Credit specialist and Asia Times writer David Goldman offers his interpretation of the market’s weird reaction to the tax deal:
1) A $50 drop in the gold price from the early Tuesday morning peak suggests that the market does NOT believe that Fed Chairman Bernanke will have unlimited ability to print money without running into global resistance;
2) A rise in bond yields suggests that the additional deficit spending implied by the tax cuts will encounter market resistance to a financing requirement well north of 10% of GDP; and
3) Range-bound stock prices suggest that the tax cuts will keep the economy out of double-dip territory but not propel it towards faster growth.
We’re not quite convinced, and it seems like he’s straining. Another possibility is that
1) The drop in gold was due to a belief that now less Fed easing is needed.
2) The rise in bond yields is based on expectations of more growth (and thus a pickup in inflation).
3) Stocks are range bound? They’ve still done nothing but go up
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