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.

145Comments
Oct 23, 2012 3:33PM
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This guy couldn't predict a sunrise.
Oct 23, 2012 3:42PM
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The better Obama does in the Debates, the worse the market does. 
I don't think his attitude served him well at all. But hey, what else does he have left except spite?

You think maybe the investors, (you know, the ones who DID "BUILD THAT", and HIRE PEOPLE) know a loser when they see one?

No worries! 2 more weeks until we Replace, Reboot, and Rebound!
Oct 23, 2012 2:23PM
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I'm trying to figure out who's dumb enough to be your clients !
Oct 23, 2012 3:49PM
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Truly Romney can say he inherited a mess!  But you know what?  He can pull us out of it.
Oct 23, 2012 3:43PM
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The Dow in a big sell off for the third straight day! many companies showing less than stellar profits and some reporting layoffs in the months to come. I have believed for sometime that this market was over bought and that the fundamentals of the overall economy did not support a market at this level! I have been sitting on the sidelines waiting for this correction for six months. I think it coul
d loose another 500 -1000 points over the next few weeks. This is not politics... this is your money if you have a retirement or just invest in the market for retirement... hold on! Many people say they are not in the stock market , but fail to understand that if you have a pension a good share of it is invested in the markets. Rough road ahead for the economy. Do not write me back a political statement as this is purely a point of view regarding investments!

Oct 23, 2012 3:45PM
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This guy's going to protect my money??... He couldn't protect a sack lunch from a hungry three year old.
Oct 23, 2012 2:46PM
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Me too! He even recommends some short funds that are already padded by big money. Listen up folks... your best hedge is some place where some giant plague of money isn't. The markets will drop steadily and those pariah will attempt to ride it intact. That means every shift they make screws the rest hedged there. Avoid heavy commercial safe harbors. Expecting to make money as the plane crashes into the snow-covered mountain isn't smart... surviving at all should be your sole goal.
Oct 23, 2012 3:58PM
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Boy, that old QE3 sure helped. I hear Ben Bernanke is looking at QE4 just before the election.
Oct 23, 2012 4:08PM
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We're about to fall over the cliff.....Maybe much of it is the American voters oun fault.

The current president is a dud....never even ran a corner store....we hire him.

The president before him was a dud....had great ideas, but wanted to invade someone else's country instead.

Clinton was a dud....Stood up in front of the country & lied, committed perjury in front of a federal judge.,..The first Bush was a dud...."read my lips, no new taxes....than signed a bill doing just that.

 

Cmon America, let's do a better job hiring our chief executive.

Oct 23, 2012 4:24PM
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The Democrats keep saying I'm here for the little man.......right

 

The unemployment rate for young black men 19 thur 27 is around 24%......and it's been that way for 4 decades.

 

The poverty rate hovers around 19 %.....and it's been that way sense the 1950's.

 

They ( Democrats)  keep it that way..... they want to stay in power....they got you under their thumb.

 

Wake up Man.

Oct 23, 2012 4:10PM
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The fiscal cliff has arrived...?? Thank you, oh, great King of Most Obvious. I think most of us knew this was coming. Where the hell has this guy been the last few years?
Oct 23, 2012 4:23PM
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Obama says Romney is not "Seasoned" in Foreign Affairs................

I guess all those years as a "Community Organizer" are paying HUGE DIVIDENDS for the Catastrophe in Chief now huh?

And what is "Seasoned"? Having callouses on your knees?????????
Oct 23, 2012 4:20PM
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The president said in rebuttal last night.... to Romney point that we have a smaller Navy. He said "We also have fiewer horses & bayonets".

 

What a dumb come back......I'm sorry... but I'm still LMAO even after 19 hours.

 

See what happens when you loose the teleprompter.

Oct 23, 2012 3:55PM
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"The fiscal cliff has arrived." Oh, and here are these hot stocks for you to buy. Yes, buy. Buy, NOW! What a complete loser. I know Used Car Salesmen that have more space between themselves and the dirt they crawl along than these Wall Street slime balls.

Hint: When the market is going down, so is your money. Hint: When the market is going up, so is your money. The market is going down. Get out. That will be a billion dollars. I accept PayPal.

Oct 23, 2012 4:03PM
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Last week it was the start of a new bull run. OOpsie. Looks like the bulls got it wrong. Cash is king. The fiscal cliff is just around the corner and gold and oil and silver are going down with stocks. How 'bout that? LMAO
Oct 23, 2012 4:08PM
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Wow...the 'genious' blows with the wind....should have saved those 'spot on' articles a few weeks back about how we all missed the 'rally'...

 

if there were felonies for balonious news articles this doofus would have received a life sentence.

Oct 23, 2012 4:08PM
Oct 23, 2012 3:40PM
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Invest in pinball machines. The collector market is taking off and prices have been going through the roof......plus they're fund to play.
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?

 

Oct 23, 2012 4:41PM
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Little Peter said;
"stock market is up 78% over 3 years since Obama took office....OWNED again"

How many people is this market putting to work? Is the Employment Trend matching the Market?

Record #s on Welfare
Record #s on Food Stamps
Record #s Underemployed
No improvement in Employment
Less total people in the work force

How's that "Owning" workin' out for you Pete????


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