NEW YORK (Real Money) -- Think back six months ago. When Republicans and Democrats put off the debt-ceiling deadline to February, tell me you didn't think that all Congress had done was delay another Armageddon. As recently as last week, I was asked by no less than David Gregory from Meet the Press about whether we weren't all too glib in thinking, "potential stalemate."
To me, that was a sign that there could be another bruiser ahead. Which made yesterday's decision all that more amazing. The Republican leadership has indeed reined in the Tea Party, and that's a very big deal. For all I know, the repeal of the sequester could be next. This lack of a stalemate or a battle is huge, because now we all know that the last partisan clash was a tremendous debacle for the economy. Just horrendous. So you take that off the table.
Meanwhile, the more I talked to small-business people -- and I talk to them a lot because of my other ventures -- the more I heard about the uncertainty of what they must provide under Obamacare. This, once again, like the rest of Washington, froze people. Who wants to expand knowing there are 20,000 new Internal Revenue Service auditors out there waiting to jam you? If you are a small or solo proprietor, right now you are thinking of simply paying the penalty, because there's a good chance your current plan doesn't meet the standards.
There is real chaos out there. This notion of postponing the law's implementation until after the election could be tantamount to scrapping it, given that there will be a new president. This is, too, huge for the economy, as it would be a tremendous impediment to business.
Finally, I didn't realize it -- because interest rates on Treasuries have been going down, not up -- but there were plenty of people who wanted to see what new Fed chief Janet Yellen was made of before they jumped back into the industrial stocks. They seemed to be glad that this Big Bad Event was over. Plus, you heard her say how data-dependent she would be. I took that to mean that the current data, so corrupted by the weather, would cause her to be thoughtful about how strong the economy really is.
In addition, we have to ask ourselves: How high can U.S. rates really go when the third-biggest bond market in the world, the Italian bond market, has a 10-year bond that yields at 3.66%? Oh, don't forget that the U.S. needs rates to have a little juice in them in order for us to see banks maintain positive net interest margins. The decline in 10-year U.S. bonds, and rally in yields to 2.75%, is actually welcome for the banks, which have struggled of late.
All of these, together, combined to take up all stocks, from the ones that are doing well to the ones that are doing badly. Also, in many ways, you know the market has become technically driven, and the technicals had been all bad coming into Monday for so many stocks. That meant many market players were out of position and, perhaps most important, short positions had once again been built.
The prevailing view, I think, had switched from belief that 2013 would be good to belief that a 10% correction would have to occur. Also, the market was at its most oversold level in ages -- so oversold that the last time we saw these levels, the market bounced and bounced hard. So, given all this, it was natural to presume that stocks could bounce hard again. That, in turn, caused those who had shorted the market on the technicals, or on the weak employment number, to reverse course.
All of these issues contributed to a willingness to overlook a bunch of negative earnings reports and warnings, and a desire to take the market higher.
Now what happens? I think that we have to keep an eye on China. That's been the weak link. The Baltic Dry Index is trying to bottom. The Chinese stock market is trying to bottom. The economy in China had a surprisingly good number last night.
That's a lot of good in 24 hours' time -- and I say 24 hours' time because, frankly, Monday was a real bad up day, one that left many stocks behind.
So, the history of rallying big after a huge day like yesterday has not been all that compelling. But the history of big declines after hasn't panned out either.
We, like Yellen, are data-dependent.
Let's see what China holds now that the Lunar New Year is behind us and the country is back to work.
Funny, I am trying to buy bags for my new restaurant, Bar San Miguel in Brooklyn, and I am dealing with the Chinese mill my father works for. I have to tell you, when I say business shuts down there for the New Year, I mean it really shuts down. They don't even pick up the phone. So it's a real off-line, on-line. If that Baltic Dry Index picks up, we are going to have some more very good days.
Editor's Note: This article was originally published at 7:39 a.m.. EST on Real Money on Feb. 12.