Punting is wrong answer for 'fiscal cliff'

Reports out of Washington suggest President Obama is pushing a short-term postponement of the issue. Not only will that not solve the problem, it increases the pressure on the debt ceiling fight to come.

By Anthony Mirhaydari Dec 28, 2012 4:29PM

Image: Washington, D.C. (Bilderbuch/Design Pics/Corbis)As the country barrels towards 2013 with no "fiscal cliff" deal in sight, headlines are crossing Friday that the politicos are about to revert to what they always do when faced with tough choices on taxes and spending cuts and the dreadful long-term debt trajectory: They punt. Keep the charade of government largess and low taxes going just a little bit longer.


Not only will this not solve the problem (as I've said before, the issue is out-of-control healthcare costs) it makes the situation worse by increasing the pressure on Washington when the debt ceiling fight starts in January. The Treasury has said it will hit its borrowing limit on Dec. 31 -- but the hard deadline, thanks to emergency cash management, will be in February or March.


Here's why this deal should be viewed with skepticism.


Details. The latest suggests Obama is proposing a 60-90 day deal that would extend the Bush tax cuts for those making less than $400,000 a year, delay or replace automatic spending cuts (from the congressional deficit "super committee" failure), keep extended unemployment benefits, and fix issues related to the Alternative Minimum Tax and the Medicare "doc fix."


This is exactly the kind of hollow, kick-the-can option the credit rating agencies have been warning Washington to resist. Moody's recently said that a last minute kick-the-can deal would be the worst possible outcome since it would fail to stabilize the country's debt to GDP ratio. Fitch warned that it would consider a downgrade if the political gridlock continued and the fiscal cliff debate dragged well into 2013.


Remember that Standard & Poor's cut our AAA rating last summer, in large part, because of our dysfunctional politics. 



Markets are already expressing their displeasure with this option, as the Dow Jones Industrial Average slices down through its 50-day and 200-day moving averages for the first time since the November wipeout. Volatility is surging. And investors are scrambling into safe haven assets like the U.S. Dollar and Treasury bonds.


In response, I've added four new defensive, leveraged ETFs to my Edge Letter Sample Portfolio including the ProShares UltraShort Nasdaq QQQ (QID) and the Direxion 3x Treasury Bull (TMF).


Disclosure: Anthony has recommended QID and TMF to his clients.


I found these 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 his 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.c​om and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.  


Dec 29, 2012 12:08PM

Yes spending cuts...How about the almost 5 Bilion more for F-35s that we don't really need...

How long does that fund the Food stamp program...?

Remember that is over and above what was contracted to get those UNEEDED PLANES.


So why should the Poor and Middle Classes give a lot more for a boondoggle, that our Government is so fond of doing....

Raise taxes on the richer that are making money on the boondoggles, or cut these damn expenses..

The poor are not getting a piece of the action by paying for a The Rich and Powerful's War machines.

Once we have cut the "entitlements" to the Rich...THEN adjust the "entitlements" to the others.

But don't take away from struggling Seniors that are eating dogfood...or beans and noodles.

Dec 28, 2012 10:52PM
The Fiscal Cliff is the fix to the problem we have. We need entitlement reform, spending cuts, tax increases. The correct fixes will hurt everybody including the poor, the middle and the rich.  We can't keep paying $3-4 million for Predator drones, $100 million for Gwack drones and $300 million a piece for F35 fighters with money we "borrow" from our SSA Funds. We can't afford for the US Government to fund college educations for children that parents should be paying. We can't afford for the wealthy to enjoy LMT going from $79 to $95 PS paying $5 (5%) dividends while it's being funded with SSA funds to fight the Christian Crusades. Let the Fiscal Cliff occur, raise MC age to match SSA, cut SSA increases, tax all income including capital gains, dividends and interest at Clinton  tax rates.
Dec 28, 2012 9:01PM
Butch Cassiday and the Sundance kid  = jump off the cliff and the kid can't swim. Very bad!!!
Dec 28, 2012 8:48PM
I agree that out-of-control healthcare costs are a big contributor to these fiscal problems (Doctor's fees, Hospital costs, drug costs, etc and not just insurance company costs), but he misses one of the prime reasons that the cost of everything from food to whatever has gone up dramatically.  That is the cost of energy and gasoline, diesel fuel, home heating oil, propane and natural gas, etc.  These costs have doubled in the last 4 years and are killing the ability of the middle class and people in the lowest income ranges to pay for the basics.  My elderly mother and sister recently had to make some very disturbing choices with their meager incomes - buy food, buy heating oil, or buy prescription drugs.  They could only afford 2 of these 3 things and they very much needed all of them.  Yes, the cost of healthcare is way, way too high but so is the cost of energy - gasoline and diesel fuel in particular.  Please Anthony, don't ignore this very important part of the equation because of the powerful oil industry and lobbyists. 
Dec 28, 2012 8:20PM
Capitalism will kill the world. Plain and simple. I know you don't want to hear that, but it's the truth.
Years and years and years of everyone just trying to get more and more and more and more, will just  lead to a planet so destroyed and polluted that a clean glass of water will be worth more than any money you could own.
Sorry to tell you...I know there are a lot of you who only have 10 or 20 summers left so you don't care. But guess what? You will be back..... That's the irony of the whole thing...
Your not going anywhere......Hahahahaha!

Dec 28, 2012 8:05PM

The Tea Party Patriots would like to congratulate Obama and his Party.


You ran a smear campaign on Romney and he would not get in the gutter with you.


You have successfully eliminated the issues about Obama's past.


You created the Fiscal Cliff and the best option is to give you what you want.


You are still blaming Bush and it is working.


You took about 700 billion dollars out of Medicare to support Obamacare and no one complains.


