The market doesn't fear the fiscal cliff

It likes the coming together that we will see after we go over it.

By Jim Cramer Dec 28, 2012 10:09AM

thestreet logoDollar bills floating over US Capitol CorbisYes, it does all seem crazy. And while there are still two more trading days after today, the logical question to ask is: "If this is austerity on the horizon, why do markets seem to like it so much?"

Think about it like this. We know that we wanted Europe to put through pretty much what going over the fiscal cliff does, and those of us who think that growth is important don't like their plans. There's no growth stimulus. Austerity has led to lower interest rates, but those rates are really a function of central bank intervention.

Can our stock market really like a plan that has no growth kickers in it? So, logically we should be going down, not up.

Maybe the market is totally oblivious, and while we can make judgments that the market likes the fiscal cliff from the action, we can also presume the market doesn't know what it is talking about except for retail, which has been rolling over. But that's a tough fiscal-cliff-to-blame call because retail's been weak the whole season, a combination of ultra-warm weather, worries about the cliff and Superstorm Sandy.

This leads me to the most likely scenario: the market likes the coming together that we will see after we go over the cliff with the Republicans fighting vigorously for tax cuts and winning. That's why the sellers aren't dominating.

Makes sense. Grover Norquist really wants that. Some say he wanted the Plan B, but that's just nonsense. He wants nothing but tax cutting and that's what he can bargain with the president on through his committed minions. Turns out he was the most powerful man in Washington after all. Always will be, as long as the GOP owns the house.

Also, let's not forget how much the market is in love with gridlock. We know the next battle will be the debt ceiling and that will create another push for still smaller government and more rancor, which, while distracting, should no longer scare us because that's about debt downgrades that don't seem to matter so much anymore.

So, here's the bottom line. The market doesn't fear the cliff because good things come off it -- middle class tax relief -- and the rest is the long-sought agenda of fiscal conservatives everywhere.

We all acknowledge that a recession will be caused by the cliff if we don't get middle class tax relief, but if we do the fact that we didn't sell off big says that we will get it.

Those who don't believe in this thesis should be selling or shorting retail. The numbers are too high.

That's the best hedge I know.

Cramer's face

 

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust.

 

 

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98Comments
Dec 29, 2012 5:32PM
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That may be a little true, but it's not a flea bitten SANDPILE that has an oil barrel under it....
Dec 28, 2012 6:31PM
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For BO or any of us to expect tax increases of any type with little or no spending cuts is a tad foolish and futile. Spending may not be the only problem we have, but it is the largest and most damaging. It would take a 50% across the board tax increase just to balance the federal budget and not pay 1 red cent on the debt. BO has been preaching over and over again "fair share, balanced approach". I guess that was just political mumbo jumbo? I'm sorry, but with BO it is my way or no way. The facts are that after all said and done-----he's right back where he started from. Who's right---who's wrong?We'll lose far more in our brokerage accounts, IRA's, 401K's, state pension plans, than what they're even talking about. BUT I figure that doesn't mean too much to them?
Dec 28, 2012 6:13PM
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Fiscal Cliff is not entirely all bad. Some good may come of it.

This increase in marginal tax rate for the top 2% is not a solution, certainly not a fix to our vast and deepening problems. It’s only and always was “a campaign slogan”. This is just rhetoric and only achieves dividing this country more than ever. My goodness, we all have to understand and believe (agree) that this country is in pretty bad shape and on a terrible unsustainable trajectory. All this media frenzy only makes the 98% feel good temporarily and the 2% scorned and unmotivated. By how, feeling better by spreading their grief and anger directed at the top 2%. Although the top 2% makes all that money, they give so much away in charitable contributions, and they do spend and sometimes even on stupid things, and they do create jobs and employ Americans. This fiscal cliff is a wakeup call for everyone. I say it’s not entirely a bad thing, it might even be an opportunity.

