The fiscal cliff has arrived
Stocks melt lower as investors pull the plug ahead of big-time political uncertainty.
Well, that happened sooner than expected. The presidential election is still two weeks away, and the chattering classes are still talking of binders of women and horses and bayonets. But investors have decided now is the time to start worrying about the fiscal cliff of tax hikes and spending cuts worth nearly 5% of GDP set to hit on January 1. Plus, we're likely to hit the U.S. Treasury's $1.6 trillion debt ceiling sometime in January or February.
As I'll explore in my column later this week, expectations are that Congress and the White House will come together to agree on a $300 billion fiscal cut. That will be worth up to a 3.4% drag on GDP growth next year at a time when the economy is sputtering along at a 1.3% annual growth rate. Mix that with disappointing Q3 earnings as corporations keep pulling back on capital investments and start slashing headcounts again, and you have a toxic brew investors are selling into.
Here's why it's likely to continue.
First, I must admit I didn't expect the selling to come so soon. Key cyclical issues like energy and steelmakers were perking up last week in what I thought was one more upward surge before the darkness fell. I was wrong. It was a head fake.
I have no problem, especially in this jumpy, volatile environment, admitting mistakes and adjusting. That's the cost of not buying and holding. But it also led my holdings to a 9% gain in September. And clearly the evidence now is that stocks are going to extend to the downside.
For one, key technical support was steamrolled this morning. The Dow Jones Industrial Average fell away from its 50-day moving average like the Red Bull Stratos jumper, taking out its lower Bollinger Band like it wasn't even there. This level, a measure of volatility, is typically taken out like this during downtrend initiations.
There's more. Haven assets like Treasury bonds and the U.S. dollar are perking up. Energy has whipsawed and, after leading the way higher last week, is leading the way down now. Commodities are under pressure. Breadth is deteriorating as more and more issues participate to the downside.
It's possible that a Spanish bailout announcement, Greece's receiving its next bailout tranche, or some stimulus measure out of China will ease the logjam. But with investors growing increasingly focused on the fiscal cliff -- for which there is no easy solution and little political cohesion -- it suggests the selling is set to continue through the end of the year.
I'm recommending my newsletter subscribers and money management clients pivot into new positions, including ProShares UltraShort Oil & Gas (DUG), ProShares UltraShort Brazil (BZQ) and Direxion 3x Treasury Bull (TMF).
Disclosure: Anthony has recommended DUG, BZQ, and TMF to his clients.
I found all three positions with the help of technical screens developed with Fidelity's Wealth Lab Pro back-testing tools, which you can find here. (Fidelity sponsors the Investor Pro section on MSN Money.)
Be sure to check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at email@example.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
" I was wrong. It was a head fake." - Anthony "market shill" Mirhydari
I, and most posting to your horribly obvious perma-wrong analysis, were telling you how wrong you were. You should listen to the majority of people whom post to your articles Anthony, we're all smarter than you. Then again, it's not about intelligence is it? Rather about herding in the few remaining lemmings out there for your corporate masters. idiot!
The TRUTH is that the corrupt Republican OIL & FINANCIAL corporate MONARCHY are the ROOT CAUSE of our economic collapse and the GLOBAL ECONOMIC COLLAPSE!! ALL BECAUSE OF THEIR UNCONTROLLED CAPITALISTIC GREED of which there is STILL NO END IN SIGHT!!
That's the REAL TRUTH Anthony, so don't lose your credibility by blowing smoke! The 99% American People are wise to the ways of corruption! They NO LONGER CAN TRUST the corrupt Republican corporate MONARCHY that has MADE SLAVES OF THEM IN THEIR VERY OWN COUNTRY! They have been DRIVEN INTO POVERTY with ONLY 23% of "THEIR" country's wealth while the corrupt Republican corporate MONARCHY, its INFILTRATED "HAND-PICKED" political puppet, the ONE-PERCENTERS like yourself & their FOREVER VACATIONING CEO'S are LIVING A LIFE OF LUXURY on 77% of OUR country's wealth! That's NOT DEMOCRACY by any stretch of the imagination! It is NOTHING MORE THAN BLATANT CRIMINAL HYPOCRISY!
The 99% American People ARE BROKE! There's NOTHING MORE TO STEAL! THAT'S WHY THE FISCAL CLIFF HAS ARRIVED! NO OTHER REASON!!
Let's see....vote for the guy with the MBA or vote for the guy that learned math from the Count on Sesame Street?
UH...maybe the guy with the MBA would be better.
"That sure was a short summer of recovery oblamo..Oh forgot, this was his third summer of recovery...lol
No oblamo 2012"
No worries, we've just entered the "Fall of Obama"
With all the different positions Anthony has taken on the market in the last six months, you would think at least one of them would be correct enough for him to write an article saying, “See I told you so”.
One day it will happen. Don’t give up, one day, one day………one day.
That sure was a short summer of recovery oblamo..Oh forgot, this was his third summer of recovery...lol
No oblamo 2012
Wednesday the market will be up and he`ll sing a different tune.He`s like Mr.ETCH
WAIT! The mainstream media is claiming Obama won the debate.
Why isn't this touching off a market rally? Come on, kool-aid drinkers- help your guy out.
In a couple weeks we will find out that Spinning! probably won't translate to Winning!
This is happening, and Obama threatens to veto any bill that does not offer tax hikes to business ownersWE have $1trillion deficits, 23 million unemployed, $1trillion dollar welfare, 100 million people on welfare, 47 million on food stamps
Yet he still may be re-elected. Chavez, Castro, Putin and Ahmadinejad are pleased at the prospects and all endorse him.
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