Well-known Internet venture capitalist Fred Wilson says that there  is a new Internet bubble. I agree. The argument may be made that this is creating artificial wealth in some sectors. This dot-com bubble has crept on the scene, and now there are strong incentives for its corporate beneficiaries to monetize these fictitious gains. That means exercise their stock options and sell large volumes of stock.

We already have seen how thin and light the volume of this market is, and how little it seems to be supported by real demand and money.  Mutual fund cash levels are depleted and have seen 30 straight weeks of outflows totaling $91 billion. Commercials on the SPX are loaded to bear with short positions. Puts in the Spoos are also very cheap right now.  The VIX volatility index is near the low of April, back before the so-called “flash crash.”

In addition,  Strategas details the ramifications if tax policy is delayed,  pointing to Dec. 15 as the date when stock options are exercised.  They suggest that players will need to act to preempt cloudiness on the capital gain tax going to 15 to 20% if the Bush tax cuts are in limbo.

There is also an additional incentive to just flat out unload bubble-priced shares.  Confirming this tendency is the fact that insider selling has already been huge. That leaves a narrow window to both dump overpriced shares and to guarantee the 15% tax rate is used before it expires at year end.

The President’s Council of Economic Advisors put out a report showing the effects of allowing the unemployment insurance extensions to expire. If this gets caught up in Kabuki Theater politics, the effect will be profound as shown on the White House’s chart.  Without the extension, 2.5 million lose benefits immediately. Since this program has not yet been extended, this is the situation as is stands today.   By spring, the number of people losing benefits will surge dramatically to 8 million.  Even if this is extended soon, 2 million will exhaust extended benefits (EB), tier 3 and 4, by April anyway.

Incidentally not all states are eligible for 99 weeks of unemployment benefits. It is dependent upon overall employment levels (shown here). For instance, New York, with  8.3% UE, would have 86 weeks. Only states with over 8.5% (less than half) would have 99 weeks eligibility. There is actually a disincentive for states to fall below various tier thresholds like 8.5% or 8.0%.

In conclusion, one element that is not being considered is that Democrats can filibuster and vote no. Many in that party aren’t taking this lightly. Politico writes, ”Schumer suggested the party could benefit politically by pinning the blame on the GOP and allowing the tax cuts to expire.”  This environment doesn’t seems conducive to creating a grand compromise, and instead favors ungovernability.

Case in point: On Saturday, the Dems put forth a compromise to extend cuts for those making less than $1 million (Schumer proposal), but even that was shot down unanimously by Republicans. As time runs out on this Kabuki Theater brinksmanship, it looks like the conventional wisdom is that a last-minute, status-quo compromise of Bush tax cut extensions, combined with keeping the unemployment extension going, is forthcoming. If not, we have another extremely high asymmetric risk situation.

This post originally appeared at The Wall Street Examiner. Copyright 2014.