Get over the Fiscal Cliff
Dana is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
For nearly two months, CNBC has been pounding the table over the awful “fiscal cliff” facing us in January. Every day, in every ad, they demand that our leaders “rise above” partisanship and come to an agreement.
Anchor Maria Bartiromo (above) has been especially entertaining, practically rending her garments and screaming at the camera, shouting down any Democrat who stands in her way. And Rick Santelli, oh his rages have been tremendous. He has been comedy gold.
This has not been helping the ratings, which are down 14% for the year. For the most recent week rated, only 51,000 people in the “demo” of aged 25-54 watched CNBC. I consider it “the network for shut-in executives” for a reason.
But once we stop laughing, there's something serious going on. Consumer confidence is down. There is a real price to be paid for talking down the economy, and we are all paying it. The QQQ (NASDAQ: QQQ), an ETF measuring the NASDAQ, is down for the month, and the SPY (NYSEMKT: VOO), which measures the S&P 500, is basically flat. The VIX, a major indicator of volatility, the old “Fear Indicator,” is up 15%, according to the VXX ETF (NYSEMKT: VXX), which tracks it.
Still, please. There is nothing magical going on. We're going over the cliff, but only for a time, and it's going to be fine.
You need to remember, first, what the so-called “Fiscal Cliff” really is. It's deficit reduction, the kind of thing a fellow like Santelli should be anxious for. The CBO estimates that if we go over the cliff and stay there, we can cut our annual deficit by three-quarters within a few years. It resulted from the Budget Control Act of 2011, the one that created a “super committee” aimed at coming up with a plan to reduce the deficit. The alternative, which we now face, is called “sequestration,” and is a collection of painful budget cuts everyone, on both sides, claimed they didn't want, especially cuts to military spending. Also included was the expiration of the Bush tax cuts (which were never paid for), the return of the Alternative Minimum Tax to pre-2000 levels, the end of the “doc fix” that keeps reimbursements on Medicaid high, and other goodies.
What the “cliff” haters claim is that, should we get no deal, the economy will begin to contract, that we'll have another recession, and that the CBO scenario won't come to pass, just as austerity has failed in Europe. They are right.
But there's nothing that magic about Jan. 1. The changes can be undone through compromise after that date, just as they can before that date. It's a nonsense, an artificial crisis, and most investors see through it.
From a purely political standpoint, going over the cliff is now inevitable. House Speaker John Boehner can't get his caucus together on any deal, and until he is re-elected on Jan. 3, he can't bargain with anyone about anything. After Jan. 3, he'll be in a stronger position, and working with a smaller majority. The 113th Congress will have 200 Democrats, and it will take just 17 Republican House members to pass a deal. There will be three vacancies, which are unlikely to change this, although given the president's 57% approval rating there's a chance one of the two Republican vacancies could flip.
After Jan. 1 we have higher tax rates, and lower spending, so Republicans will need to vote yes for something -- even the “Obama Tax Cuts” won't sound so bad. (The bill will have Congressional sponsors and they can use those names if they like.) I'm guessing we'll get a deal sometime around my birthday, which is Jan. 12.
If you want to panic between now and then, go ahead. I'll be a buyer. A deal will get done, and it will include significant deficit reduction. CNBC has just been silly through all this, and anyone watching their programming has been ill-served.
What if I'm wrong? What if we do go over the cliff, and into a recession? We'll get out of that recession. Oil prices are falling, production is rising, renewable costs are declining, there's a wealth of new manufacturing coming on-stream, robotics and 3D printing are in their infancy, but growing up fast. Computing costs are going to go down, and unemployment will as well.
There's a lot to like in this economy, and nothing Washington does at this point is really going to change that for long-term investors. Speculators, traders, and the panicky can have their fun. I'm going to hold here, and maybe buy a bit. Let Washington play the Fool for a change.
DanaFBlankenhorn has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!