The fiscal cliff has arrived

Stocks melt lower as investors pull the plug ahead of big-time political uncertainty.

By Anthony Mirhaydari Oct 23, 2012 1:46PM

 Image Source, SuperStockWell, 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 anthony@edgeletter.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.

154Comments
Oct 23, 2012 5:48PM
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Stannw said;
"Yep! those Republicans in Congress the past four years sure helped the economy by blocking all bills to help wage earners--but hey--thats what turtle Mitch said they would do in 2009."

That would be 2 years. After Obamacare was shoved down our throats, and the rest of the damage was done. By the way, now that it passed, have you had a chance to "see what's in it"?

Nice try!
Oct 23, 2012 5:44PM
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" 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!

Oct 23, 2012 5:36PM
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Yep! those Republicans in Congress the past four years sure helped the economy by blocking all bills to help wage earners--but hey--thats what turtle Mitch said they would do in 2009.
Oct 23, 2012 5:32PM
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Hey everybody, good old doom and gloom Tony is back !!!!
Oct 23, 2012 5:23PM
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Anthony, don't blow any smoke! The stock market should have been been crashing a long while ago! It has NOTHING TO DO WITH POLITICS, SO STOP BLOWING SMOKE! WE'LL LOSE OUR RESPECT FOR YOUR JUDGMENTS !
 
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!!


Oct 23, 2012 5:20PM
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Here you are Tony the chartman. I wondered when you are going to jump in with your charts and mood swings. As I recall, more than a month ago, when the ECB announced they'll be printing money to save Europe, you said that the rally just began. Now what happened. 

YOU SHOULD STOP POSTING (YES POSTING AND NOT WRITING) ARTICLES. At least, please please stop putting your picture. 

 
Oct 23, 2012 5:19PM
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Anthony and Cramer both said stocks were going higher just last week. A lot of good that did.
Oct 23, 2012 5:16PM
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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.

Oct 23, 2012 5:16PM
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damn chicken little effect..  if these pundits says it often enough it will come true..   down or up..  how about if he tries to sya only wildly positive predictions for a week and let's see what happens
Oct 23, 2012 5:02PM
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Gordo said;

"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"

Oct 23, 2012 5:01PM
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So you just talked about Romney in your comments..   Pull your head out of the oven ...  Yep cooked.
Oct 23, 2012 4:59PM
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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.

Oct 23, 2012 4:57PM
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Those that buy on down days get the last laugh.
Oct 23, 2012 4:56PM
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That sure was a short summer of recovery oblamo..Oh forgot, this was his third summer of recovery...lol

No oblamo 2012

Oct 23, 2012 4:54PM
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If anybody, in Washington, D.C., knew how to create jobs or anything else, this country wouldn't be going down the toilet, and of course, the President always gets blamed for what is and is not going on. I say, crap to all of you who believe that. First of all, the Republican House doesn't even want to work with Obama or any other Democrat for that matter. All they worry about is the deficit, and that's all. Not on how to get this country going again where it prospers, but only the deficit. And then, there's that matter with three states wanting to make mariju****gal for adult consumption. Scientist have proved over and over that marijuana is good for chronic pain, instead of taking morphine, that eventually harms you, and also good for cancer spreading. It stops cancer from spreading, and our Government can't see that? God put pot here on earth for a reason. It's God's medicine and he want's everybody in the world to use it for that purpose, not for people to go to jail for using it. Look at all the jobs that legalizing marijuana could create, and all the revenue each state could make. Hello? Are you idiots in Washington listening? This is the way to make this country richer than ever, where people don't have to live in pain all the time because their medication isn't working. What the hell is wrong with you stupid Politicians, any way? Don't any of you, believe in God? Well? This country is going down the toilet and it doesn't matter if Obama or Romney is President, because America will still go down the toilet. You people, in Washington, need to get your heads out of your asses and do the right thing for this country and the American people. We are tired of waiting for you cry baby Politicians to get off your asses and make this a better country, not only for us, but of children and grand children. If you people don't act, like right no, there won't even be a life for our future kids.
Oct 23, 2012 4:54PM
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Wednesday the market will be up and he`ll sing a different tune.He`s like Mr.ETCH

A-SKETCH man.

Oct 23, 2012 4:53PM
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The debt ceiling is 16 Trillion not 1.6 trillion.
Oct 23, 2012 4:48PM
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Stock markey was rising steadily when Obama had a 9 point lead. Now it looks like he has a chance and everyone's panicking.
Oct 23, 2012 4:47PM
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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!

Oct 23, 2012 4:45PM
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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.

Surprise?

 

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