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Global Risk Is On, For Now

NEW YORK ( TheStreet) -- Market sentiment decidedly turned around last week, globally. Apocalyptic drama around the world is fading but this does not mean the problems are being solved -- far from it. Prospects are beginning to look not nearly as gloomy as the eager black swan hunters made them out to be. Let's count them one by one.

Fiscal Cliff Continues to Ease into Fiscal Slope

As I argued here last week, purely man-made disasters, as fiscal cliff has been made out to be, are unlikely to be so dramatic. Words continue to come out of Washington along the "constructive" line. For example, some prominent GOP figures are openly rebelling against the no-tax-hikes pledge, as reported by ABC News.

Now the ball is in Democrat's court. The end result will involve compromises on both sides, increasing some tax and cutting some spending. We're still far away from that. But the conciliatory overtone is strengthening and encouraging. I suspect anybody poisoning this rare virtuous atmosphere will risk serious political damage.

Greece Will Get Its Rescue Money

I said repeatedly here and elsewhere that PIIGS are the stronger party and Germany the weakling in the eurozone austerity/rescue negotiations. While PIIGS continue pretending to service and cut debt, Germany will continue pretending to be tough and demanding. But the money will be paid.

This is not to trivialize the pain PIIGS people, and at this point especially Greeks and Spaniards, are going through. But the hard truth is that there is no accountability for Germany to rely on unless and until they are ready to leave the euro. Austerity will proceed at a pace allowed by convenience in the peripheral, not as demanded by Germany. So far, so not bad.

The tipping point will come when PIIGS people finally realize they have the upper hand and call off austerity all together, or Germans finally realize any notion of Germany demand is an illusion and call for the new deutschemark, whichever comes first. Either way, the words "the emperor has no clothes" take away the pretence for players to continue the game.

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