Probably the best commentary I've seen today on the market reaction to the debt ceiling deal comes from Cullen Roche at Pragmatic Capitalist:
Few things have been more confusing to traders in the last few weeks than the action in the bond market. With the USA on the verge of a near default and QE2 now over, there are few investors who would have thought that bonds would be an outperforming asset class. Even bond market “gurus” said: “Who will buy Treasuries when the Fed doesn’t?”
...The bond market was never worried about US default or the end of QE2 because that’s not what the bond market takes its cues from. The bond takes its cues from the Fed. And the Fed takes its cues from the economy. The simple message coming from the debt ceiling debacle has not been one of insolvency. Only the media and the fearmongerers were focused on an actual insolvency. The real story here was always the impact of the debt ceiling outcome on the real economy. And the bond market’s message has been loud and clear. Bond traders think this deal stinks for the economy and what they see is an anemic economy. It’s that simple.
That's right. The economic outlook was seriously bleak before the debt ceiling deal. It's even worse now.
And for some reason, no one in Washington seems willing to cut taxes to stimulate the economy. I understand why more spending is off the table. But why isn't anyone talking about cutting taxes?
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