Well, this week has performed as promised: No economic news of consequence, just politics and volatility. After seeing the bellwether 10 year drop sharply last Friday on fiscal cliff concerns, we saw rates move up some on Monday as investors hedged positions for the Christmas holiday. Wednesday was quiet and stable as many investors took the day off to extend their vacation. Yesterday, nervousness over the lack of direction or progress from Congress on the fiscal cliff helped bonds and hurt the stock market as the 10 year dropped to 1.70%, down 6 points. But volume is off more than 15% from the 30 day average which hasn't been particularly high itself. Mortgage rates have followed, albeit low volume also and 30 year rates are approaching record lows....again.
Speaker Boehner called the House back to session for Sunday and is meeting with the President and top officials at the White House. The obvious question is why wait until Sunday to call them back? Yesterday, Treasury Secretary Geithner warned that the debt ceiling will be reached on Monday and the government will have no more money. The treasury is taking a number of "fiscal reporting" steps to postpone that deadline by $200 billion dollars or about 60 days. Add to that the fact that by all appearances, Secretary Geithner will resign shortly and the President will have to find a replacement that is not only extremely competent but willing to take a huge pay cut in order to take the worst job in Washington. All-in-all, we collectively, are in a mess.
Next week has effectively two holidays and no economic reports of consequence. All the focus will be on the fiscal cliff and whether we have enough adults in the White House and Congress to do what's best for the country, not their party and political careers. Expect sharp movement in the markets if/when a fiscal cliff deal is reached - and rates could go either way but the guess here is they will go up.
Have a Happy New Year!
-- Jed Marquis
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