Let me set the scene for you:
* There is a Debt Deal in the works that removes the ceiling and related draconian cuts from the discussion til at least February. Out of sight, out of mind.
* There is no election this fall.
* There is no war with Syria and high level talks are happening with Iran for the first time in decades.
* The incoming Fed Chairperson is the most dovish in the institution’s 100 year history. There will be no taper talk whatsoever so long as employment data remains muted. At least not this quarter and probably not until the spring barring a huge tsunami of good economic news.
* Stock markets around the world are selling at fair to absurdly cheap valuations.
* The banks are as highly capitalized as they have ever been.
* Home prices are back to long-term trend and appreciation continues despite recent mortgage slowdown – normalization being the operative word.
* US households reclaimed the 2007 peak in total net worth and have now surpassed it.
* Small and mid cap stocks are at all-time highs and yet still under-owned by the largest pools of capital in the US – pensions, endowments and insurance companies.
* Going back 110 years, when the Dow has been up in the first half, it’s finished the year strong with gains in the back half 70% of the time.
* Hedge funds are at their highest net short positions since January and have massively trailed every equity benchmark you can think of.
Thats the set-up going into year-end.
What happens from here? My guess would be that we have all the rocket fuel we need for an explosion.