According to Investorguide.com, a Relief Rally is defined as "a sharp upward spike in prices following a period of investor uncertainty." Clearly, this past week was a temporary relief that the Greece tragedy did not explode in Europe -- yet. Plus, there was a rumor that former central banks were secretly increasing their holdings of U.S. Treasuries to take up the slack for the Fed who had been lending the money to our government. This is wholly unconfirmed, except for China who admitted a modest increase to their $900 billion portfolio of U.S. debt.
Whatever it was, the Dow rallied almost 6% or 650 points last week, the best week in two years. It felt good . . . Oh, what a relief it was!
Do I believe the bull has returned? No, but it does show there is a bull market waiting to emerge if it can just get free of the semi-political issues. The politicians have not yet killed the bull, and that too is a relief.
The importance of not defaulting on our national debt cannot be over-emphasized. Theoretically, the "drop-dead" date is August 2nd. However, borrowing costs for the U.S. Treasury will start increasing before that date. Wouldn't you want a little extra yield to be buying a U.S. Treasury bond on August 1st if the debt ceiling is not raised? In fact, those costs are already rising.
Holding the debt ceiling issue hostage to the budget negotiations is like fixing a five-star dinner while walking a greasy tight-rope without a net. It is simply stupid. Nonetheless, that is the decision we've made. While this reward of concluding the budget negotiations sooner is not worth increasing the risk of a credit default by the reserve currency nation, it may allow the bull to return a few months earlier than previously expected.
And, that will be a relief we all deserve!
