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.

But that's tomorrow. For now, Germany will cut the check to Greece so that they can pay German banks and exporters. Spain will, of course, happily resist any condition to OMT application for as long as the market does not push their debt yield over the pain threshold, as happened Friday. What crisis?

China Has Already Soft-landed, Really

Since I said in Time To Buy China, a few weeks ago, and then more recently in Big Changes are Coming to China, it is time to put money back into China. Signs of Chinese economic recovery and smart money returning to China continue to emerge.

Deutsche Bank is predicting faster growth, as reported by The Australian. Goldman Sachs China goes one step further and says outright that China has already soft-landed, windin.com, a financial news/weibo (Chinese tweet) web site.

It is also reassuring that the new leadership in Beijing appears not to be resorting to quick and easy fix of monetary stimulus, as the infamous four-trillion-yuan panic stimulus injected by the out-going Hu-Wen leadership, which has been mediocre in many ways and disastrous in others, in early 2009. Instead, they seem to focus more on gradual policy changes and deeper, structural reforms. The new outlook on China will no doubt change the outlook on world economy, at least for awhile.

Have no illusion. Problems and challenges facing China remain enormous. The stock market will remain scandal-laden for years to come. But shorting China, in light of the new background, has become much riskier.

Bullish week ahead

I don't want to read too much into last Friday's rally since the volume was very low, as expected. But the whole last week consistently showed signs of rebounding from the bottom of previous week. More reasons have emerged for this bullish trend to continue a bit more. Sector-wise, consumer product technology should benefit from the holiday sales, for example, Apple ( AAPL) and Amazon ( AMZN). Home building supplier and auto should have been benefiting from Sandy recovery efforts, for example, Home Depot ( HD), Ford ( F), GM ( GM). News 12 reported that car dealerships in Long Island are reporting 30% or more surge in sales post-Sandy, and predicting shortage of used car inventory ahead (hundreds of thousands of cars in the tri-state areas have been totaled).

Gold ( GLD) has been strongly correlated to the stock market since QE3 (with the notable exception of Nov. 6 to Nov. 8). In addition, gold should have the added boost from perceived improvements in eurozone and China, therefore better risk/reward prospect than stocks. It may re-test the $1,800 resistance this week and, if passed, the $1,900 all-time high.

Until the highly anticipated zombie apocalypse on Dec. 21, of course.

At the time of publication the author is long GLD.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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