The move higher this morning in the S&P futures takes it back to the 50 day moving average of 1416 on hopes that negotiations in DC are proceeding as hoped. We’ll get a deal and stocks will like it temporarily but I repeat my belief that it won’t be a good one in terms of honestly facing the fiscal challenges at the same time tax increases will hurt economic growth as it’s by definition contractionary. To quantify according to the CBO, in 2012 the US Federal Gov’t is expected to spend $3.56T (and similar amount in 2013) which equates to almost $9.8B per day. If the Bush tax cuts on the top 2% expire, about $80B per year will be raised (under the static assumption that all else is equal) thus paying for the Federal Gov’t for about EIGHT DAYS. Without tax hikes in 2012, the revenue into the Federal Gov’t rose by $132b. Economic growth does amazing things. Without market based solutions to healthcare that slows the rate of spending, cosmetic changes to our financial fate is all we’ll get and slower growth too.

In Europe, more signs for now of optimism that the worst is over is evident on the heels of yesterday’s decision by the EU to approve the disbursements of euros to Spanish banks. Yields are lower again in both Spain and Italy after Italy sold 5s and 10s totaling 6B euros, in line with their target amount and at yields about 50 bps below those sold last month. EC economic confidence rose 1.4 pts off the lowest level since July ’09. German unemployment did rise for an 8th straight month but not as much as expected. Italian business confidence is still bouncing along a bottom but did gain .7 pts to a 5 month high. Also, a UK retail sales index rose 3 pts to a 5 month high. Elsewhere, Brazil left rates unchanged as expected and the Shanghai index still can’t get out of its own way, closing down another .5%.

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