Yesterday, we saw the biggest one point gain for The DJIA of the year – during the same week when the cold bloodedness of a default on government debt payments was seen as real by average investors. This, if anything – is a case in point example of the unreasonable market we’ve all been neck deep for the past 6 months…. really the past 5 years.

This is a market that fiends for positivity. Short term – whether it’s a week, month, or quarter ahead. If we have reason to believe things will be okay for as long as our vision allows, we breathe fresh air.

Let’s make it simple. The last week has been a euphemism  for the last half of 2013 and the euphoric bull market driven by easy money policies of the Federal Reserve. The last 6 months has been a euphemism for the last 5 years, in which we’ve almost doubled our national debt and the market has recovered past any reasonable limits from the 2008 crash. Again – the key factor… ultra loose monetary policy.

This is what we’re looking at for the next few weeks…..

The government will do what they have been – kick the proverbial can down the road and set a policy meeting for late November. As talks draw closer, it becomes more obvious that they are willing to do anything to avoid a default – as that will ripple through global markets.

The end to certain benefit programs is unfortunate but long overdue. This will hurt GDP and consumer spending but allow us to tread water and pay our debts. This’ll start to be priced into corporate earnings by the second quarter of 2014 as we continue to watch unemployment and inflation closely for change in Fed policy.

Bottom Line

As we’ve stated, we’re short term  bullish and with more easy money coming with Yellen as Fed chair, new all time highs for the DJIA are in sight through November. As the situation continues to brew over the next few months and the government chooses to either pay their debts or further close out Social Security and other entitlements – the broad market will begin to recognize what they should have a long time ago and wait until the last minute to price it in. When you combine this with the eventual Fed taper(early to mid 2014 – ballpark) and end to easy money, we’re right on the cusp of a brand new market paradigm.

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