Walter Molano, Guest Columnist
In the same way as Solor's hallucinogenic reverie reverts to a string of graceful shades descending from the Himalayas in La Bayadare, the market is being choreographed into a striking tableau to end a very challenging year.
One by one, the pieces are falling into place, as if directed by an unseen conductor.
To begin with, there seems to be a resolution to the mess in Europe. Mario Draghi's Outright Monetary Transactions Programme (OMT) is showing positive results, with fund managers reallocating capital to Europe.
Under the OMT, the ECB is committed to support countries that appeal for help, regardless of tenor or yield, at an equal level of seniority as bondholders. In other words, the ECB will not subordinate private bondholders, as was in the case of the Greek restructuring.
This encourages investors to take advantage of the attractive sovereign yields, without having to endure the ignominy of having to bear a disproportionate burden during a possible debt restructuring.
Under the new edict, the powers of the rating agencies were totally emasculated.
The ECB said that in the future, it will ignore the credit rating downgrades for countries that are in a rescue programme, hence preventing banks from being obligated to secure more collateral to provision against sovereign positions.
This nefarious feature of the credit-rating system produced a vicious cycle by forcing banks to either dump sovereign positions, thus pushing bond yields higher, or making them scramble for more collateral and squeezing domestic credit conditions, thus exacerbating the economic downturn.
Drifting into obscurity
Stripped of their powers to lay mayhem over the financial system, the credit-rating agencies are being allowed to drift into obscurity.
Yet, the nimble entrance of OMT was not the only development that changed the mood. In a steady progression of arrivals, the stage is filling with an array of positive announcements that are dazzling investors' eyes.
Last week, Germany's Federal Constitutional Court ruled that the government could participate in the US$640-billion ESM programme as long as the participation was capped at the previously agreed contribution limit of US$243 billion.
The German supreme court ruling removed an important obstacle that impeded investors from taking risk in Europe.
A decision by the German judiciary to prevent the government from participating in the ESM programme would have been a terrible blow for the future of the common currency.
Likewise, on the other side of the Atlantic, the Fed's decision to embark on its third of phase of quantitative easing pushed the market into delirium.
US Federal Reserve chairman Ben Bernanke's announcement that it would pump an additional US$40 billion into the US economy each month through mortgage bond buybacks, until the employment situation improved, was enough to send the market soaring.
Although most analysts are calling the new measure QE3, it should be called QEX because of the indefinite nature of the monetary easing.
The announcement of QEX removed the last two clouds that were hanging over the scene. The first cloud was the effects of the Chinese economic slowdown. China is on the ropes, and the outlook appears to get worse each day.
However, the new phase of monetary expansion in the US pushes down the value of the dollar - and along with it the valuation of the RMB. This gives the Chinese economy an important boost.
The monetary easing also breathes new life into the commodity markets, which were suffering from the slowdown in China. As a store of value, in the face of greater inflationary risks, commodities rebounded at the end of last week, and it will have a favorable impact on most of the emerging world.
Bernanke's move also seals the fate of the US elections - the second of the dark clouds.
The handwriting was already on the wall, as President Obama pulled ahead in most of the so-called swing states.
The rescue of the auto sector may have been ideologically controversial, but it was pure political genius - given that many of the factories are located in those politically sensitive states.
Now, the new monetary stimulus will surely propel the US economy, thus allowing President Obama to secure a second term in office.
It's not so much that he deserves another term. He turned out to be just another politician, full of empty promises; but a Republican executive combined with a radically charged Republican congress could have concocted a poisonous antidote to the looming fiscal cliff.
The gaffe-prone Republican candidate Mitt Romney brought on many of his woes, including declaring open warfare of the Federal Reserve. Therefore, it was not so surprising to see how the US monetary authorities acted at such a politically delicate moment.
Like dancing lights pirouetting across the stage, the stars are aligned for a rally in risk assets and a spectacular ending to a horrible year.
Dr Walter T. Molano is a managing partner and the head of research at BCP Securities LLC. email@example.com