You have supported crony capitalism, corrupt unions and people accept it.


You promise everlasting support for the freeriders, illegals etc. and it's a sure vote.


You have convinced the poor the rich owe them the good life.


You have given gifts for votes and used the Unions to campaign for you. 


You got weathy actors, media and liberals like Buffett to lie and encourage the clueless to vote for you.


I bet all the Dictators are in awe that this could happen in the USA.


Cheers to all you Liberal Progressive Marxist Commies that made this possible....it will not be a pretty ending....yuk yuk.









Dec 28, 2012 7:48PM
Dec 28, 2012 7:40PM
Dec 28, 2012 7:36PM
only reason he got elected is because the non working class voted him in and they outnumber the responsible person/persons. why vote for romney he wants us to work for our money obama want to pay us not to work what a joke of a country at least this issue of the country. these politicians dont know whatits like to not have medical insurance or a budget that cant be met as if our budgets dont line up we stress out they just rase taxes
Dec 28, 2012 7:12PM
If the market drops over 10%......time to buy.
Dec 28, 2012 6:50PM
 Hi, the President is doing what he said he would do, that is why he got re-elected , any one who makes more than $250,000 is rich, everyone Now will have to pay there Fair  share, yes I am a register Democrat !
Dec 28, 2012 6:30PM

The colective sleaze that constitutes government, local, federal, and state, but especially federal, would make Caligulas reign blush. The deception and lying that is the norm while trying to get reelected is a disgrace. I have become convinced that  only a catastrophic fiscal/economic meltdown will bring us to our senses. Patching up our crisis with fed and treasury manipulation will do nothing to start a real long time recovery and politicians attempts to disguise the looting of Americas wealth, whats left of it, with tricky accounting and slogans like spending reductions, which are only proposed slowing of spending, are simple lies. But with a simple uninformed populace, they get away with it.

If you sit with a note pad and add the defecits anounced each day, from the post office to Fannie/Freddie, Amtrak, cities, states, union pensions etc, $16 trillion is pocket change.

Anyone that believes our current admin and their cohorts have any interest in restoring solvency to our nation is in denial. Start paying attention to their actions, not their rhetoric.

Unfortunately the takers will not pay attention until they get the letter stating THEIR IS NO MORE MONEY, WE ARE BROKE, AND CONSEQUENTLY, SO ARE YOU!

Dec 28, 2012 6:16PM
I think we've known for quite some time that mainstream buying addictions are way off. Lackluster means dismal. Without those MSRP sales, it brings retailing down to realistic margins. That should clear out the markets pretty quickly and get nearly every "talented" executive a GITMO cell. It's only about restoring economic stability. A lot of turnips who mesmerized themselves into believing they are Elitists are in for a shock. Everybody else has been around this block and should have better avenues of recovery this year. We might owe $16 Trillion... but I'll bet we can reconcile most of it as the markets unravel.
Dec 28, 2012 6:11PM
we  need to try the whole senate and congress for treason for what they have done to the American economy
Dec 28, 2012 6:06PM
Boo F N Hoo! The last time we had a 39.6% top dog tax bracket was under the Greatest Billy Clinton! He not only managed to give us all a great economy,he also managed to enjoy his time in the oval office!   Over the cliff we go!
Dec 28, 2012 6:00PM
You are the wrong answer - your advice is NEVER right - all your graphs in ther world make nodifference to people - their fears and emotions. You'll be standing in waistdeepwater before you admitto what's really going on in the world - as the water creep ever higher - then what do you do? Adise us to ignorethe flood?
Dec 28, 2012 6:00PM
Elections have consequences.  And now we get word that Obama's plan is to temporarily postpone the issue ONCE AGAIN, so they don't have to deal with it right now.  This is what we get when we elect people with no executive leadership experience.  Obama has none.  Mitch McConnell is a career politician and has none.  Same with Harry Reid.  Boehner was president of a small packaging business, but that was for a short time 25 years ago.  Pelosi is a career politician and has no executive leadership experience.  Eric Cantor has none. 

We consistently elect and re-elect people with no leadership experience and then expect them to lead us through difficult times.  These people have never had to make a hard decision in their life, relatively speaking.  And yet we somehow think they'll be willing to do it now, when we need them to?  Way to go, my fellow Americans.  Once again, you rolled your fat-a$$es into the voting booth and made terrible choices.  And now, we're all going to have to suffer the consequences for your ignorant partisanship.  To all of you who pulled the lever to re-elect any of our current crop of idiots, the blame falls squarely on you.

Dec 28, 2012 5:59PM
I could have predicted this 5 day loss because W/S always gets bent out of shape because of the budget!!!!! Wall Street is so predictable it's not even funny!  I hate to say this but it's easier for the government to do nothing then to really have to work to straighten things out. If they raise taxes then they don't have to try and fix the budget.  Plus they can do what most school districts do to the elderly.  If you don't like the taxes either vote us out of office or sell your home and go into a retirement community. Find me one person who would win an election for the school board who promised to get taxes lowered by lowering expenses? Plus, when does our government say they are going to lower their expenses that only effects the people who work for the government versus those expenses that effect the common folk?  NEVER, NEVER and MORE NEVER!!!!!!
Dec 28, 2012 5:57PM

Enough is enough!

The Middle Class is getting squeezed and we pay the majority of the taxes.  I remember the only way our politicians listen to us is when we march in the thousands on their door steps.  That is what we will do on August 28, 2013 - the Middle Class Rights march on Washington, D.C.  THEN THEY WILL KNOW NOT TO MESS WITH THE MIDDLE CLASS AGAIN!!!!

Dec 28, 2012 5:56PM

Welcome to Obamaville.  Four more years of a terribly expensive, very bad dream.

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