Those concerns could cause people to cover their shorts, betting that the consequences of going over the cliff are unthinkable, as unthinkable as what Saddam would face if he had to go to war with the United States.
Of course, it turns out that there never was a deal back then and we had to go to war and we won and that was it. The market was bottoming right then, 22 years ago, because the decline had compensated for the war already, but we didn't know that at the time. We just knew that whenever there was a resolution the market would be higher so why take any chances.
I think that we will be similarly hopeful that the two sides reach some deal and some shorts who have done so well during this 8% decline will feel like they don't want to lose that terrific gain.
But what if both sides were like Saddam, both believing in the principles of their own conviction to the point that everyone gets hurt?That's what I worry about now. Of course, it is possible that we are already where we were 22 years ago right now, bottoming as we await a violent resolution to the matter. But what seems more likely to be the case is that we are at one of those Friday junctures before we hit bottom, perhaps the one at Dow 2,748 or Dow 2,616, or Dow 2,483, all covering levels that led to a false sense of hope along the way to the bottom at 2,360. We actually don't know yet which level we are at vs, where we will be when this ends -- violently or peacefully -- but 1990 teaches us that you have to respect the hope that springs eternal, or at least on Fridays.