I say let us go over the fiscal cliff. In the short term we will certainly all suffer. But why not all contribute to the solution, increasing everyone’s taxes since it’s really everyone’s problem. And most of all, cut spending. This country has a spending problem. You can’t tax everyone fast enough to keep up with all the spending.  If we went over the fiscal cliff, we will hit the nail on the head and start (serious discussion) reducing our spending and our entitlement programs. Ultimately, we do need more revenue and we need far less spending.

In the long run, we will be much better for it. This country is so resilient that we will eventually bounce back probably sooner and greater than we are today. The small, short term sacrifice made by “all” will be offset by greater good, higher revenue and reduced spending creating more financial security.

Folks, we are dealing with cancer, with gangrene. We need chemotherapy; we need to cut off the hand to save the arm. We need to extinguish the out of control oil well fire with one hell of an explosion. We haven’t passed a budget balanced or not for years. Obama couldn’t get his own party to vote for his packages the first 2 years in office while both house and senate were controlled by Democrats. The Democrats, Republicans, and the Independents are not right. In fact, they are all equally wrong and share blame. But let’s stop blaming and hating. You should pay more. No, we need to give you less. We relish the fight, but let us instead suffer the solution. The hell with all of them, let’s put the Country and our citizens first. We are not at war with Iran, China, North Korea; an external or foreign threat. We are at war with ourselves. Let us all take the Fiscal Plunge; we’ll call it the “Cleansing of a Nation.”

 

Dec 28, 2012 5:58PM
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Everyone continues to focus on the 47% entilted people who may be living off the government but I believe a majority of those would prefer to work instead of living below poverty levels provided by the government. So who else falls under that title, could it be physicians who order exsessive tests and consult with their friends so they can get reimbursed for doing nothing or is it the fact that physicians compete with the hospitals themselves or is it healthcare vendors who charge enourmous amounts of money for equipment or is wall street brokers, CEO's, sports figures that receive millions in salaries and bonuses. I wish everyone would just sit back and determne who really is entitled making millions instead of the poverty stricken folks who can't get of the hole! Just hope any of you don't have the experience of losing your job and life savings trying to keep your family alive!

Dec 28, 2012 5:27PM
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Tough to say how much of these losses over the last few weeks are people avoiding taxes or fear of the cliff.  Or is that the same thing? 
Dec 28, 2012 5:06PM
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JdJ...Today may have been an opportunity, but now you would have to buy in the after hours Market.

 

If they make a hap-hazard deal this weekend, Markets may be up Monday...

If they don't do the deal in the next 3-4 days, stocks may be down a little bit more next week..?

If they make a good deal that the Markets like, I would look for a 300-500 pt. upside next week.

I kinda think some of downside is priced in now...Plus they have been sneaking away frm stocks.

 

We have been re-investing dividends, this past couple weeks....And still have small side of cash.

With last div coming in on the 31st...I may be doing some re-adjusting over the next week or so.

Pays your monies, takes your chances...

Dec 28, 2012 5:05PM
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If allowed to trade without intervention of the Fed., the markets would tumble down!!
Dec 28, 2012 5:03PM
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Its sad to see how we respond to the pain, hurt and needs of others during these tough economic times.Millions have lost jobs due to many job closings and many states are on the verge of going bankrupt. Add to this the millions who have no health insurance because they lost their jobs.

And we have leaders who think its a good thing to do nothing ; that some how that will solve the problems. They don't realize doing nothing means things will get worse because nothing remains the same. As a nation we have the reputation of helping other nations but we complain and spew hate

when we look at the needs of our own people. We are a diverse nation thats a fact. The current election has shown us that. But we will all drown if we do not find a way to help one another. We are all in the same boat heading for the same cliff. What affect one will affect the other.

Read Proverbs 21:13 Give it some thought.     A Concerned Mother

Dec 28, 2012 4:45PM
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Republicans created the cliff, and now they're going to push us over it. 
Dec 28, 2012 4:16PM
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The establishment Republicans are getting squeezed out like they deserve.  The fiscal conservatives/libertarians/tea party elements are ascending.  Those who waiver from the small government principle are getting "primaried".   A few more years of local precinct takeovers and continuing to say no and the party is their's.

