Stocks Rally on Mushy ‘Fiscal Cliff’ Rumors
Is that it? A mini-deal or no deal at all?
How desperate is the market for a deal, any deal on the "fiscal cliff"? Futures rallied nearly 7 points when word leaked out (via The Wall Street Journal) that the White House was in discussions on a plan to replace the sweeping spending cuts required by sequestration with a smaller package of spending cuts that would cut spending by roughly $100 billion next year and then for an additional eight years. The actual sequestration would involve much bigger cuts. No cuts in Medicare or Medicaid. No overhaul of the tax code. At least not into mid-2013.
Why the rally on such a mushy deal? Remember, the White House's big worry is on spending cuts. If they can get some agreement, no matter how small, on spending cuts, it will be easier to make a deal on tax hikes for the wealthy.
Traders are in a very difficult position. Trading around the so-called fiscal cliff "is like asking what the weather will be like in March, 2103 ... we just don't know," one fed-up trader said to me. (Read More: Are Investors Actually Taking the 'Fiscal Cliff' Too Lightly?)
If there is no deal on the fiscal cliff, stocks will drop further. But the threat of a sudden deal, even a mushy deal like the one leaked this morning, may move stocks in the opposite direction.
So where to go? It's dangerous to go to cash, then have a weekend where the president announces a deal. It seems like you have to be reactive, not proactive: If market opens up 200 points on Monday, you might want to sell; if market opens down 200 points, you might want to buy; or buy some very complex options.
Long-term, the fundamental problem remains: You can't have austerity, tax increases, and economic growth at the same time.
"The markets need their 10 minutes of laughing gas before it folds," one trader said to me this morning.
In other words, the "Grand Bargain" is still a long way off. Any deal is better than no deal.
1) Office Max up big pre-open, and not because they announced they would offer special web deals Thanksgiving Day. Boise Cascade filed for a $200 million IPO yesterday after the close. Office Max had about $110 million in Series A equity units that should be paid out to Office Max, and Office Max should also receive a cash dividend ... it could be worth north of $130 million to Office Max, according to some.
—By CNBC's Bob Pisani
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