3 pressure points that could force a fiscal cliff deal
The odds of reaching an agreement aren't great, but here's what it might take.
What will force the hands of Congress and the president to make a budget deal before taxes shoot up and spending slams down? What inputs do they need?
I see three pressure points.
The first is a precipitous decline in the stock market. We have two precedents for the market to matter: the TARP vote and the deal in Europe. After TARP initially failed, the market took a real hammering, and that was because sellers knew they had to get out before the banking system collapsed.
You have heard a series of banking CEOs say their institutions wouldn't have collapsed if TARP had failed to pass. That's nonsense. Short sellers controlled the market, and they could bring stocks down, which then caused ratings agencies to panic, which then stopped funding to banks and then brought collapses. The bank CEOs couldn't stop that trend. They should stop pretending they did. Congress swung into action only after the hideous sell-off.
There's no secret to the when the central bank got a deal to move along: when the stock markets collapsed and the bank stocks looked like they would be rolled.
So my simple take is a 1,000-2,000-point bone-crusher comes first and a deal later. Chances: 50/50.
The second? The beginning of a shoot up in employment claims as everyone from the biggest executives to the smallest of small-business men know it is time to fire. Why not? We rewarded executives who "saw it coming first" with higher stock prices, and "saw it coming" meant who fired the most the fastest. You will see that from the claims. I don't have to put odds on that. The game is already happening.
Third, in order to stop the fiscal cliff jump, CEOs who contributed to the Romney campaign and to opponents of the Democrats recognize they backed losers and actually ask the congresspeople they invested in to make a deal rather than have a recession that will kill profits, lower stock prices and maybe affect CEO compensation. This may not happen, because No. 2 says they can slash hiring and still do well personally and with their stocks, but there have to be some executives who say they are not going to continue to front losing, divisive leaders.
Of course, the Tea Party people are willing to crucify hiring upon a cross of 15% tax rates for hedge fund managers, perhaps the greatest bit of Grover Norquist-inspired insanity yet. But as a former hedge fund manager who paid ordinary income, I could see selfish hedge funds really funding financial Armageddon because they can get short and make up the lower tax rate that way.
Oh, come on, that's not cynical, that's good business. The prospects of business leaders actually helping to get a deal done has increased to 50% also simply because they are money men and backing losers turned out to be a really bad strategy.
So there are the players. That's the game plan. I don't like the odds, because issue two has already started and you can gift-wrap a 2013 recession come no deal by Christmas.
That means staying lean, investing with companies that don't have to rely on U.S. consumers, who will be hammered, and just waiting for the punishment from having Congress sink into partisan politics instead of rising above to get a deal done.
Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust.
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Did anyone hear what oblamos recovery plan is, other than more taxes for the rich and everybody else...?
Could be he will ask China for more loans, thus driving the United States deeper in debt...
Well let's see how about a real easy way. No one that works for the government shall receive more than the minimal wager does. That means no health care for them. Why should they get real good heath care and I get crap. Why should they get paid like they do they don't do a darn thing if you ask me.
And why do they get a pension I don't that's where all the money is going to them not to run the USA but to run the trips with hookers and we paid for it.
I do not understand WHITE, BLACK, CREAM I don't care what color he is with all that happen in the 4 years you all put that human back in office.
Oh I know because you are on handouts too...
Either you believe that concentrated wealth and greed are good or you don't
400 members of the Upper Class have the same combined net worth as 150,000,000 of us combined. Here's a thought. Thy raping THEM for a change instead of the Middle Class
Let`s cut to the chase.An agreement be will be reached and the Dow will crash through
14,000.Be sure you`re fully invested.Then our right wing media will find something else to
complain about Obama.
Let`s cut to the chase.It will be settled soon and the market will go up hundreds of points.
Be sure you`re fully invested because we1ll crash through 14,000.The right wing media
will find something else to complain about Obama.
It's all Bush's fault for passing his UNNECESSARY tax cuts to begin with. Utterly irresponsible given the then looming Baby Boomer Entitlements.ALL it did was exacerbate the deficit
You could take all the rich folks money and run this government for a few months at the most. We have a huge spending problem.
Raise taxes on everyone. For the rich and also for those paying NO taxes. Combine that with a balanced budget amendment. Not ten years from now, next year 2013.
Until they agree to a balanced budget, why agree to raise any taxes because the SOB's will waste it on crap!
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Stocks drift lower and bonds are hit as investors await the Fed. Prepare for higher volatility this week.
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