Don’t Buy the Fiscal Cliff Hype Quite Yet

by Ed Elfenbein | December 29, 2012 11:30 am

I haven’t said much about the vastly over-hyped Fiscal Cliff story because I thought this was a distraction for investors. I still believe that today. The American people have just gone through a long election campaign, and I don’t believe they have much patience for a drawn-out battle over taxes.

I haven’t addressed this phony issue in detail because I think it’s much ado about nothing. Or rather, it’s a great deal of bluster and posturing about nothing. The latest ruckus merely means that we might to have to wait until January for a compromise. Big deal.

Let’s be clear about the facts—there’s no point of no return. None at all. It’s really more of a fiscal slope than a cliff. Waiting a few days into January isn’t going to push us into a recession, a fact which ought to put to rest the silly notion of a Fiscal Cliff. And I won’t even go into those absurd countdown clocks on CNBC. I suspect that Fiscal Cliff worries are harming consumer confidence somewhat, but that’s about it. Ideally, I wish we had a better-functioning political system that avoided such theatrics, but unfortunately we don’t.

As I mentioned before, the latest news is that House Speaker John Boehner will convene the House of Representatives for a special session this Sunday. Just that announcement caused the S&P 500 to leap 15 points in a single hour late Thursday. That should tell you that the market wants this nonsense resolved. I should caution investors to expect, before this mess ends, one or two days with sharp drop-offs (but no more than 2%) as the political players try to sway the markets to their side. We all know how the market loves to be the drama queen.

Events have gotten so bizarre that the markets actually rallied when Senator Scott Brown posted on his Facebook account that the White House was proposing a last-minute offer[1]. The markets then dropped after journalist John Harwood tweeted[2] that the White House was denying Brown’s Facebook (NASDAQ:FB[3]) post. Our political system has been reduced to communicating via tweets and Facebook?

This is just too silly to comprehend. I’m hardly an expert on political matters, but I think President Obama will ultimately be able to get most of what he wants. There’s too much to lose if this drama drags on.

Endnotes:
  1. proposing a last-minute offer: http://www.huffingtonpost.com/2012/12/27/scott-brown-fiscal-cliff_n_2371691.html
  2. tweeted: https://twitter.com/JohnJHarwood/status/284362723465248768
  3. FB: http://studio-5.financialcontent.com/investplace/quote?Symbol=FB

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