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

   
 
Recent Market Commentary:
3/13/14   China Can Drag Down The Global Economy
3/6/14   Puny Income Growth Holding Back The Recovery
2/27/14   The Market Is Significantally Overvalued
2/20/14   Looking Beyond The Weather
2/13/14   The Economy Was Sluggish Prior To The Abnormal Weather
2/6/14   A Cyclical Market Downtrend Is Underway
1/30/14   Don't Be Misled By 4th Quarter GDP Growth
1/23/14   The Wake-Up Call From China
1/16/14   The Market Is In Dangerously High Territory
1/9/14   Market Optimism Is Excessive And The Economy Is Still In A Rut
12/27/13   Happy Holidays To All
12/19/13   The Fed Meeting Produced A Mixed Bag Of Contradictory Statements And Forecasts
12/12/13   Been Down So Long It Looks Like Up To Me
12/5/13   Summary--Why We Are Still Bearish
11/21/13   Most Signs Point To A Significant Market Decline Ahead
11/14/13   The Same Old Speculation In A New Guise
11/7/13   Fundamental and Technical Signs Of A Vulnerable Market
10/31/13   Current Conditions Are A Recipe For An Important Market Top
10/24/13   The Comment Today is being replaced with a "special report"
10/17/13   Not Falling Off A Cliff Is No Reason For Optimism

 
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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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