I'll be happy to say goodbye to that corrupt group led by Boehner and McConnell.

After that, we can start to dismantle the ethnic plantation called the Democratic party and get some people better opportunities instead of transfer payments.


Dec 28, 2012 4:14PM
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The "Cliff " is a media hype term . It's really a return to what should be common sense . Pay your taxes , save some money , be responsible . Buy what you have the money for . If things get bad , two things you'll really need ? Food and Shelter , it's that easy .
Dec 28, 2012 4:01PM
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Brutisbear, before the EPA enacted the clean water act of 1972, the Cuyahoga river in Ohio had caught on fire 13 times and was completely devoid of life as many other Americans rivers were, Acid rain was literally eating away at our forests, before the EPA required coal burning electrical plants to install scrubbers. Fluoride is a manufacturing waste product, in small amounts it's healthy for your teeth, in larger amounts it will kill everything, we must have balance in all things. I don't know where your getting your information, but most of it is false and I bet there trying to sell you survival gear.
Dec 28, 2012 3:58PM
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The Democrats have allowed the wrong problem to be identified and the Republicians appear to be too dumb to present the real problem to the AMerican people.  The cliff with all its drama is not the problem.  The expiring tax cuts is not the problem.  This is stupid talk and small thinking.  THe problem is Obama's 1.3 trillion dollar deficits and his willingness to sail along wiht trillion dollar deficits as far as teh eye can see, or at least until the real cliff is reached.

 

If one looks at the real problem of trillion dollar deficits it is easy to see how stupid of ridiclous Obama's talk about raising 70 billion each year by letting the tax cuts expire for those making more than $200,000.  It is just ridiculous.  Then again low information voters are bought with foolish talk. 

 

If your reaction to this post is anger, or thumbs down, I am content in knowing that there is no hope for people who think 70 billion is equal to 1300 billion.  Think about it.

 

So should not the talk be about Obama's trillion dollar deficits and not some silly pointless band aid of 70 billion in taxes?  Sure tax increase would likely be part of that talk, but that is not the question of the day. 

Dec 28, 2012 3:55PM
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do i buy today or wait for futher drop?
Dec 28, 2012 3:39PM
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The republicans will get the blame as Obama takes us over the cliff and then puts forward tax cuts for the middle class. - Remember though the tax rates just go back to the Clinton rates, when all was well and everyone had a b - job and life was good.

Forget the fact that the congress has passed a budget and also passed plan B and the Senate does nothing ... ...

Laughable - you get what you vote for... ...
Dec 28, 2012 3:24PM
Dec 28, 2012 3:23PM
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Simple -
No debt ceiling increase means Obama will have to reallocate what he has.  Just let attrition of federal employees keep cutting into the expenditures.   Choke the cancer out.

Dec 28, 2012 2:45PM
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JAV, must be rich....Because that's a lot of income tax to pay...May need a new taxman ??
Dec 28, 2012 2:39PM
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Any reduction in govt power is a good thing.  Any reduction in govt spending is reduction in govt power.
Dec 28, 2012 2:07PM
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Last year I paid 13% in federal tax,

In return I get the finest military on the planet,

The EPA, keeps my drinking water safe and the air I breath free from carcinogens,

The Department of Energy keeps nuclear waste products out of the hands of terrorist and provides our military with cutting edge science and technology that keeps America free and ahead of our competitors

My government keeps the Elderly above the poverty line and provides medical care for them,

My tax dollars go to building roads and funding our children's education, which is the only way America will stay #1.

The Department of Veteran Affairs provides medical and psychological help to those who risked their lives in service to our Nation and we provide VA loans.

Our government is far from perfect, but almost everything they do makes the quality of our lives better and I'm proud to be an American. Republicans believe that paying 13% in federal tax is to much, I call it a bargain, we get allot of bang for our buck.

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