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Other Things to Think About Besides the Fiscal Cliff

Posted By Barry Ritholtz On November 20, 2012 @ 7:18 am In Earnings,Markets,Psychology,Really, really bad calls | Comments Disabled

So the non stop Fiscal Cliff [1] 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 [2], the fiscal cliff is more of a slippery slope than an actual abrupt cliff. And second, I detest single variable analysis [3] when it comes to market action.

As we discussed last night [4], 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 [3]  (May 4th, 2005)

Fiscal Cliff or Slippery Slope? [2] (November 19, 2012)

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URL to article: http://www.ritholtz.com/blog/2012/11/other-things-to-think-about-besides-the-fiscal-cliff/

URLs in this post:

[1] Fiscal Cliff: https://www.google.com/search?q=Fiscal+Cliff&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a&channel=fflb#q=Fiscal+Cliff&hl=en&client=firefox-a&hs=2n8&tbo=d&rls=org.mozilla:en-US:official&channel=fflb&source=lnms&tbm=nws&sa=X&ei=tXWrUKTvKLG80QHu4oHIDQ&ved=0CAoQ_AUoAA&bav=on.2,or.r_gc.r_pw.r_cp.r_qf.&fp=657b0a401829e54e&bpcl=38625945&biw=917&bih=689

[2] David Kotok explained: http://www.ritholtz.com/blog/2012/11/fiscal-cliff-or-slippery-slope/

[3] single variable analysis: http://www.ritholtz.com/blog/2005/05/single-vs-multiple-variable-analysis-in-market-forecasts/

[4] last night: http://www.ritholtz.com/blog/2012/11/fiscal-cliff-try-mis-positioned-investments/

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