Monday, October 14, 2013

Monday Morning Musings

Markets are lower this morning as Friday's optimism fades.  The President rejected the debt ceiling proposals made by Senate Republicans on Friday.  Lawmakers currently remain divided on making a deal to reopen the govt.  And the debt ceiling limit hits Thursday, so hopefully we won't go down to the wire (or past it).

We can't tell what the bond market's reaction is as it is closed for Columbus Day.  But there does seem to be a bit of a flight to safety into gold.  Gold prices are higher near $1283.

Asian markets were mixed overnight with Hong Kong and Japan's markets closed for holidays.  China gained 0.4% despite some disappointing data in the form of exports which fell -0.3% for the first time in 3 months and inflation that rose more than expected.  Separately, Singapore GDP rose 5.1% yr/yr.

Europe's markets are also mixed.  Eurozone industrial production rose 1.0%.

Oil prices are a bit weaker today to $101.35.

As for the VIX, it is moving higher as traders worry over increased volatility as the debt ceiling deadline looms.  The VIX had been moving lower last Thurs. and Fri., but today it is 12% higher back above 17.50.

Trading comment: While we find it hard to believe that Congress would actually go off the debt ceiling cliff, anything is possible.  Our base case scenario still assumes a last minute deal will be reached, even it if is just kicking the can down the road.  As such, we remain better buyers on weakness.  That said, we are getting into the heart of earnings season where potholes remain.  So we want to stick with names that recently reported strong quarters, are exhibiting good relative strength, and have a history of steady earnings growth and not missing estimates.


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