Monday Morning Musings: All Policy, All The Time

All policy, all the time. That's how it feels in the markets right now. There is very little moving the market lately from a fundamental standpoint, but very large moves from anything policy related.

Most of the policy decisions have been coming out of Europe with respect to the debt problems facing the region. Today we have more of the same concerns, with Moody's adding some cautious comments about the outlook for France's debt rating.

But the failure of the deficit reduction committee here in the U.S. is also adding an element of uncertainty and disappointment in the markets. Our Congress sure doesn't seem to possess the ability to be able to reach any solutions about our own fiscal problems, and that's not pleasing to investors.

The flight to safety is on, with bond prices rising and pushing the 10-year yield down to 1.95%. The dollar is also higher relative to the euro, which is weighing on commodities. Oil prices are down near $95.75, and even gold prices are lower today to $1702. As for the VIX, it is up another 8% to 34.65, but not above last weeks' highs.

My quote screen is for the most part a sea of red this morning. One of the lone standouts on the upside is VRUS, a former long of ours but one which we sold earlier this year. VRUS is being acquired by GILD for $137, an 85% premium. Congrats if you held any of this.

Trading comment: The S&P 500 has now broken below its 50-day average as the selling pressure intensifies. While we could easily see a bounce this week, volume levels will be very light due to the holiday trading. With the credit indicators still flashing warning signs, I want to remain cautious here and try not to be aggressive. Let the market find some support and build a base from which to launch another trading rally. No need to be a hero, as bases take time to build.

long SH