Monday Morning Musings

The market is lower in early trade after reaching 5-year highs last week.  Some of the selling is probably profit taking amid lackluster overseas trading as well as lingering concerns about debt ceiling debates, fiscal cliff issues, and upcoming earnings season.

Over the weekend, the CBO said that the fiscal cliff will add bout $600 billion to deficits in future years due to increased debt servicing costs.  It's hard to see how this won't lead to higher interest rates and slower growth in the future.  As for the fiscal cliff negotiations, Senator McConnell said in an interview that "the tax issue is finished" and spending needs to be addressed next.

Financials got a brief boost this morning after global regulators announced that Basel III rules will not be as stringent as originally proposed.

Asian markets were mixed overnight. Japan finished -0.8% lower despite the new PM saying  that his govt's top priority will be to pull the country out of its economic malaise.  China was up 0.4%.

European markets are also modestly lower.  Germany's Minister of the Economy said he expects robust growth in 2013.  This view is at odds with the head of the Bundesbank who said he expects lackluster growth in 2013.

In other commentary, the London Bullion Association said that they think the bull market in gold is over.  For reference point, gold is trading near $1650 currently.  With all of the money printing going on around the globe, it would seem gold has another leg higher in it.  But time will tell.

The 10-year yield is down a bit to 1.89% after briefly topping 1.95% on Friday. 

And the VIX is up 2.5% back above the 14 level to 14.15. I said recently that I thought the 15 level would act as a floor, but we have already moved below that level.

Trading comment: For all the talk in the media about "5-yr highs", the S&P 500 needs to surpass 1475 to get above levels it reached in September.  And the Nasdaq needs to get to 3197, which is still a ways away from current levels of 3090.  So some of this enthusiasm seems premature.  I'm not saying we won't get there, but I think the market is likely to see some consolidation first.  The market had a big first week of trading for 2013, and is currently short-term overbought.  So it would not be surprising to see some pullbacks and consolidation before making another attempt at higher levels.  Of course, the SPX needs to get all the way back to 1576 to reach its all-time high from 2007.  Some strategists think we could see that level bested later this year.