So the non stop Fiscal Cliff paranoia continues unabated. Apparently, it is the ONLY THING that matters to the markets. Every twist and turn in the negotiations is crucial to the future of the Republic.

I don’t buy it. First off, as David Kotok explained, the fiscal cliff is more of a slippery slope than an actual abrupt cliff. And second, I detest single variable analysis when it comes to market action.

As we discussed last night, it behooves investors to consider what else is driving equity markets. I can think of at least five factors:

1) Earnings are the weakest in 3 years

2) Portfolios have been poorly positioned for higher Capital Gains and Dividend taxes

3) Europe crisis unresolved, and getting worse

4) The 17% rally in first 3 quarters had markets ahead of themselves

5) The decreasing impact of Federal Reserve QE.

The fiscal cliff amounts to about $600 billion in friction spread out over the course of 12 months. Fair estimates are that it will cost about 0.50% off of GDP, now estimated to be about 2.0% for the calendar year 2013.

I submit that these other factors weigh at least as much, if not more, in the markets current action.




Single vs. Multiple Variable Analysis in Market Forecasts  (May 4th, 2005)

Fiscal Cliff or Slippery Slope? (November 19, 2012)

Category: Earnings, Markets, Psychology, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

20 Responses to “Other Things to Think About Besides the Fiscal Cliff”

  1. albnyc says:

    Only if you are paying attention, BR. Alas, itchy mental trigger fingers seem to be the rule.

  2. [...] Things to worry about besides the fiscal cliff.  (Big Picture) [...]

  3. denim says:

    It’s not like they bulldoze a company when its stock goes down. Isn’t it more like Keynes’ beauty contest where I pick the one that I think others will find beautiful later? A good night’s sleep, a hot breakfast, and a little makeup on them, and the bulls will run again.

  4. [...] Other things to think about besides the fiscal cliff (TBP) [...]

  5. ironman says:

    There’s far more to the current situation than the so-called “fiscal cliff” – recessionary forces have been at work for many months now, if not years if you’re willing to take a certain long-lead correlation into account (note that the driving data precedes the August 2011 debt deal that created the “fiscal cliff”….)

  6. SomewhatRandom says:

    The window-dressing is never the story. The story is this: ZIRP has created a surplus of cash, but lending has not risen apace: so that cash is hunting for something to buy. Stocks (all stocks) are the bubble fueled by ZIRP.

    Similarly, what little good ZIRP has done has been to trickle money into the hands of speculators and investors – who are also buying stocks.

    All the stock markets that domestic US traders are in, are the biggest bubble ever. And, as soon as cracks appear in the facade, the exit will be ferocious. Cracks include earnings (“what I own isn’t worth what I paid”), Dodd-Frank (“What do you mean I can’t speculate with other people’s money”) and scary-big-words like “recession” and “austerity”.

  7. streeteye says:

    I think the market is little bit like a project where for each decision you make, you have to solve an optimization problem where one factor ends up being critical – cost, quality, time … rarely are all the factors equal or even all critical to the decision.

  8. Jim67545 says:

    Watched “Dust Bowl” on PBS. (Interesting) One commenter observed about farmers that when crop prices are high they try to produce as much as they can (by planting marginal acreage) and when prices are low they try to produce as much as they can (to maintain their income.)

    I was struck by this in the context of the increasing of taxes on the $250k+ earners. The common meme is that this will discourage them from investing and result in a weaker economy, job losses, etc. But, as with the farmers whose crop prices have dropped (poorer net return to them for their labor), might it not encourage the $250k+ to work harder and invest more, etc. so as to restore their after tax income?

  9. CANDollar says:

    Here in Canada we are being adversely effected by whats happening in CHINA.

    I would add MID EAST tensions as well to the list

  10. VennData says:

    Aren’t the “Rise Above” CEOs the same guys who have a trillion or so in cash tucked away in foreign accounts that got very light tax treatment in Ireland and demand that Obama let them keep it, and have for years?

    You want to “Rise Above?” Start the process. bring your money home at the current rate., NOW. and

  11. VennData says:

    ….and SHOW us you really believe.

  12. ellsworth says:

    What happened to our rally? Bueller…Bueller…?

    VIX back around 15 without showing any real fear/capitulation. So far, no follow-through on yesterday’s rally that if it ends here, would lead to another lower high.

    Doesn’t sound like a bottom. Doesn’t look like a bottom. Must not be a bottom. I say we are somewhere between Anxiety and Denial on the investor cycle.

  13. Greg0658 says:

    denim and SomeWtRdm your 2 comments .. I’m in both camps .. d I thought thats a great phone line .. and yet agree with the ZIRP sugar .. digesting that – are the big banks going to take 3 of the 4 Estates in the long run .. religion & bloggers are out – unless dividends, timed sales – and most important* a living wage job with real pension & HC benefits preserved

    fyi – 1A-manufactures 1B-bankers 2-religion 3-senate 4-media 5-bloggers

    submitting soon – can’t without a touch of old growth extraction into where | to make the kids wealthier via those *
    interesting times of duoBlackHole OpSys .. and whats a stake at that fiscal cliff .. its not a cliff its a big drain hourglass of time passages (great song)

    Al Stewart – Time Passages

  14. 4whatitsworth says:

    It seems like 1-5 are symptoms of the disease. Now the question is how do you treat a culture that has found it so easy to avoid hard decisions and be rewarded for not working or creating value. One could also ask is this even curable or do we just need to live with it?

  15. 2) Portfolios have been poorly positioned for higher Capital Gains and Dividend taxes

    Our internal indicators suggest that tactical tax selling is what caused the recent down trend. It doesn’t appear that too many people have made big strategic portfolio allocations for a bear market. However, the bounce yesterday showed a few signs of that. Maybe money managers are finally starting to look past the fiscal cliff.

  16. louis says:

    All the red x ads on the Internet suck.

  17. Pantmaker says:

    Oh yeah and the US is now in a recession that most likely started last quarter.

  18. Bond Dad says:

    1.) We’re entering the last month of the year when trading desks are half full and people are taking more time off.

    2.) The Middle East is a powder keg. Even if we get a resolution to the current Israeli/Palestinian conflict, there is Iran.

    3.) Japan is in the middle of another recession.

    4.) China’s economy is re-balancing, leading to slower growth.

    5.) Australia’s economy, which is heavily resource dependent, will start to experience a slowdown in the next 12-18 months as projected capital projects come to fruition and no other source of growth is in the wings.

    6.) The US is still stuck in the 0%-2% growth range.

    7.) Long-term unemployment is still a big problem

    8.) State and local governments are still implementing their own version of austerity on the US economy.

    9.) The South Korean Economy is slowing down

    10.) Brazil is experiencing slow growth.

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