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.  

 

82Comments
Dec 28, 2012 7:12PM
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If the market drops over 10%......time to buy.
Dec 28, 2012 6:50PM
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 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
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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
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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
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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
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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
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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
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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
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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
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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
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Welcome to Obamaville.  Four more years of a terribly expensive, very bad dream.

Dec 28, 2012 5:54PM
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The blame falls square on the shoulders of Boehner.  The uber rich need to pay more taxes (>$250K).  Period.
Dec 28, 2012 5:54PM
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if only we could punt you, your fckd up messiah obama, reid, pelosi and every communist scumbag that has caused this "cliff" disaster off that cliff!!, this is an entire democrapic disaster, the democraps own this mess, that idiot john boehner is just bendin' over and goin' along with it, so no surprise there, he may as well be a democrap himself, totally useless!! but as long as you dirtbag libs burn with the rest of society now, it's all good, you've gained nothing having this black bitch re-elected, NOTHING!! and guess what mid class AMerica! you're gonna get hammered with new taxes, not the RICH, but the MID CLASS as well, enjoy!

Dec 28, 2012 5:39PM
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Hey, Mirhaydari: What happens if we just "punt" you off the cliff? "Markets Soar!"
Dec 28, 2012 5:32PM
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The politicians know we are beyond the point of insolvency as a nation and will only extend and pretend with every policy decision. If left to it's own forces without the massive intervention we have today, the correction in the market would be an epic event.
Dec 28, 2012 5:32PM
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Hey reeffer...what story are you talking about that "Americans" are not buying?  Not buying that you can't spend your way out of debt?  Not buying that you can't tax a country into prosperity? Not buying that if you confiscate ALL WEALTH.....not just the wealthy's money....EVERYBODY'S money, every last dime and asset of every living sole in this country it WILL NOT be enough to pay off the debt and will only fund the government less than a year?

If that's what you're talking about, you are right, we ain't buying it!   By the way, conservatives and republicans are MORE AMERICAN than any fool who thinks this idiot in chief has the best interest of the country at heart.

Dec 28, 2012 5:24PM
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Looks like the stock market is going down.  Question is when to get back in.  To risky to stay long.  We could be down 1000 points in a matter of minutes.  With my money I will wait and see.  80 percent cash and 20 percent still in the stock market.  I would rather be safe than sorry.  I don't need to be a hero.
Dec 28, 2012 5:21PM
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I expect a little more then a punt...Maybe an extra point that hits an upright and teeters on the crossbar.

With a flag....

Next week should show us an end run going for the two...

If that doesn't happen, we are stuck on the one;  Going the opposite direction.

 

Hail Mary..............hail.

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