Histrionics of US Politics: Markets in Buying Orgy on Hopes of Debt Ceiling Deal

US stocks went into a frenzied jubilation today on hopes of a deal by the US congress and President Obama on the debt ceiling-shutdown-Obamacare impasse.

From Bloomberg:

U.S. stocks jumped, with benchmark indexes rallying the most since January, as lawmakers moved toward an agreement to increase the debt ceiling and avoid a default….

Investors reacted to a House Republican proposal for a short-term increase in the debt ceiling that would reduce the prospects for a U.S. default. The plan would push the lapse of U.S. borrowing authority to Nov. 22 from Oct. 17. It wouldn’t end the 10-day-old partial shutdown of the federal government.

President Barack Obama would support a short increase in the U.S. debt limit with no “partisan strings attached,” though he prefers a longer extension, Jay Carney, the White House press secretary, said today. The proposal could come up for a vote on the House floor as soon as tomorrow.

U.S. Treasury Secretary Jacob J. Lew warned Congress today that “uncertainty” over the debt limit is starting to stress financial markets and trying to time an increase to the last minute “could be very dangerous.”

Well, this nearly confirms on what I recently wrote on the theatrics of US politics

Yet rising CDS (default risks) will be used as political leverage to justify the call for raising the debt ceiling. (Have the CDS markets been stage managed?)

Americans have been deeply hooked on entitlements. More than 70% of Federal Spending has been due to dependency programs and growing.

This means that despite the hullabaloo in the US Congress, which really is just a vaudeville, as congress people will fear the wrath of losing political power and privileges from entitlement dependent-parasitical voters, eventually the debt ceiling will be raised. (charts from the Heritage Foundation).

Like actions of central banks led by the US Federal Reserve, America’s welfare state will be pushed to the brink of a crisis or will fall into a crisis first, before real reforms will be made.

In the world of politics, cost-benefit tradeoffs has been reduced to short term expediencies.

And the fear of the wrath of the public which means losing political power have become a potent force in the shaping of the supposed deal…the American public has been putting the blame on the GOP (Republicans).

From Gallup:

With the Republican-controlled House of Representatives engaged in a tense, government-shuttering budgetary standoff against a Democratic president and Senate, the Republican Party is now viewed favorably by 28% of Americans, down from 38% in September. This is the lowest favorable rating measured for either party since Gallup began asking this question in 1992.

The Democratic Party also has a public image problem -- although not on the same elephantine scale as that of the Republican Party -- with 43% viewing the Democratic Party favorably, down four percentage points from last month.

Pieces of the jigsaw puzzle falling into its rightful places.

Most of the so-called fear over a UST default  has been felt in the short end of the curve as shown by the 1 month, 6 month and 1 year USTs. Today’s gigantic stock market seem to have only put a dent on the recent spike.

However, the fear has not been evident in the longer end of the curve or when US stocks went up, bonds fell (yields surged) and when US stocks fell, bonds rallied (yields declined) as shown by the 10 year and 30 year USTs

Today’s rally seem to have only rekindled the bond vigilantes.

Notice too that US stocks have become hostaged to politics as measured by the Dow Industrial's recent performance.

The fears from the FED's “Taper” supposedly prompted for a selloff in May-June. This was reversed when Fed officials went into media blitz to cushion on Taper fears. 

The Syrian crisis, speculation over Bernanke's replacement and bond vigilantes remerged to haunt the Dow which plummeted to September lows.

The discounting of the taper, Larry Summer's withdrawal and the surprise FED’s "untaper" sends the Dow to new highs. 

Then the lows from the shutdown-debt ceiling-Obamacare stalemate.

Funny, how stockmarkets have seemingly been transformed into puppets or instruments of governments.