It’s been a busy week in the world of finance. As you have no doubt heard, no thanks is due to the Congressional ‘super-committee’ in their failure to agree on cuts to the nation’s swelling deficit. Fitch, the last of the big three credit-rating agencies lowered the US credit outlook to negative making the probability of a downgrade from AAA greater than 50%. Retailers and investors popped Champaign corks on the news of Black Friday’s $11.4 billion record sales. US unemployment fell to 8.6% on the strength of 278,000 new hires and 315,000 Americans leaving the workforce. Manufacturing, housing, and construction data show improvement while American and European political leaders do not. 

Global investors and credit rating agencies alike are closely watching dramas on two world stages. The first is playing a very small stage with no audience and a limited run. The final curtain call for the Congressional Super-committee to reach their plan for cutting $1.2 Trillion from the federal deficit is just four days away, if you count the 48 hours required by the Congressional Budget Office to score it. The actors are evenly divided between protagonists and antagonists (depending upon your political point of view of course) working from the same economic script. In stark contrast, the second stage spans an area roughly the size of the southern and eastern United States, the actors are all protagonists, but in this drama each actor must work both from his own economic script while crafting a common script to save their European Union, their banking system, and their respective economies. 

The Federal Reserve Open Market Committee met this week and held to the major tenets of its monetary policy. Rates will remain unchanged at near zero; Operation Twist will continue to extend purchases of longer-term Treasuries; language that rates will remain exceptionally low through mid-2013; and principal payments from its holdings of agency debt will be reinvested in agency mortgage-backed securities. The Committee anticipates “a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually.” The statement also said that the FOMC “anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate (inflation and employment) as the effects of past energy and other commodity price increases dissipate further.” 

Global equity markets popped yesterday, intensifying their October rally to 15% for the MSCI US Broad Market Index and 21% for the FTSE All World Index (ex-US). The enthusiasm was sparked by two events that equity investors broadly took as good news. European Union leaders agreed on a deal to theoretically end the two-year financial crisis with Greece at its center. And in the US, Gross Domestic Product grew in the third quarter 2.5%, more than was expected and following a 1.3% rate in the second quarter. But while conditions may be improving ever so slightly, the disease remains without serious work for cure.