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  Posted on: Thursday, October 10, 2013
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Rally Based On Wishful Thinking

   
 
Recent Market Commentary:
10/10/13   Rally Based On Wishful Thinking
10/3/13   The Shutdown And Debt Ceiling Are Not The Only Worries
9/26/13   Why The Market Is Significantly Overvalued
9/19/13   The Fed's Decision Reflects Its Great Concern About The Economy
9/12/13   Stocks Are Vulnerable To a Severe Decline
9/5/13   Quantitative Easing and Earnings Are No Longer Supporting The Market
8/29/13   No Comment This Week
8/22/13   The Market Outlook Has Taken A Turn For The Worse
8/15/13   The Stock Market Trend Is Turning Down
8/8/13   Economic Recovery Suffering From Lack Of Demand
8/1/13   Economic Growth Momentum Is Fading
7/25/13   There's No Catalyst For A Self-Sustaining Economic Recovery
7/18/13   The FOMC's 2013 GDP Forecast Is Already Obsolete----On The High Side
7/11/13   The FOMC's Muddled Views
7/3/13   Happy July 4th Weekend
6/27/13   Market Facing Severe Headwinds
6/20/13   Bernanke Fails To Allay Market Fears
6/13/13   The Economy Is Too Weak To Reduce QE
6/6/13   The Stock Market Is Topping Out
5/30/13   The Fed Is Now In A Lose-Lose Situation

 
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As we write, it has been reported that President Obama has rejected the GOP proposal for a 6-week debt limit extension if it does not also re-open the government.  The House could vote on the Republican proposal by Friday, although it is far from clear that it would pass.  It not only faces substantial Tea Party opposition, but Democrats would not vote for the plan as well since it does not end the government shutdown.  However, more negotiations are set, and the situation is fluid.  Circumstances may change by the time you read this comment.  However, even if a 6-week extension is finally agreed to by both sides, there is little reason to think that a deal can be worked out in the next six weeks, and it is likely that another crisis will follow.

Today’s strong market rally seems to us to be based on false hope and wishful thinking.  After years of sharp disagreement, it appears highly improbable that a deal can be worked out under the pressure of six-week timeframe.  If anything, the two parties seem further apart than they were a year ago when neither the budget super committee nor various congressional working groups were able to hammer out an agreement.  The result was the sequester that still continues to put a damper on economic growth.  The stock market and the economy, therefore, will probably continue to be under pressure for some time to come.   

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