Kumbaya?/Nikkei spikes again/Shanghai drops again

In terms of the major issue of the day, that being fiscal, today’s the most important day of the week as finally the President will have a coffee talk with both Republican and Democratic leaders. While both sides are now using the balance word, the rhetoric seems to have only been on the tax side (which solves little) and nothing on the spending side (which is out of control and can solve almost everything). The market is very oversold, sentiment is negative and is thus set up for a short term bounce if it hears any signs of Kumbaya out of the meeting. Elsewhere, just as US stocks loved QE, Japan is getting a taste of the same on the possibility that new leadership could encourage the BoJ to play on a bigger scale. The Nikkei rallied another 2.2%, up 4.2% over the past two days and is at a two week high. With the Japanese people loaded up on yen and JGB’s, Japanese stocks and gold will be their only place of safety in maintaining purchasing power. I say buy both and hedge out yen exposure. As the pace of reform is uncertain with the change of power in China, the Shanghai index fell for the 8th day in the past 10 to just shy of the lowest level since March ’09. Hong Kong’s economy grew 1.3% y/o/y in Q3, below expectations of a rise of 1.7%.

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