The Only Thing
You Need to Know About the Fiscal Cliff
http://albertpeia.com/fiscalheathcliff.htm
‘I’m going to lay
out everything you need to know about the fiscal cliff negotiations. After
reading this, you can ignore all of the media’s coverage of this topic as well
as various politicians’ announcements pertaining to this subject.
All you need to know
consists of just one sentence.
Politicians are
in charge of this issue.
These are the same
folks who haven’t even produced a budget in four years. The same folks who have
run $1+ trillion deficits for four years. The same folks who rarely if ever
leave office as a result of their fiscal mistakes.
In simple terms,
none of the people in this group will likely suffer any consequences if we do
go over the cliff. Indeed, as far as options go, their best option would be for
us to go over the cliff and then implement some targeted tax breaks in
late 2013 early 2014 as they go into the 2014 Congressional elections.
Let’s take the side
of the Democrats.
Obama was largely
re-elected based a solid turnout for the Democrats and a lack of voter turnout
for the GOP. If you want to argue about voter fraud the fact remains that if
there was widespread voter fraud the GOP let the Democrats get away with it. So
for simplicity’s sake, Obama won based on a strong turnout while the GOP lost
based on a weak turnout (Romney took less votes that McCain!).
With this in mind,
Obama and the Democrats can easily argue that they have the mandate of the
people for their policies. If the GOP proves unwilling to go along with their
proposals, Obama and the Dems can simply take us over the cliff, increase taxes
on the wealthy (which would appease their voting base) and blame the failure to
reach a solution as well as the ensuing economic mess on the Republicans (much
as the Dems and Obama have blamed the terrible economy on Bush).
So, truth be told,
Obama and the Dems really have very little to gain politically from solving the
fiscal cliff.
On the GOP side,
there is little incentive to solve the fiscal cliff either. If they kowtow to
Obama’s wishes, they’ll infuriate their base. And there’s no chance that
they’ll convince Obama and the Dems to meet their demands of cutting spending
(they sure haven’t done anything of this nature in the last two years). So the
best thing they can do is simply refuse to address the problem, go off the
cliff and then maintain a “we fought the best we could against insurmountable
odds” stance.
So… neither the Dems
nor the GOP are incentivized to solve the fiscal cliff. Both parties are
best off from a political standpoint having us go over the cliff and then fighting
for some kind of tax breaks/ tax relief for their bases sometime in late 2013/
early 2014.
With that in mind,
we’re very likely going over the cliff in a month’s time. The whole situation
has echoes of the failed debt ceiling talks and subsequent market collapse of
2011.
Indeed, the market’s
action today looks virtually identical to its moves going into the Debt Ceiling
talks in July/August 2011.
Here’s the S&P
500’s recent action:
Here’s what the
market looked like going into the Debt Ceiling talks of 2011.
Here’s what
followed:
I highly suggest
preparing in advance.
If you’re an active
investor looking for investment ideas on how to play this, I’ve recently
unveiled a number of special investments to Private
Wealth Advisory subscribers designed to produce outsized gains when we go over
the fiscal cliff.
These are the exact
same investments we used to lock in gains of 14%. 16%, even 18% in a matter of
days during the Debt Ceiling debacle in 2011.I believe we’ll see even larger
gains this time around.
To find out more
about Private
Wealth Advisory (a bi-weekly investment advisory that focuses on the global
economy and outlines which investments will do best in various environments)…
and learn more about my fiscal cliff trades…’
Best Regards
Graham Summers