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The love of the certain is a hallmark of the trader's psychology, understandably so. Even if news is very bad, one can plan for it and possibly profit from it. If news is good or great, one can take advantage of the circumstance. If you don't know, you can't do.
Today we are experiencing the reaction to the fiscal cliff quasi-resolution that came last night. Gold reacted to the upside just as it did on Monday with the mere promise of resolution. Silver (and platinum and palladium) also reacted positively, and received an extra boost from an expansion of Chinese manufacturing reported today.
In 60 days we will be treated to another Mexican hat dance crisis in Washington, but it will be less affecting than the one just passed for a handful of reasons.
Number 1: no one has the energy to go through such hype again. It would be like having a second Super Bowl the week after the first. Number 2: having the cliff fall plunk in the midst of holidays with half days and whole days off from trading and ad hoc vacation-taking by traders and investors tended to exaggerate the worry rather than diminish it. Number 3: the next step in putting the U.S. fiscal house in order is going to be less emotional for Congress. Raising taxes has become a touchstone of hysteria for Republicans while taxing the rich has become (again) a frantic mantra for the Democrats.
So, for a while we are relieved of the fiscal cliff's specific uncertainty.
We are now free to focus on other fundamentals. Of chief importance for precious traders is news that Europe is still contracting. This is not spanking new info but most of us had probably let it slip off our radar for the holidays and because of the cliff. Well, take another look at the radar screen. Europe is beeping and blinking furiously.
The best thing for the world would be if the United States made a serious, but moderate, move to reduce its debt. The next best thing would be if Europe figured out a way to spread the fiscal pain of its weak members among the more-well-off members. Again, this would have to be a strong, but moderate, maneuver.
Incrementalism is not the favorite modus operandi of the political class. They seem to put off economic decisions until they can't procrastinate any longer then scramble to make up for their own inaction. This is true of everything from mass transit fares to redoing a small town's sewer system. It should be no surprise that on issues regarding scores of trillions of dollars governments are just as shy of acting in a timely, strong yet moderate manner.
Eventually the fares go up or the level of service goes down. either the sewer gets built or the manholes overflow.
Happy New Year to all, once again.
As always, wishing you good trading,
Gary Wagner
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