Markets see a cliff deal on the horizon
Volatile reactions to news about the “fiscal cliff” can distract investors, but one reality has emerged since negotiations began in earnest Nov. 16: Markets believe the parties will strike a deal. …
But there is a Wall Street axiom for this type of environment: Don’t let intraday swings distract from the bigger trend. And at the moment, the trend for stocks appears to be up. …
So, after all that whipsaw trading, investors who managed to ignore their news terminals would be able to see that the underlying trend for stocks has been up and would be sitting on some nice gains: The Dow has risen 483.20 points, or 3.9%, in two weeks. Some analysts agree, too: Goldman Sachs Group Inc. and Deutsche Bank this week both issued relatively bullish projections for stocks based on the assumption a deal comes to fruition.
Blowback
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So? Fed policy is propping up the stock market, it is not a sign of anything related to economic reality.
Timin203 on December 2, 2012 at 11:02 AM
Looking at Obama’s proposal, it almost makes you wish that the press had asked Obama what he had planned for his second term, eh?
besser tot als rot on December 2, 2012 at 11:07 AM
I think there will be a deal. I always did. It would just be totally stupid for them to not do anything and let the economy tank.
Also, if you are an investor and are looking for a stock tip, I would recommend the stock CLSN. I really think it will double in the next few months.
SoulGlo on December 2, 2012 at 11:08 AM
@Timin203: I’d say it was propping up the (federal) bond market and actually dragging on the stock market by encouraging investors to minimize risks without suffering major opportunity costs.
Seth Halpern on December 2, 2012 at 11:18 AM
What do they see that we don’t?
BigGator5 on December 2, 2012 at 11:21 AM
They don’t look at it ideologically like we do..a good many of us just want to “let it burn” and get it over with, whereas the markets know these a**hats will just cobble together another temporary scenario and kick the can down the road….again and gain and again until it implodes….
Tim Zank on December 2, 2012 at 11:29 AM
Fixed to reflect reality
UltimateBob on December 2, 2012 at 11:56 AM
I agree. As much as it would be nice to think about letting it happen, not only would it be political suicide, because the tax bills would hit. It would hit everyone.
It may still expire, but I do not think it will. most likely another patch to get us until next year so we can rinse and repeat. Maybe dingy Harry Senate will actually take up a budget this time around?
watertown on December 2, 2012 at 12:07 PM
No, the fed is buying bad assets from the banks, as well as funneling t-bond buying money through the TBTF banks. This extra cash is sitting on their balance sheets, going into the stock market, driving up the costs of commodities, and driving interest rates down.
It was all part of the post-’08 plan to avoid a “liquidity trap,” which keynesians think was the impetus for the great depression.
As loose monetary policy and loose fiscal policy catch up with each other, the fed and congress will together be responsible for forcing a major correction in dollar valuation and basically every other valuation out there.
Right now, all of the cash from the QE’s are working their way down from the banks to the citizens… when the banks have the money, it’s still valued at the current value, but the market corrects the value as it filters down, to accommodate for a larger amount of money representing an essentially unchanged amount of wealth.
This alone will lead to inflation. Add in to that congresses reckless fiscal policy, and we’re basically guaranteed a huge and unpleasant market correction at some point. Could be in 2 months, 2 years, or 2 decades, but we’re definitely heading in that direction and picking up steam… And it will make ’08 look like a mild recession.
Timin203 on December 2, 2012 at 12:08 PM
There is no way for the government to collect anywhere near enough taxes to fix our current fiscal problems. We have 16 T in real debt, 85+ trillion in current liabilities w/ mandatory spending (ss, medicare, interest on debt, etc). Our current tax revenue going to Washington funds Social Security, Medicare, interest, and a tiny sliver beyond that. Everything else from food stamps to our military is funded via borrowing or inflation (feds buying our debt). We’d need to cut about 75% of government spending tomorrow and continue collection the same amount or more in tax revenue for another generation, and cut off entitlements to all future generations to even come close to paying for what our liabilities are TODAY if we were to go the spending cut route.
The math doesn’t work either way. We don’t have the political will to cut spending at all, much less drastically, and we don’t have the mathematical ability to tax our way out of this.
But they Keynesians will keep marching on with their simplistic idea of raising aggregate demand through whatever means possible to “encourage growth.”
Idiots.
Timin203 on December 2, 2012 at 12:13 PM
Could this be going on to get to get people to put lots more money in their 401K and ira’s so when/if/probably the feds take them they get more money? And if the cliff doesn’t get done, the taxes will go up on dividends for stocks also! People won’t be happy about that either?
L
letget on December 2, 2012 at 12:18 PM
There are certain truths in this world.
Democrats are evil.
Republicans are stupid.
There will be a deal on the fiscal cliff.
The fiscal cliff is too much, at once, of everything the Democrats want, so they’ll make a deal to call half of it off for now. I’ll almost bet they’ll be bold enough to simply sunset the other portions till later. The GOP is too stupid to realize this, and even if they did their problem is how to stop the media from pinning the blame on them. Neither the markets nor voters should be happy that a deal will be struck. We are past fixing our fiscal problem and there will be a reckoning sooner or later. It’s unavoidable.
DFCtomm on December 2, 2012 at 1:08 PM
May all politicians, and all they are married to, yes you in the media, fall into the cliff, heads down.
Schadenfreude on December 2, 2012 at 1:32 PM
@Timin293: I don’t disagree with you about outsized entitlements, but I nonetheless think the Fed (like much of gov’t policy) is helping to stifle productive investment, not fueling a stock bubble. Price levels are only at 13-14x earnings.
Seth Halpern on December 2, 2012 at 1:39 PM
Dems will avoid chaos at Christmas with a temp-fix. But they want Americans to believe that Repubs are stifling compromise. They will continue that line of argument through the holidays MAKING NO MENTION of a budget.
They realize. Republicans have no political will. Dems don’t care about the recession that will begin anew about 3 years from now. They’re also hoping that low interest rates will spurn some faux-growth (short-term).
All they need is the illusion that Repubs are the problem. Republicans are just wussified enough to help them right along.
I’ve been really really really hard on those saying “let it burn.” It’s getting harder to argue against that. Perhaps, I’m not as cavalier and/or spiteful as some But I sure do get it. (Singing a different tune day after Christmas shopping.)
Major props to all the thought-provoking analysis on-board today. Sometimes it’s really helpful to listen to actual human voices instead of data-sets. Numbers don’t lie but they can cause some of us, ahem, to get a little tunnel-vision.
Thanks to all. Seriously.
Capitalist Hog on December 2, 2012 at 6:40 PM
The above comment is not an admission of guilt. Nor will it curb my knack for being a prick.
Capitalist Hog on December 2, 2012 at 6:45 PM