Is Diving off the Fiscal Cliff a Good Thing?!?
Why They Want to Cliff Dive
Kevin Cook here to close out 2012 for Steve…
The past few weeks have appeared to be a clever game of negotiation tactics. Start with a big demand that’s far away from what the other side will agree to and hope to wring the biggest concessions. But, if you look at the back-and-forth and blame leading to nowhere, a much different reality surfaces.
Both sides have actually had big incentives NOT to get a deal done. GOP members don’t want to be seen within a mile of anything that even smells like a tax increase — even if it’s really just extending tax cuts for most, but not for the top 0.5%. They would much prefer to let the automatic expiration occur and then work for new tax cuts next year.
And the Dems get their big de facto tax hike and defense spending cuts without making compromises on Medicare. They too have the opportunity to look like heroes when everyone comes together for a middle-class tax cut. It’s not that no one was ever bargaining in good faith; it’s just that there were too many issues all at once for a manageable deal to even be conceivable.
Bottom line: Stocks are close to pricing-in a lot of this political failure and brinkmanship. If no last-minute deals are cobbled together, this last day of the year will likely bring another round of selling.
But since a new playing field with new incentives exists on the other side of tonight’s Cliff, the chances to prevent a recession are numerous, manageable, and conceivable. And S&P 1375 will be a place to add to portfolios in that view of reality.