treasury Bond rose 14%. This over-valuation of assets is starting to make my nose bleed. Thank you Mr. Bernanke.
Tuesday, New Years Day, markets took a break while politicians continued their inane posturing. The Senate passed a bill (H.R. 8) that temporarily limited the income tax rise, but did almost nothing to rein in spending. The House of Representatives followed through at 11:00 PM approving the Senate changes to H.R. 8. Here is the link to the House and Senate vote record. You may find your sell-out legislator’s name there. It’s amazing that of prime concern regarding the timing of all of this was getting the vote done in time to shield stock markets from panic—starting in Asia.
Wednesday, markets rejoiced that Congress once again kicked the can down the road. Here’s a good summary of the provisions of the bill. The celebration started in Asia with a 1.3% gain in stocks. In Europe the gain was even greater, topping 2%. The VXO fear gauge gapped down over 28%, plummeting to the ridiculous 13.30 level. Stocks soared over 2.2% breaking through the upper Bollinger Band. This gain coupled with that of Monday, certainly feels like the kind of blowout euphoria characteristic of market peaks. The 10-Year U.S Treasury Bond rate rose nearly 5%. Reinforcing the lunacy of this move, Facebook gained over 5% to close at $28 per share.
Thursday, the mania cooled off a bit. Stocks in Asia rose about 0.3%, in Europe 0.4%, and in the U.S. about 0.3% on low moderate volume. The 10-Year Treasury Bond rate jumped over 3% to close at 1.9% while precious metals slid 1.2%. The VXO climbed back over 14 with a gain over 5% from Wednesday’s giddy levels. The explanation of the day was that the FOMC meeting notes indicated mounting concern over the rising Fed balance sheet and indicated a desire to rein in QE sooner rather than later. Given the extreme dovish tilt of the current FOMC this level of concern is remarkable.
Friday, stocks in Asia and Europe changed little. In the U.S. though, the party continued. Stocks gained another 0.7% on low volume as the VXO dropped below 14. For the week, stocks gained nearly 5%, Facebook gained nearly 11%, the 10-Year U.S. Treasury Bond rate rose 12%, and the VXO fear gage dropped a stunning 40%.